TFG set to cut 100 stores, stock and costs

Retail group TFG plans to close 100 underperforming stores and reduce inventory purchases as it anticipates another subdued year locally.

The owner of brands that include Foschini, The Fix, Exact, Sportscene, @Home, Volpes and Jet said its South African operations faced a difficult trading environment last year, dampened by weaker consumer demand, which resulted in a drop in earnings for the year ended March.

Chief executive Anthony Thunström said the retailer had identified about 300 underperforming stores across its portfolio, and that closures will only happen after every effort had been made to improve performance.

“Closing stores is absolutely the last resort after you’ve tried everything else. We look to see whether one of our other brands would perhaps trade better in that store, in that location,” he said.

The retailer will also reduce floor space in some stores and use them as hubs for online orders, following the strong performance from online platform Bash, which now contributes 10% of local sales. “We’re finding that you can actually serve your customer better and be more profitable by not necessarily having as big a store as you had before, providing you’ve got Bash to complement it.”

He expects Bash to contribute 15% of turnover within the next two to three years.

The retailer is also maintaining tight control over costs as it anticipates another tough trading period. “We’ve anticipated a more subdued year. We’re buying less inventory than we bought last year. As a result, we’re aiming to achieve a higher gross margin, and we’re being very, very careful on expenses and costs.”

Thunström said that despite pressure on its South African business, profitability remained relatively resilient given the economic backdrop. “The real number to look at is our operating margin. Our operating margin in South Africa was down only 14.8%. Given how tough last year was, that’s not something that is unexpected.”

A major contributor to the weaker performance in the year under review was TFG’s sports division — particularly internationally branded footwear — which was hit by softer consumer demand and excessive inventory levels.

“You have to order branded footwear nine months before you sell it,” Thunström said, adding that sportswear was “very cyclical”.

He added: “You’ll have a couple of years where everybody wants branded sports clothing and footwear, and then that might last three or four years, when that kind of hype and demand really come off.

“With some of the big sports brands, there’s been a year or two where there hasn’t been a lot of innovation in their product. People then don’t want to buy something new because it’s similar to what they could have bought last year.”

While some categories struggled, others significantly outperformed the market. Women’s fashion brands Foschini, Jet and The Fix helped drive women’s wear sales growth of 8.9%, while beauty sales surged 21.6%. “The majority of that growth has come out of beauty within our existing stores, particularly within Jet,” said Thunström.

He identified Jet as one of the standout performers in the portfolio.

“The real growth engine in terms of the mid-to-value segment has definitely been Jet.”

TFG, which also operates in Australia and London, expects to open between 80 and 90 stores. The group now trades out of 4,914 stores across 18 countries. It has 3,432 stores in South Africa, which contribute significantly to group turnover.