Clothing items bought from international e-commerce retailers and packaged in small quantities will from next month be taxed at the same rate as large quantities when the government imposes measures to level the playing field for local retailers.
Concerns had been raised over Chinese high fashion e-commerce platforms Temu and Shein exploiting tax loopholes to bring in products in small quantities, which attract lower import duties. South Africa imposes a 45% import duty plus VAT on imported clothing packages worth over R500, but parcels below this amount are charged about 20% import duty and 0% VAT.
Outgoing minister of trade, industry & competition minister Ebrahim Patel has said that the government wants to ensure there is “equality of treatment, that everybody is treated equally, that everyone has to pay the full customs duties and the full VAT, [and] that South Africa is not left poorer as a result of any gaps in our regulatory environment”.
TFG CEO Anthony Thunström said the group and other retailers had been working with the South African Revenue Service (Sars) and customs authorities to ensure “we operate on a level playing field”, and that over the last couple of months there had been “significantly better enforcement from Sars and customs”.
He said that, with “the commitments the industry received from Sars and customs, from July 1 those parcels below R500 that were attracting minimal duty will now be taxed at the exact same rate of 45% plus VAT that any other retailer would pay on products they brought in”. He said, “It’s a big move, and I think it will help local industry, including local production and jobs.”
TFG has an e-commerce platform, Bash, that sells all the group’s clothing products, and which will in the coming months also offer homeware and furniture items from its subsidiaries including its tapestry of companies, including Volpes and Coricraft.
Bash’s turnover grew 44.4% in the year to March and now contributes 4.2% to retail turnover. It saw a record gross profit of R16.1bn and record earnings before interest and tax performance, which grew 24.9% to R4.2bn.
TFG claims Bash is now the number one South African fashion and lifestyle app, as it has seen a 45% increase in first-time shoppers, with 64% of those customers having never shopped at TFG before.
“This means we are attracting new customers and not cannibalising,” said Thunström.
[TFG has] built a fairly significant [business] in South Africa that is also supplemented by quick-response manufacturing that puts us in a position where we can respond faster than any other retailer
— Anthony Thunström, TFG CEO
He said TFG did not underestimate the competition it faced from Shein and Temu, but “we have built a fairly significant [business] in South Africa that is also supplemented by quick-response manufacturing that puts us in a position where we can respond faster than any other retailer”.
Thunström said they also had a competitive advantage given South Africa’s high affinity for brands, whereas the likes of Temu and Shein sell no-name items.
TFG is gaining market share across all categories, including the womenswear market, where industry players are said to be suffering from the impact of Shein and Temu. Thunström said TFG’s success was a result of its ability to respond quickly to fashion trends because of its quick-response manufacturing facilities.
“Nobody else has that degree of reactivity. It makes us much more relevant to our customer base, particularly a younger customer who is looking at what’s available on Instagram and Shein.”
Commenting on competition from Shein and other e-commerce platforms, Alec Abraham, Sasfin’s senior equity analyst, said: “I was worried, but it appears the strategy and progress made in terms of own production/near-shoring has kept the group’s offering relevant and attractive to the local customer base.”
About 80% of TFG’s apparel is manufactured in South Africa and other countries in Southern Africa, while the rest is imported. It also produces 80% of the sofas sold at its homeware subsidiary @Home locally. The company has increased market share across most of the categories it operates in, including sports shoes, menswear and womenswear.
TFG Rewards, the loyalty programme with 37.6-million customers, has also boosted growth in market share.
TFG will spend about R1.7bn in South Africa and the rest of Southern Africa. It plans to open up to 1,000 stores across all brands, with sports and homeware to be given priority.
It will also revamp about 50 Jet stores. Thunström said where Jet stores had been revamped there had been about a 45% improvement in sales.
“When we took over Jet stores more than three years ago, they had seen no money spent on them probably for more than a decade. A lot of these stores need refurbishment,” he said.
In the year to March, TFG closed 33 stores, which acted as a drag on the performance of the value division, which grew slowly compared with the others. The stores were closed after the company decided not to renew leases. “I don’t regret closing the stores. We will go back and find better locations ... and better deals in the locations we want to be in,” Thunström said.
TFG reported an 8.9% rise in total revenue to a record R60.1bn. The Africa businesses reported record revenues of R43.1bn, up 10.7%, with South Africa contributing R39.4bn, up from R35.9bn, driven by sportswear, womenswear and homeware.
Cash retail turnover increased by 9.9% compared with the prior period, and now contributes 82.3% to total group retail takings.
Revenue from stores in other African countries — including Lesotho, Zambia, Botswana, Eswatini and Namibia — rose to R1.99bn from R1.86bn. TFG also has operations in the UK, Ireland and Australia, which contributed 28% to group revenue.
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