TFG seems to have avoided costly blunders SA companies make in Australia as the owner of Sportscene and Foschini outlets says sales growth at its stores Down Under defy its own expectations.
The biggest reseller of Nike and Adidas products in SA reported the fastest sales growth among its three main divisions in the nine months to end-December in Australia, where it entered the market with the acquisition of Retail Apparel Group (RAG) — a menswear chain bought for almost R3bn in 2017 and renamed TFG Australia.
The division’s sales performance beat a 1.1% sales decline in the group’s UK business and 5.9% increase in its biggest African unit with an 11% surge.
This is in sharp contrast to failed forays by several SA companies including Woolworths, whose ill-fated R21bn acquisition of Australian department store chain David Jones has been marred by writedowns and is widely believed to be behind the resignation of CEO Ian Moir, the architect of the 2014 deal.
Other SA companies that have had a terrible time in Australia include Pick n Pay, which exited the country a decade ago after having sunk and lost hundreds of millions of rand trying to turn it around.
TFG, which makes about 15% of its annual sales in Australia, had done well in that country because it had left local management in place to run it, even incentivising them to remain at the company after purchasing it, analysts said.
‘Key difference’
"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’," said Samantha Steyn, chief investment officer at Cannon Asset 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.
"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," said Jordan Weir, an equity trader at Citadel.
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%.
Overall, TFG’s sales growth of 5.9% was boosted by Black Friday sales, CEO Anthony Thunström said, adding that local Black Friday sales helped "offset the negative impact of the load-shedding", while weak consumer demand in the UK amid Brexit uncertainty weighed on its London-based store chain.
SA cash sales were up 11.2% year on year, but credit was down 1%.
TFG said it was taking a "prudent" approach to credit as consumers choke under high personal debt levels, which stand at dangerously high level of around 70% of disposable income, and job losses.
TFG’s share price closed 0.2% lower at R155.50 on Friday, lagging behind a 0.8% rise in the JSE all-share index.
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