Retail group TFG expects its value home and clothing brands as well as sportswear to grow turnover to a combined R40bn in the next five years.
In the past two years TFG has spent R2.7bn acquiring Jet, Tapestry and Street Fever to grow and entrench its position in value clothing, home and sportswear. Jet and Tapestry have contributed R8.2bn in turnover and R910m in earnings before interest.
The value segment includes Jet, Exact, The Fix, RFO and Sneaker Factory.
CEO Anthony Thunström said on Friday each business was strategically positioned to play a key role in growth as consumers were increasingly looking for value.
“We have been growing at a faster rate in both segments [value clothing and sportswear]. The only thing posing a risk [for growth] is the load-shedding,” he said after the release of the group’s annual results.
Thunström said consumer spending power had been eroded over the past few years, “hence we acquired Jet; if we didn’t, we would have lost massive market share”.
Jet “provides us with a meaningful scaled anchor for our TFG value segment, which is increasingly important given the realities of the South African market”.
He added that the brand “opened up opportunities to build” a significant value homeware brand in Jet Home, which is “a massive market where we haven’t played before”.
When TFG bought Jet, the business “was massively underinvested”. The group revamped stores to drive trading density, fixed the supply chain, which had “fallen apart by the time we took over”, and gave Jet customers access to TFG credit.
The value segment is a R9bn turnover business and TFG’s ambition is to grow this to R20bn over the next five years. The same growth is expected in the sportswear segment, an R11bn business.
In December, TFG announced the R150m acquisition of Street Fever, which has been rebranded as Sneaker Factory, to allow “us to rapidly scale our value-orientated sneaker business”.
At Tapestry, TFG is eyeing R10bn turnover.
Locally, TFG, which also operates in the UK and Australia, has grown market share in a number of its categories, especially in apparel, sports, homeware and furniture.
“In a low-growth environment, this ability to continue to grow at the expense of competitors is critically important and speaks to the strength of TFG’s brands and retail teams,” Thunström said.
In the year to March, TFG opened 381 new stores, adding R1.7bn additional turnover. It also created more than 8,000 jobs.
Thunström said TFG planned to open 1,000 stores across its brands, but this year the rollout would be slower because of uncertainty around load-shedding.
TFG received a record number of credit applications, at 4.48-million up 58.4%, but the acceptance rate is 19%. The number of new accounts was 850,684, up 20.8% — taking total credit customers to 2.8-million. TFG Africa credit sales turnover grew 11% while cash sales grew 19.7%, contributing 72.7% to TFG Africa total retail turnover.
During the year to March retail turnover grew 19.4% to R51.8bn, driven by record trading locally and internationally in the first nine months of the financial year, including a record Black Friday and Cyber Monday.
The benefits of diversification have never been as clearly demonstrated as they were in the past year when record results helped to largely offset the worst of the load-shedding impacts
— TFG CEO Anthony Thunström
But the last quarter of its financial year was slower due to intense load-shedding that hit most stores in small towns that did not have backup power.
Thunström said the group now “has more backup power than any other brands”.
The group estimates that the financial impact of load-shedding reduced TFG Africa’s retail turnover by more than R1.5bn.
However, the group’s UK and Australia businesses helped offset some of the impact. Both businesses delivered record growth driven by demand for occasion-wear and office clothes after tight Covid measures in the previous two years.
“The benefits of diversification have never been as clearly demonstrated as they were in the past year when record results helped to largely offset the worst of the load-shedding impacts,” said Thunström.
TFG has spent R200m on alternative power solutions and the investment is “already paying back as it gives us approximately a 4% sales advantage per store”, he added. A further R70m will be spent this year.
TFG's inflation on apparel was about 14% but it was unable to pass all of it to consumers and on average it passed on 9%.
Mohamed Mitha, investment analyst at Camissa Asset Management, said the final quarter for the TFG Africa business had shown a significant and concerning decline in sales growth, resulting in weaker cash flow generation for the group and lower overall profitability.
“The business went into this period with very high levels of inventory, and due to sluggish consumer demand it is being forced to introduce heavy markdowns to clear merchandise,” he said.
Group online retail turnover grew 6.6% to R4.7bn, contributing 9.1% to total group turnover.
Mitha said the general outlook for the retail sector appeared dim. Persistent downward pressure on disposable income is compelling consumers to reallocate their spending away from discretionary purchases and towards essential goods.
“TFG anticipates a further increase in bad debts in the upcoming year and we believe this trend will be reflected across the broader industry,” he said.
“A silver lining for the stronger retailers such as TFG is that this difficult landscape may provide them with an opportunity to gain market share from those competitors who lack the resources and balance sheet headroom to navigate this phase of the consumer cycle.”
Investment analyst Chris Gilmour agreed the sector’s outlook was poor. He said TFG Australia and TFG London were unlikely to repeat last year’s record results. However, TFG Africa should be “slightly better as load-shedding intensity eases”.
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