SA attracts foreign clothing retailers

Aasif Surtee

Aasif Surtee

It was inevitable SA’s vibrant clothing retail sector would eventually attract foreign players. And arriving they are, with big-name players Inditex (Spain) and Gap (US) having recently opened a smattering of stores in up-market SA malls.

Inditex, the world’s largest apparel retailer, is the real heavyweight. Through 10 brands, including Zara, which it has brought to SA, it operates more than 5400 stores worldwide. The Spanish retailer is clearly aiming up-market. The first two Zara stores have opened in Sandton City and Umhlanga’s Gateway mall and a third is on its way in Cape Town’s V&A Waterfront.

Inditex is playing its strategy in SA close to its chest, noting in a written response to the FM: “More openings will arrive as new good opportunities arise.”

Nedbank Capital retail analyst Syd Vianello believes Inditex is looking to open 20-40 Zara stores. “Leading malls will want them and make space for them,” he says.

Ronnie Stein, chief financial officer of The Foschini Group (TFG), is not worried about Zara. “I don’t think they have the legs to open more than 10 or 12 stores,” says Stein. On pricing, he says Zara’s products are pitched 30%-35% higher than TFG’s.

Gap, which is partnering with Stuttafords, appears to have big plans in SA. “We believe there is tremendous opportunity for us in the market,” says Gap’s MD of strategic alliances, Stefan Laban. But Stein is unconcerned about Gap: “They are just too expensive for the SA market.”

Gap has opened one store in Sandton City and another in the Tyger Valley Centre in Cape Town.

By pricing high, retailers are targeting a very small segment of SA’s apparel market. Research firm Euromonitor estimates that in 2010 the designer clothing and footwear sector generated sales of just R650m.

An SA player in the top end of the market is men’s clothing retailer Surtee Group, which operates 18 stores boasting top international brands Lacoste, Hugo Boss and Armani. “People with money are still spending, but it is not the boom times of 2006-2007,” says Surtee Group CEO Aasif Surtee.

Surtee Group recently acquired the SA franchise for Mamas & Papas, a UK retailer specialising in up-market babywear and maternity clothing. While Surtee sees a demand for this type of store, he says: “The top end of the market is small.” A Mamas & Papas store has been opened in Sandton City and eight more are to follow in the next five years.

Edcon, SA’s largest clothing retailer, has also chosen the franchise route through a tie-up with UK clothing retailer Arcadia Group, which has 3100 owned and franchised stores in 31 countries. Edcon will bring two of Arcadia’s brands, Topshop and Topman, to SA.

“The first store will be in Sandton City, the second in Gateway, and we are looking at Cape Town,” says Debbie Millar, Edcon’s media and investor relations head. “There is no target for store numbers.” Initially stores will be standalones and from 2013 others will be housed in Edgars stores. Pricing will be 15%-20% above mainstream SA brands, she says.

Foreign clothing retailers entering SA face an uphill battle, says Woolworths CEO Ian Moir: “It is a tough marketplace. You have to be on top of your game to succeed.”

As things stand, it appears foreign brand stores will open in their dozens rather than in their hundreds. Given their prices and locations, they probably pose more of a threat to independent boutiques than to retailers such as TFG, Truworths and Mr Price, who see the mass middle market as their key target.

Summing up, Stein says: “I don’t believe we will see a proliferation of foreign-brand stores.”

Financial Mail

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