Brand new fashion landscape

Industry players say the likes of Swedish fashion chain H&M and the UK's Debenhams, Next and Miss Selfridge are already eyeing SA. Global fashion chains see the country's growing pool of emerging, brand-conscious consumers as a potentially lucrative new revenue avenue given declining retail sales in Europe.

Recent results from JSE-listed retailers like Mr Price, Woolworths, Truworths and Foschini are, after all, still showing double-digit growth in clothing sales despite a lacklustre economy.

International players are also lured by SA's cheap (in global terms) property rentals. Stephan le Roux, retail director of Growthpoint Properties, one of SA's biggest mall owners, says SA offers relatively low overhead costs for foreign retailers, which translates into higher margins.

Le Roux says the interest of more global brands has been further piqued by the better-than-expected trading performance of early movers.

Though Spanish fashion house Zara is cagey about the performance of the three stores it has opened since November last year (Sandton City, Gateway in Umhlanga and more recently at Cape Town's V&A Waterfront), industry players say Zara is scouting aggressively for other sites in prime shopping nodes.

At least 10 more SA stores are expected to open over the next year. That suggests Zara is probably more than satisfied with revenues achieved to date.

The roll-out plans of Australia's Cotton On group are even more ambitious. Cotton On property executive Robert Kenny told delegates at the annual congress of the SA Council of Shopping Centres recently held in Durban that the group plans to open 30 stores by Christmas. These will comprise a mix of three brands: flagship Cotton On, Factorie and Typo.

Cotton On opened its first store in Clearwater Mall on the West Rand in August last year followed by a second outlet in Sandton City in November. It caters predominantly for 16-22 year olds looking for what Kenny refers to as "globally relevant fashion at affordable prices".

Kenny says the group has been taken by surprise by the phenomenal sales achieved in its SA stores to date. In fact, he notes that Cotton On's 1000m² Sandton City store is the group's best performing outlet in the world in terms of trading density (turnover/m²). Cotton On has around 1000 stores in 11 countries.

Asked why he thinks the group's SA entry has been so successful, Kenny says it seems the SA consumer has been starved for quality, affordable fashion. He believes Cotton On's price point sits somewhere between Mr Price and Zara.

"There isn't really another retailer that's doing anything like we are doing in terms of merchandise range and turnaround times."

Kenny believes the advent of international retailers is creating a shake-up among local players. "We are bringing in real competition and will force SA retailers to become more innovative in terms of product offering and pricing."

Renaissance Capital retail analyst Jeanine Womersley echoes a similar sentiment. She says the foray of international retailers into SA is likely to have a marked impact on the buying practices of local retailers.

For instance, local retailers may no longer be able to freely follow international trends and replicate northern hemisphere merchandise as global retailers who establish a physical presence in SA are far better placed to protect their intellectual property.

Says Womersley: "Local retailers will need to innovate in the face of rising competition and the absence of strong brand equity. As retailers look to reinvent themselves, we could expect a growing focus on the development of in-house research, design and marketing teams."

Womersley expects price to also come under growing scrutiny. She says there already appears to be a movement across the industry towards greater affordability. "We think this could lead to retailer margins coming under pressure over time."

Womersley says international brands could take some market share away from local retailers but some will be more affected than others. She believes Truworths is the most vulnerable to market share loss among JSE-listed retailers. That's primarily because the group's price points have moved out-of-kilter with its merchandise proposition.

"With no obvious acquisition targets we believe the Truworths group will need to focus specifically on nonbranded merchandise innovation, possibly look to increase its involvement in quick response manufacture to sharpen its competitiveness within the supply chain and address its pricing architecture."

Though the rush of global brands into SA could hurt some local retailers, it is great news for shopping centre owners as it will boost demand for space, enable landlords to offer consumers more differentiation in terms of tenant mix and ultimately help draw more feet into malls.

However, shopping centre developers and retail landlords will have to up their game to adequately provide the real estate requirements of global players, says retail property strategist Paul Simpson

Zara, Debenhams and Next, for instance, require big box stores of anything from 1500m²-5000m², which is difficult to accommodate in SA's large, established malls, most of which have very little vacant space.

Simpson says retail developers will have to start adopting the "bigger is better" mantra when they plan and design new malls. He says developers who from the outset focus on creating a comprehensive and compelling offering to accommodate global retailers will have a competitive advantage.

Yet few developers currently appear to be planning for the potential longer-term shifts in tenant mix, which Simpson says can come back to bite them in a few years' time.

"Developers that continue to build shopping centres on the same scale as they did five years ago may be unable to capture the new global entrants to the market."

Source: Financial Mail