TFG, which has brands that include The Fix, Sportscene and Foschini, seems to have broken the Australian curse by excelling Down Under while other SA retailers, such as Woolworths and Pick n Pay, have had a terrible time in that country. Woolworths’ R21bn investment has lost half its value while Pick n Pay exited a decade ago.
TFG has released its trading update for the nine months ending December 2019 and boasts an 11% revenue increase in Australia, saying its Australian sales “continue to exceed expectations”.
It bought Australian Retail Apparel Group (RAG), a men’s wear retailer, for almost R3bn in 2017 and renamed it TFG Australia. The Australian branch of operations contributes about 15.3% of its overall income, with profits largely coming from SA and Africa, which produced turnover growth of 5.9%.
TFG has done well in Australia because it has not tried to run the company there, but left local management in place, even incentivising local managers to remain at the company after purchasing it.
Jordan Weir, an equity trader at Citadel said: “TFG, without a doubt, appears to have broken the trend of struggling SA companies operating in Australia. This is in no small part thanks to its hard work in creating robust partnerships on the ground. These local relationships, coupled with a low unemployment rate in Australia, have worked to TFG’s benefit. While the cost of operating a business in Australia is high, TFG has been successful in strategically selecting experienced local managers.”
Australia has high rentals and high operating costs, which give businesses little room to make errors. The high operating costs, for example, have been hitting Spur restaurants in New Zealand and Australia, with sales down 15% last year.
Samantha Steyn, chief investment officer at Cannon Asset Managers, said TFG’s success in Australia is unusual. “So far, the acquisition of RAG Group seems to be one of the few success stories of SA companies entering the Australian market. The key difference for TFG compared to other SA retailers entering Australia, is that the original owner of RAG still runs the business ... Time will tell if they have ‘broken the Australian curse’.”
Black Friday sales
Woolworths’ failure in Australia is believed to have led to CEO Ian Moir stepping down last week. Woolworths bought David Jones, under Moir, for about R21bn in 2014; the Australian store was valued at about R9.6bn at the end of June. On Moir’s departure, the share price rose more than 8%, its biggest one-day gain in more than six years.
Mr Price has tested the waters cautiously in Australia with a minor foray; when new CEO Mark Blair assured investors in November it was not expanding abroad, the share price rose 11.25%. As far back as 2010, Pick n Pay exited Australian food store Franklins, having sunk and lost hundreds of millions trying to turn it around.
Speaking about TFG, CEO Anthony Thunström said he is happy about the results, especially Black Friday sales, which were up in Australia and SA. “Our retail teams executed their Black Friday plans extremely well and offered customers the items we knew they wanted at very attractive prices, which resulted in a new high Black Friday for TFG.”
Thunström said local Black Friday sales helped “offset the negative impact of the load-shedding experienced in SA”.
TFG UK stores contributed 20.5% to the bottom line and sales were down 1.1% against the backdrop of a “very subdued and disrupted environment, characterised by large store format closures and lower footfall amid Brexit uncertainty”.
SA cash sales were up 11.2% year-on-year, but credit was down by 1%; TFG said it is taking a “prudent” approach to credit.
The Bank of America rates the online brand power of clothing retailers saying it can link online brand momentum to sales. On Friday, it rated TFG the top local online brand in the fourth quarter of 2019, thanks to its Fabiani men’s wear brand and sports store Sportscene.
The Bank Of America brand ranking takes into account online sentiment, the number of followers on Facebook, Instagram, Pinterest, Twitter and YouTube, as well Google searches and website traffic. It says historic results show a correlation between its online brand rankings and revenue growth.
In SA, TFG makes 25% of its clothing (excluding shoes and accessories) locally. This allows them to use a just-in-time model. Clothing is made in smaller quantities so buyers can order more of the best-selling styles and fabrics. When buying abroad, companies have to order five to six months in advance and if their fashion bets are poor, sales can plummet.
TFG is also investing heavily in digital expansion, pushing online sales, automatically tracking customer’s entry into stores and making sure every item on a rack has digital tag, speeding up stock takes.
In afternoon trade on Friday, TFG’s share price was little changed at R155.93.
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