Clothing retailer The Foschini Group (TFG) is following the footsteps of upmarket counterpart Woolworths with its bold plan of introducing home-grown brands to Australian shoppers.
TFG, the owner of brands including Foschini, Exact, Markham, Fabian, Due South and others, is fine-tuning a strategy that would see Australians wear its apparel brand.
“We have identified one of our brands that we think would be a good fit and a bit of a disruptor for the Australian market. We can’t name the brand for commercial reasons but we are in advanced stages,” said TFG’s CFO Anthony Thunström.
He said TFG is negotiating with landlords and the roll out into Australia is expected to be towards the second half of 2018.
The retailer’s acquisition of Australia-based menswear specialist Retail Apparel Group (RAG) in May for A$302.5 million (R3 billion at the time) has provided it an entry point into Australia’s retail market.
TFG could opt to launch the unnamed home-grown brand into Australia through a standalone store or in RAG’s 400 stores under brands including Connor, Johnny Bigg, Tarocash, yd. and recently incorporated women’s sportswear brand, Rockwear.
Alec Abraham, a senior analyst at Sasfin Securities, said introducing local brands into offshore markets is difficult but the fact that TFG owns its brands would make it easier.
“Owning the brands also gives TFG the point of differentiation and flexibility on pricing. Taking one of its brands into Australia is an obvious move to build scale in own brands. However, TFG has to hit the right tone in fashion and value for money for Australian consumers,” said Abraham.
A month before TFG acquired RAG, the retailer tested the Australian market by purchasing 14 Dutch denim brand G-Star RAW franchise stores.
Fashion retailers have been chasing hard-currency earnings through offshore acquisitions over the last three years given SA’s sluggish economy, hard-pressed consumers, rand volatility and increasing political uncertainty.
Another retailer that has gambled in Australia is Woolworths through its R22 billion acquisition of David Jones and sister retailer Country Road Group (CRG) in 2014. Since then, David Jones and CRG have disappointed, as their turnaround is still on-going, with Woolworths sinking A$284 million (R2.9 billion) between 2016 and 2017 to reposition the businesses.
Woolworths’ push of its home-grown private label brands including Studio W and RE into David Jones stores flopped as the quality and fashionability of merchandise didn’t resonate with Australian shoppers. It will relaunch private label brands in March 2018 designed by its local CRG, making the price points affordable and fashion-led.
Damon Buss, the equity analyst at Electus Fund Managers, said some of the TFG brands could do well in Australia. “But to ensure the highest probability of success it would need to let RAG management [based in Australia] run the brands, so that they avoid the mistake that Woolworths made,” said Buss.
He explained that Woolworths got their SA-based clothing and general merchandise team to manage the David Jones private label in Australia, which resulted in the business’s like-for-like sales and gross profit margin declining by 0.7% and 0.9% respectively for the year to June 2017.
David Jones private label will now be managed by Country Road Group management (based in Australia).
Thunström said TFG’s approach to Australia is different to that of competitor Woolworths. “We have brands that we have evolved over a long period of time, done our research and have a management team in Australia with a track record. We don’t believe, particularly on clothing, that it is easy to take a brand from one country and dump it in another country.”
In addition to its brands, TFG will introduce its IT, retail planning and merchandise control systems into RAG. “RAG hasn’t had access to the kind of IT systems that we have in SA and RAG wants to take our systems across to use in their Australian business,” Thunström said.
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