Global fashion brands drawn to SA

Karl-Johan Persson.

Image source: Financial Mail

Its debut, two years after rivals Zara and Topshop, was so eagerly awaited that the group hired a venue close to their new V&A Waterfront store for diehard overnighters - complete with beanbags, refreshments and restrooms.

With developed economies increasingly saturated and competitive, a tide of investment has shifted over the past five years into population-dense emerging markets like SA, where aspirant consumers present an avenue of potential growth. Social media, the Internet and television have all but dissolved market borders, creating a global shopper that never before has had such choice and access to brands.

The two stores that H&M will open in SA (a Johannesburg outlet is set to open on 5 November) are among its 400 targeted openings for 2015, even as profit comes under pressure owing to the strong dollar pushing up the cost of purchasing clothes for the company.

With a dizzying 3500 stores in 55 countries, H&M has come a long way from its 1947 origins in Vasteras, Sweden, where founder Erling Persson opened a single store called Hennes, selling just women's clothing.

In 1968 the name changed to Hennes & Mauritz when Persson bought hunting and fishing store Mauritz Widforss. Six years later the company listed on the Stockholm Stock Exchange.

Along with more than 150 in-house designers, H&M regularly teams up with high-end designers like Karl Lagerfeld and Balmain to create limited capsule collections, which cause a frenzy and sell out in days.

SA is the continent's leading star, H&M CEO Karl-Johan Persson says in an early morning interview at the group's sprawling 4700m² flagship store in Cape Town. Persson (40) is the grandson of the chain's founder.

"Our expansion here was an obvious choice: it's one of the most if not the most developed country in Africa, there is an ease of doing business compared to other markets, the level of fashion is high, our competition is here, there are a lot of people here - 50m plus. Though [the economy] has had a number of years of slower growth, long-term it's heading in the right direction," he says.

Though there has been little respite on the horizon from debt, higher utility costs or unemployment, the propensity to shop, particularly for clothing and footwear, has endured as a result of thriving consumerism and a strong mall culture in SA.

Much of its development has in the past been underlined by store credit. This has changed, however. Both the value and benefit of this type of offering as a sales driver have become less relevant as more consumers become eligible for credit cards and personal loans. This has all but quashed a longstanding belief that foreign retailers need a store card offer to drive growth in SA. The success of Australian chain Cotton On is evidence of this - in under four years it established a R1,5bn business with 130 stores across the country.

Expansion by international retailers into SA has been primarily through either a corporate model or a franchise agreement, the latter having middling success.

Pricing is more competitive when a company-owned store sets up shop, as the landed cost of goods tends to be in line with local operators - most mass-market retailers source from the same regions and pay the same raw material costs. Franchisers or brand owners, on the other hand, take a fee, which lowers margins and results in inflated pricing.

H&M and Zara are the world's leading purveyors of quick-response or "fast-fashion" fashion - they move fast to take designs from drawing board to store in under two weeks, introducing small quantities of fresh product each week.

This approach attracts feet into stores more frequently and reduces exposure to fashion misses.

Being this nimble has prompted local players, including Woolworths and the Foschini Group, to make acquisitions to boost scale and protect market share. Size affords two crucial factors that put space between a retailer and its rivals: buying power and speed to market.

Syd Vianello, a retail industry stalwart, says: "At the end of the day there is a certain amount to spend, so now all the consumer has to do is allocate how they will spend that money. These days there aren't just 10 shops anymore, there are plenty more. So what will happen is that consumers initially, if they like the styling, fashion, price and quality, will spend disproportionately more at the newcomer. If they like what they see, the newcomer will become a big player."