7 of 2021




                                                            Newsletter No. 07 / 5 March 2021                           

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Woolworths expands casual wear offering after return to profit growth

By Nqobile Dudla

South African retailer Woolworths said on Thursday it was expanding its casual and sports leisurewear ranges to reduce reliance on formal wear, after reporting a rise in half-year profit for the first time since 2015.

The company aims to tap stronger demand for casual and sportswear as the coronavirus pandemic has accelerated a shift to working from home.

Clothes’ retailers have recently struggled to keep up with the change in consumer preference as they battle a drop in footfalls in malls and shopping centres.

“There’s clearly a need for us to be more relevant in both style and trend but we’re not aspiring to be a high fashion or fast fashion business,” Manie Maritz, managing director of the group’s fashion, beauty and home business in South Africa, said.

Studio.W and WCollection coming to an end

Woolworths, which also operates in Australia and New Zealand, announced in September a strategic review of its fashion business in its home business, which the firm says has been plagued by poor execution of fashion ranges and a lack of understanding of its customers.

“This approach resulted in customers that were confused or felt that our proposition did not resonate and consequently left the brand,” Maritz added.

To fix this, Woolworths launched a more extensive sports leisurewear range in 18 stores this month and is adding more casual wear ranges in womenswear and menswear. The group is also ending its Studio.W and WCollection clothing ranges, Maritz said, adding that Woolworths will also add selective third-party brands to its stable of private label brands.

“From a financial point of view, what you’re going to see is an improvement in gross margin, growth in full-price sales, a reduction in markdowns and also reduction in space and hopefully driving up improved turnovers and trading densities,” he said.

Woolworths’ fashion, beauty and homeware business in South Africa, where the group makes 62% of its revenues, saw sales drop 11.2% in the 26 weeks to 27 Dec, hit by a significant decrease in Black Friday spending and the reduction in formal wear trade.

Food sales rose 10.9% in South Africa, where Woolworths has now seen market share growth in that segment for 10 consecutive years, group chief executive Roy Bagattini said.

Overall group turnover and concession sales rose by 5.3% in the first half, recovering from a 4% decline in the second half of its financial year to 28 June, thanks also to smaller sales declines in David Jones and Country Road Group in Australia and New Zealand.

The retailer, which last month had flagged the jump in profit, said first-half headline earnings per share (HEPS), the main gauge of profit in South Africa, surged by 58.3% to 261.1 cents. Adjusted diluted HEPS, which strips out certain items, rose by 19.4%.  Bizcommunity

Opportunities abound for SA textile sector

By Riina Kionka

SA would benefit by putting in place mechanisms to cater for demand by EU retailers

Clothing and textile value chains all over the world are recognised for their capacity to generate large-scale employment with relatively low barriers to entry and short skills acquisition periods.

According to SA’s Bureau for Food and Agricultural Policy, farm-level cotton production can create one permanent job for every additional hectare of cotton planted. Exporting to the EU at preferential rates under the EU-Southern African Development Community (SADC) Economic Partnership Agreement provides additional incentives for garment production in countries such as SA.

But potential not realised is an opportunity, and ultimately income, lost. Based on Cotton SA’s last end-of-year market report, local 2020 cotton production was 26,800 tonnes, making up less than 10% of the 300,000 tonnes of cotton content sold annually by local retailers. There would seem to be a real opportunity to develop new production capacity and importantly jobs in the domestic textile industry. Significant progress has already been made thanks to SA’s clothing and textile sector master plan.

With a view to reaping the benefits of this plan, an EU-funded study was undertaken in April 2020 to explore the potential contribution of partnerships between local and EU businesses in the wool and cotton value chains in SA. The study shared the sector’s progress in securing domestic sustainability and traceability and underscored the need for early processing capacity to uplift the industry and benefit multiple downstream and upstream enterprises. If experience is anything to go by, to generate additional processing capacity in a comparatively short time will require a good deal of new investment.

One approach to raising investment could be to create innovative channels through which manufacturers access soft loans or venture partnerships. This and other stimulant options appropriate to the sector are recognised in the National Planning Commission’s most recent Economic Progress Towards the National Development Plan Review (December 2020), which emphasises the “need for industrial dynamism in job-creating sectors” and that “capital must be actively raised for labour-absorbing investments”.

The review says that SA needs to build capacity in critical areas that facilitate international trade, including inspections, the setting of phytosanitary standards and the capacitation of standards-setting bodies. It also says that SA needs to deepen its commercial and diplomatic presence in, as well as its intelligence on, key trade partners. Notably, the EU remains the country’s biggest trade and development partner.

The EU’s commitment to the region underlies the facilitation of significant dialogue in many trade-related areas, including dedicated and ongoing discussions between local and EU companies on opportunities and impediments in the clothing and textile sector.

The establishment of sector-specific networks would be of great benefit. In the EU, for example, the European Enterprise Network (EEN) has set up sector support desks that allow for SME engagement at the sector level. In addition, the EEN’s textile desk hosts an annual Fashion Match expo to facilitate partnerships and identify opportunities.

The EU was able to support local representation at the virtual edition of the Torino Fashion Match 2020 in Italy, the second time SA has participated. Cape Wools SA spoke on its adoption of sustainable production practices in a well-received presentation. I am optimistic that the demand by EU retailers and, linked to this, the export opportunities for sustainably produced fibres to the EU, might well be the key to new investment in and job creation through the beneficiation of natural fibres in SA.

Development finance institutions such as the European Investment Bank are well positioned and positively disposed towards investment in the sector and SA would benefit by putting into place mechanisms that will allow it to tap more effectively into these support opportunities. While the global Covid-19 pandemic certainly dropped obstacles in the path of growing the sector, it has also clearly reinforced the importance of near-sourcing and quick response as vital competitive attributes to meet consumer demand.

More broadly perhaps, to reinvigorate its textile sector SA is faced with a number of choices, each of which present their own particular opportunities and challenges. These include how it positions itself within the African Continental Free Trade Area (AfCFTA). Additionally, and regardless of how SA pursues economic recovery and growth, it will need to continue to reassure potential investors and funders by providing policy certainty on broad economic and political issues, including land expropriation, broad-based BEE and — in this case — textile-specific issues.

EU and SA businesses and investors have the opportunity to explore investment and partnership drives that will translate into real business-to-business engagements through the EU-SA Partners for Growth project. Let us make optimal use of our joint trade arrangements and project initiatives to facilitate linkages with development funders, technology partners and export markets.  Business Day

• Dr Kionka is EU ambassador to SA.

A view from an upstream local fabric manufacturer

By W. Lochmann

The day when government decided to listen to the WTO and follow their guidelines in terms of the South African duty structures, many industries got affected, some more so then others. Sadly it was not appreciated that textile manufacturing contributes immensely to employment opportunities in a country with a low skills base. The warnings from the textile industry were met with one minister’s comments – “we do not worry about the textile industry, it is in our view a sun-set industry full of fat cats”.  In the early 2000’s when the new duty structures were introduced, the industry started shedding 100.000’s of jobs, making capital investments into the textile manufacturing sector no longer viable. Over the next decade, local producers were accused of becoming more and more noncompetitive when compared against the flood of cheap, subsidized and often illegal imports.  Complaints from the industry to government fell on deaf ears and the industry was regarded as the prime example of exploitative labor practices which must be eradicated. Plant closures accelerated, skilled labor was lost and training opportunities for our youth became less and less.

Of course where there are losers, there are winners.  In the case of the textile industry the big winners were the retailers, some who were on the brink of closing, could now suddenly show profits because of the cheap imports, many others showed obscene profits, shareholders were happy, all on the back of a “sunset industry”.

The unemployed could not all be absorbed into other industries, so our unemployed numbers were swelling day by day.

The start of a reciprocal import rebate system gives us some ray of light, hopefully it’s not a case of too little too late for upstream textile manufacturers.  The loss of capital equipment since the early 2000’s and skills drain will be difficult to reverse.  All big mills who supplied the clothing trade with wovens have been decimated, it would need billions of rands to start up again and it will take years to train up the required skills.  The option of skills immigration is hampered by adverse policies made by government.  A liberal skills immigration policy would create the necessary bridging time until new players in the industry are ready and become productive, from the shop floor to management.

Serious capital investment in the manufacturing sector would only be viable with government’s absolute commitment to grant permits meter for meter, locally manufactured versus imports, no complicated formulas, exemptions etc. which will only allow consultants with good connections to spring up all around, earning fat commissions in trying to find loopholes for their principals.  Any import of fabrics over and above locally manufactured fabrics must attract duties which can be ring fenced to stimulate new manufacturing capacity and the re-establishment of technical textile colleges.

The gap of locally produced versus imports will initially be huge, but with gradual capacity building will become smaller and smaller.  To get there is a long haul and can take a generation.  It’s entirely up to government’s willingness to walk over the traditional vested, personal interests of rent seekers and profiteers.

With the implementation of a simple reciprocal model the losers this time will be big retailers with smaller (normal) profit margins, this would hardly create the old style ” fat cats” of manufacturing.  The big winner this time would be South Africa with millions of working people, having an income which in turn will filter back to the retailers – a true win win scenario.

Woolies interim results December 2020

Revenue for the interim period increased to R40.627 billion (2019: R38.442 billion), operating profit rose to R3.820 billion (2019: R3.279 billion), profit attributable to shareholders of the parent jumped to R2.762 billion (2019: R1.571 billion), while headline earnings per share grew to 261.1 cents per share (2019: 164.9 cents per share).

No interim dividend was declared.

Company outlook
The trading environment is challenging and uncertain and is expected to remain so throughout the second half of the year. The economic outlook for South Africa is bleak, with the consumer under significant strain, and the possibility of further waves of infection and delays in the rollout of vaccines likely to further exacerbate the pressure on discretionary spend.

In Australia, economic fundamentals are stronger and more supportive of an earlier recovery in economic activity, but we are mindful that government initiatives, which have buoyed consumer spend, are coming to an end. As previously advised, we expect to conclude the sale of the Elizabeth Street property in the second half of the financial year, the proceeds of which will be used to settle debt and further strengthen our balance sheet.

Whilst we are pleased with some of the progress that we have made to date, we remain steadfastly focused on the other elements of our strategic priorities, including the repositioning of FBH, maintaining our leadership position in Food, our real estate optimisation efforts in David Jones and driving growth through digital, online and data.

The Board remains of the view that, while we have made significant progress on our capital plan, it is in the best interests of the Company for distributions to WHL shareholders to remain suspended, given the ongoing impact and uncertainty of Covid-19. The Company has therefore not declared an interim dividend in respect of this reporting period.

Did you know……..

.“68% of fast fashion brands don’t maintain gender equality at production facilities” (Ethical Fashion Guide, 2019)

As we’ve seen, most* fast fashion corporations locate their production facilities in emerging countries. The 80 million workers in the fashion supply chain are overwhelmingly women, but the majority of retailers show no little concern with maintaining gender equality in the workplace. Fast fashion is not just a sustainability problem, but a key feminist issue.

*Boohoo is a possible dishonourable exception – their final production is in Leicester UK to reduce time to market, but they have still been accused of labour rights abuses.

By thinking of the garments we wear as short term tools rather than long term investments, we contribute to wasteful consumption patterns that inevitably lead us towards drastic climate change.

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