Retail news. Semester 1 of 2014 table of contents

Fast-fashion retailers see opportunity. 31 Jul 2012

With the entrance of British fast-fashion chain Topshop into SA, the local clothing sector could count on a proliferation of new brands coming into the market, meaning more competition, lower prices and narrower margins, an analyst said yesterday.

Topshop joins a slew of British high-street operators looking to emerging markets as growth slows in more mature markets.

Sir Philip Green, the owner of Arcadia Group, which owns Topshop, said the move into SA was another step in its international growth.

Edcon and the House of Busby, which held the Topshop franchise in SA, said the rollout would initially be through stand-alone stores, with the first Topshop and Topman being launched through a 950m² flagship store in Sandton City by the end of November. A second store has been confirmed to open in Durban before the end of the year.

Syd Vianello, a Nedgroup Securities analyst, said yesterday the Foschini Group and Truworths were most exposed to the new competition. "Topshop is pitching at that high-fashion, fast-fashion sort of market.

"Because Topshop has entered into a joint venture, they're able to bring their product into the country at what is effectively the same landed cost as a domestic competitor, and to pay import duties on a competitive basis. They can pitch at price points which enable them to compete against local brands," Vianello said.

Kate Ormrod, retail analyst at London's Verdict Research, said other retailers such as Gap, Mango and Zara have also entered SA in the past few years, indicating that other retailers also saw the potential in SA.

The agreement will also see Edgars featuring the Topshop and Topman brands in their stores through the store-in-store concept in the new year.

This format meant Arcadia would be able to take on the big brands more aggressively than if they had gone in on a stand-alone base only, Vianello said.

"The launch of franchise stores and also shop-in-shops reduces the risk of entering new markets and ensures the retailer gains some local market knowledge, as well as enabling expansion at a rapid rate," Ormrod said.

It is unlikely that Topshop will be the last global fashion player to set up shop in SA.

"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," Vianello said.

The southern hemisphere does, however, pose distinct challenges, including logistics and the reverse seasonality pattern, Matthew Stych, research director at London's Planet Retail said.

"These factors mean that only the largest and most experienced international groups are likely to be able to gain significant scale in SA. We are expecting H&M to make a move to enter the market soon," Stych said.

Source: Business Day

Innscor Africa splurges on expansion. 14 September 2012 [Fingaz]

-De-merger still on the cards. Dumisani Ndlela. Deputy Editor-in-Chief
EXPANSIVE manufacturing and retail group, Innscor Africa Limited, has declared its ambition to splurge its vast cash holdings towards expansion, as market speculation suggested the group was targeting acquisitions in the current year.

This emerged as indications pointed to a possible de-merger of at least one unit under a long-proposed restructuring exercise that saw the unbundling of the crocodile business, Niloticus, which listed on the Zimbabwe Stock Exchange (ZSE) at the end of 2010 as Padenga Holdings Limited. Apparently, Innscor board chairperson, David Morgan, had made muffled suggestions the de-merger could go beyond the crocodile business, saying that since its listing in 1998, Innscor Africa Limited had "continually diversified into businesses which were able to fuel its growth in an economy which suffered from the effects of massive hyper-inflation".

"This has led the group to having a significant number of differing businesses in its portfolio. Given the dramatic change to the macroeconomic environment, the board feels that it is now the time for certain of its businesses to be restructured in order to give those businesses the specific focus and drive that they now require and which will result in sustainable long-term business models being built for each business," said Morgan. But in his latest statement to shareholders, Morgan did not discuss the unbundling exercise, but highlighted that the group would expend the bulk of its cash holdings towards expansion.

"The group continues to be a strong generator of free cash flow and it is expected that a large proportion of this will continue to be channelled to expansion projects across the group's core businesses over the next financial year," said Morgan in a statement accompanying financial statements for the year to June 30, 2012 released last week.

He said the main focus for management would be to ensure that considerable synergies within the group were "utilised to the fullest extent". The group had cash holdings amounting to US$22,5 million at the end of the reporting period, up from US$17,8 million the previous year.

This is a huge amount of cash given the liquidity crunch troubling the domestic economy, but highlights the success of Innscor's growth strategy which has resulted in its acquisition of cash-generating businesses without encumbering the group's balance sheet with too much debt. A market analyst said Innscor was likely to spend its cash on the bakeries and fast foods divisions, currently its biggest money minting units.

Already, Innscor has committed resources towards an additional line at its Harare bakery plant with production capacity of 100 000 loaves per day. This is due for commissioning in October 2012. The new line is in addition to a third line commissioned in November 2011, which brought capacity at thee Harare plant to 400 000 loaves per day.

There is investment into new technology which will significantly improve capacity, range and quality of operations for confectionary products. This will be completed during the current financial year. Customer counts for the fast foods operations during the reporting period increased 11 percent against the prior year, and an additional 13 counters were added to the store network across Zimbabwe.

Innscor is one of too few companies on the ZSE that has been able to declare dividends to shareholders. This has also been the case with its subsidiary, the ZSE-listed Colcom Limited, as well as associate firm, National Foods Limited. Innscor has grown from a small private Zimbabwean business to one of the top public companies in less than 20 years.

When The Financial Gazette first reported on the planned unbundling in September 2010, it made the following assumptions for the possible unbundling exercise, which were and remain speculative.

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  The first business is expected to consist largely of the crocodile unit, Niloticus, which could combine with Bakaya Hardwoods and Shearwater into a block of mainly export-focused entities to list on the local bourse. (Innscor was to later de-merge and list Niloticus now called Padenga Holdings Limited).
  
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  The milling and manufacturing business: Colcom Holdings Limited, which comes under this unit, is already listed separately, except for Innscor Appliances Manufacturing (Capri), World Radio Systems (WRS), Herbies (Puff Plants), biscuit maker Iris, Breathway, commonly called Zapsnacks. National Foods Holdings Limited falls into this unit but is already separately listed and is an associate company of Innscor Africa. Its major investment partner in this business is Tiger Foods Limited of South Africa, which has a board representation on Innscor Africa. There is also Irvine's Zimbabwe, a major producer of chicken and table eggs in which Innscor Africa bought a 49 percent stake in July 2009 under its strategy of backward integration within this FMCG supply chain.
  
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  The retail division: This consists of the Spar Corporate Store retail operations, the fast foods operations that include Chicken Inn, Bakers Inn, Creamy Inn and the local Nandos franchise, and TV Sales and Hire.
  
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  The distribution and wholesale division: This operates Innscor Transport, Spar Distribution Centre and Distribution Group Africa.
  
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  Innscor Transport operates in Zimbabwe with Hire, Overnight Express, Fleet Management and Workshop as the operating divisions, while Spar Distribution Centre is one of the two franchise holders of the Spar brand in the country responsible for servicing Spar supermarkets, Kwikspar supermarkets and SaveMor Retail outlets in the eastern region.
  
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  Distribution Group Africa comprises Innscor Distribution, Comox Distribution, Medi-Link and Zimbabwe Professional Marketing.
  
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  Innscor also has a robust unit responsible for international businesses, mainly Innscor Zambia, whose main businesses are the Spar retail outlets, the distribution business and the fast foods operations.
  Apparently, the different business units have a symbiotic relationship with each other and the challenge for deal engineers will be on how this would be sustained post-unbundling. Other international operations include fast foods operations in Kenya, Ghana and Senegal as well as the regional franchising arm.
  Apparently, the different business units have a symbiotic relationship with each other and the challenge for deal engineers would be on how this would be sustained post-unbundling.