International retailers setting up shop in SA as a gateway to the rest of the continent are likely to take a measured expansion approach‚ as they gain knowledge and test the local market.
Global brands are progressively looking to emerging markets to offset sluggish growth in traditional economies‚ and Africa presents a compelling investment case for retailers.
The Economist Intelligence Unit predicts that by 2030‚ the Africa's top 18 cities could have a combined spending power of US$1.3trn.
"Retailing is on the rise‚ spurred by urbanisation and the rise of the modern African consumer. As Africans move to the cities and acquire more disposable income‚ and the middle class grows‚ demand for modern goods and services will surge‚" a report from the Economist Intelligence Unit said.
Trumpeted as a turning point for African retailing‚ Massmart in 2011 concluded the testy sale of a 51% stake to Walmart‚ for $2.4bn‚ with conditions after a long-winded battle with unions and regulators.
Other than SA‚ the deal gives the US retail giant access to 11 other African countries.
At the World Economic Forum conference in Davos earlier this year‚ Doug McMillon‚ Walmart International's CEO‚ said SA presented a great opportunity.
"That's where 92%-93% of the revenue is. Beyond that‚ into the region‚ we're thinking about it a city at a time because that's where the population centres are. There's enough business there to support a few stores so we can learn the market‚" McMillon said.
But there is a caveat: Africa is not an easy place to do business.
Key risks include the lack of real-estate‚ currency volatility‚ high taxes‚ corruption and red tape.
"Most operators in Africa will agree that the poor state of physical infrastructure‚ especially electricity and transport‚ is one of the biggest impediments to business‚" the Economist Intelligence Unit says.
For instance‚ Nigeria‚ with a population of 150-million‚ has the same power capacity as Hungary‚ with a population of less than 10 million.
In a report examining the barriers that stifle cross-border trade within the continent‚ the World Bank revealed that Africa's largest retailer Shoprite spends a hefty US$20‚000 a week on import permits to truck meat‚ milk and other goods to its stores in Zambia alone.
"For all countries it operates in‚ approximately 100 single entry import permits are applied for every week; this can rise up to 300 per week in peak periods.
"As a result of these and other requirements‚ there can be up to 1‚600 documents accompanying each truck Shoprite sends with a load that crosses a border in the region‚" the World Bank stated.
In an effort to limit risk‚ some global retailers are opting to join forces with existing companies in lieu of opening corporate-owned stores.
Preston Gaddy‚ divisional director for retail at Broll Property Group‚ says that local companies understand the South African market‚ as well as logistical‚ labour and tax issues.
"Spain's Zara and Australia's Cotton On have entered the market [on their own] and are more than satisfied with their performance.
"Others‚ like Mango‚ Aldo‚ Montblanc‚ Pringle and Guess have chosen to partner with local companies to ease their entry into a previously unknown market‚" Gaddy says.
Last week‚ Arcadia Group‚ which owns Topshop and Topman‚ partnered with Edcon and House of Busby to bring its fast-fashion brands to SA through both franchise stores and shop-in-shops.
This type of market entry strategy is favoured by Arcadia who last month announced Topshop shop-in-shops in Nordstrom department stores in the US and Wallis/Evans shop-in-shops in Karstadt department stores in Germany.
Sir Philip Green‚ the owner of Arcadia Group‚ said the move was another step in its international growth. The company is eyeing China next. SA is Topshop's 37th market.
Further expansion into the rest of Africa is a distinct possibility for Arcadia‚ but only in the longer term‚ Matthew Stych‚ research director at London's Planet Retail said.
Topshop already offers delivery to countries such as Kenya‚ Central African Republic‚ Tunisia and Niger via its UK website so there could be potential for physical stores in these markets if online penetration is strong.
Gaining experience of the market and consumer shopping habits from its new outlets in SA will be essential for Arcadia before rolling more stores out across the continent‚ Kate Ormrod‚ retail analyst at London's Verdict Research says.
"It is likely that other British retailers will enter SA‚ although this could depend on how successful Arcadia's entry is‚" Ormrod‚ says.
UK clothing retailers such as New Look already ship to SA and other African countries‚ and Next already has a country specific transactional website for SA‚ so providing sales to these regions are strong‚ they may look to enter with physical stores or through shop-in-shops.
It is also possible that Arcadia will bring the Miss Selfridge and Dorothy Perkins brands to SA‚ if it thinks they will be well suited to the market‚ Ormrod says.
Stych reckons that Swedish fashion retailer H&M will make a move to enter the SA market soon.
"Popular UK fashion retailers‚ such as Next‚ Marks & Spencer and Debenhams are all looking to expand their franchise operations‚ so future market entries can't be ruled out‚" he added.
In March‚ US apparel retailer Gap opened two standalone stores in SA and the company plans to beef up its presence on the continent. According to Stefan Laban‚ the head of Gap's franchise business‚ Africa was the new "big" market for the group.
Syd Vianello‚ a Nedgroup Securities analyst‚ says that depending on the rate at which each individual global brand elects to expand in the country‚ there would be more competition‚ and more competition could mean lower price points and lower margins.
"The SA market has been starved‚ not recently but for the last 40-odd years of international brands‚ now suddenly SA consumers who previously could only buy these products if they went overseas have access to these products. Zara started it‚ now comes Topshop‚ H&M will probably be the next one on the line. Another name that's been mentioned is New Look‚" he said.