Weak rand gives global fashion the edge
For homegrown retailers, this is likely to result in lower prices and narrower margins. Truworths has already reported a 0.8% decline in comparable store retail sales for the six months to end-December 2015, compared with a year earlier.
About 12 international players are vying for a piece of SA’s R160bn per year market.
These include Inditex, the world’s largest clothing retailer through its Zara brand, H&M and Cotton On.
Three years ago, these companies may have had a tough time due to SA’s high import tariffs of as much as 45% duty on foreign goods.
But with the rand trading at some of its weakest levels against major currencies, these brands are now able to compete on price.
Truworths CEO Michael Mark said the competition in the market was heavy — "increasingly so with international retailers entering the market". In addition, he said, new affordability requirements that require documentary proof before additional credit can be offered, were putting a strain on locals.
Mark said that to remain competitive Truworths would continue to focus on its long-term understanding of the local market and its "DNA".
SA has more than 23-million square metres in shopping centre space, placing it seventh globally and ahead of countries in Europe. There is another 2-million square metres under construction or planned, according to Urban Studies, a property market research firm.
The construction of more malls comes despite the strain on consumer budgets. Those hurting the most are middle-income consumers who shop at middle-to high-end stores. With the price advantage all but gone, competition has boiled down to differentiation of the brands and what they offer.
The price of clothing at Gap and Cotton On is comparable with that at The Foschini Group, Truworths, Woolworths and Edgars.
Edgars has introduced more than 10 global brands into its stores, which compete with its own products. In an effort to drive foot traffic, SA’s biggest retailer has turned to promotion and sales, but to no gain.
The Woolworths strategy has been to diversify into other markets, most notably Australia through is David Jones acquisition.
Some local firms have been little affected by the arrival of competitors. Mr Price is one of them. Research from Euromonitor International shows Pepkor Retail maintained the leading position in retail in 2015 with an 18% value share.
"Driven by the strong demand for the Pep and Ackermans brands, Pepkor’s position in the channel is based on its expansive distribution network.... Pepkor continues to target low-income and middle-income consumers with its low price strategy," the report said.
Fashion blogger Janet Pierce said consumers trusted the quality of foreign brands more. "There used to be that trust in local brands but somewhere along the line that changed. If a consumer was going to spend R600 on a shirt at Foschini, they would now rather do it at Zara."