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Frustrated at home, SA retailers seek growth in Europe

Shortage of retail locations and high transportation costs limit expansion opportunities.

When Brait SE agreed to pay about $1.2 billion for U.K. fashion chain New Look last month, South African billionaire Christo Wiese’s investment company took a leaf from an increasingly popular book.

Amid a lack of acquisition opportunities on its home continent, Brait followed the likes of retailers The Foschini Group Ltd. and The Spar Group Ltd. in bypassing the potential of Africa’s growing middle class and targeting European consumers instead.

“They’re buying established businesses with established brands, distribution channels and shops, and this in a market that’s showing recovery,” said Byron Lotter, a money manager at Johannesburg-based Vestact Ltd., which oversees about 2.3 billion rand ($185 million) of assets. “Expansion intoAfrica is slower and a lot more difficult.”

While sub-Saharan Africa has long-term potential, a shortage of retail locations and high transportation costs are among factors limiting expansion opportunities in that region, according to Guy Hayward, chief executive officer of Wal-Mart Stores Inc.’s South African unit Massmart Holdings Ltd. That’s preventing companies taking full advantage of middle class households – those consuming $15 to $115 a day – that Johannesburg-based Standard Bank Group Ltd. estimates will grow to 40 million by 2030 from 15 million now.

Retailers’ spending

South African retailers have spent at least $1.5 billion buying European companies this year, while Steinhoff International Holdings Ltd.’s $5.3 billion takeover of Cape Town-based clothes retailer Pepkor Holdings Pty Ltd. will see the furniture seller expand into markets such as Poland and the Czech Republic as well as Australia. Steinhoff, South Africa’s biggest furniture company, plans to list on the Frankfurt Stock Exchange this year to increase exposure to investors in Europe.

South African shopping chains have been struggling to grow sales at home as unemployment of more than 26 percent, power shortages and rising inflation stifles consumer spending. In contrast, the U.K., for example, is experiencing falling joblessness and had deflation of 0.1 percent in April.

Ronnie Stein, chief financial officer of Cape Town-based The Foschini Group, said May 28 that the fashion chain is growing as fast as it can in the rest of Africa — yet that’s not quickly enough to meet the company’s goals. TFG’s shares have increased 17 percent this year, compared with a 13 percent gain by the FTSE/JSE Africa General Retailers index.

TFG expansion

TFG plans to have 375 stores in its Rest of Africa region by 2020, compared with 148 now, yet also agreed to buy U.K. clothing chain Phase Eight for 140 million pounds ($214 million) in January.

“If we found the same opportunity in South Africa we would have done it,” Stein said by phone, referring to Phase Eight. “We are not slowing Africa growth at all, but we’ve now got the opportunity to grow in the rest of the world as well.”

South African retailers expanding in Europe also benefit from diversifying their sources of revenue beyond the rand, according to Stein. The currency has weakened about 17 percent against the dollar in the past year, and is trading close to a 14-year low.

Woolworths Holdings Ltd., a South African food-and-clothing retailer, closed its three stores in Nigeria in 2013 because of high rental costs, duties and difficulties transporting goods to shops. Seeing faster growth through the purchase of stores in established markets, the seller of organic foods and clothing brands such as Country Road bought David Jones, Australia’s oldest department-store chain, for $2 billion last year.

Mr Price Group Ltd., a South African clothing and household-goods retailer, will open its first test store in Australia in the second half of the new fiscal year ending March 2016, it said June 2.

“The prize in Africa is as big as ever, but it’s probably harder and further away,” Massmart’s Hayward said.

©2015 Bloomberg News


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All brought to you by Uhuru, AA, BBEEE, Transformation, African Renaisance, re-imagining Africa etc etc.

By its very nature, the retail businesses have to increase volume (i.e. add more stores!) to increase revenue/profits as a result of thin margins. The main thrust of the article is that SA retailers are on an acquisitive spree outside the African continent due to difficulties in establishing the right footprint north of the Limpopo (Woolworths was cited as an example) and a saturated domestic environmet (reasons forwarded for why this is so). However, your comment is going completely off tangent, motivated by ignorance and usual recycled cynicsm prevalent in the comments sections of numerous news platforms across this beautiful country of ours. In short, take off your ignorant glasses and re-read the article. I gurantee you, you will live a little longer when you discard pessimism and ignorance out of your system.

End of comments.



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