Foschini well placed for a Covid-19 disrupted fashion retailing world

Analysts say The Foschini Group is ahead of the pack.
Analysts say The Foschini Group is ahead of the pack.

In the world of fast fashion, retailers who cannot meet the latest trends with a click of a finger were increasingly going to struggle.

The Covid-19 pandemic has just accentuated that struggle as malls are likely to see a pronounced decline in foot traffic, affecting the sales of the country's major retailers that were already under pressure from a sluggish economy.

Over the course of the lockdown period, clothing retailers have been particularly affected. When they were eventually allowed to open their doors in May, they had missed out on the chance to clear summer stock and for winter fashion, people swapped coats and scarves for hoodies and track pants.

As they now look to recover from this knock, they are also going to have to adapt to a change in shopping habits brought on by the pandemic, with shoppers embracing online purchases.

Best placed for this shift in consumer habits, according to analysts, was the Foschini Group (TFG).

The owner of Markhams and Fabiani is one of the few retailers that claim readiness to respond to the disruptions that Covid-19 has caused in the industry; from exponential growth in people who have shifted their shopping to online to stock transportation delays and the ever-changing fashion tastes.

More functional e-commerce platform

During the presentation of the group's annual results to end March, TFG CEO Anthony Thunström said building a seamless e-commerce platform had been the focus over the past year.

Some of the initiative the group invested in to fast-track the processing of online orders include systems that monitor stock levels in real-time in many of its stores and the ability to redirect online orders to the closest store from where the customer is buying, instead of always using the central warehouse.

"Anyone ordering online at the moment, there's a fair chance of being disappointed in terms of delivery times because of the backlog in online orders. But our OneStox system allows us now to procure from the store.

"We have 400 stores already on OneStox, so we can procure much closer to where a person lives or works," said Thunström, adding the group would be rolling out this system to more stores in South Africa.

He added compared to other brick and mortar retailers who also sell online, TFG now owned a 28% share of customer traffic, placing it well ahead of the next biggest commander of online market share in that segment, Woolworths, which owned roughly 17%.

"We are going to be doing some large investments around that going forward, and those will be launched to the market in the next couple of months. So, I would expect that 28% to grow even further and faster," Thunström said.

Lulama Qongqo, an investment analyst at Mergence Investment Managers, said TFG and Mr Price certainly have the most developed e-commerce platforms of all big local fashion retailers in the country.

But, he added, TFG was one step ahead of the pack when it came to responding quickly to market trends and disruptions, which boded well for the group as the industry was navigating a constantly changing environment right now.

"They are very with the times and it has a lot to do with their international acquisitions. They had to learn to grow their online business very fast because they are in two developed markets where the shift to e-commerce was much faster," said Qongqo.

The local manufacturing advantage

As some retailers have had to contend with manufacturing delays in China, Thunström said TFG started reducing the proportion of its products sourced from that region a couple of years ago.

Most of its products are now manufactured locally which enables the group to make those fashion calls much close to the start of each season and to quickly change tack if needed.

For instance, the group is able to manufacture "quick-response" fashion in just 48 days and these are the kind of products that clear off the shelves 4% quicker than the average stock. The group invested R21 million more to its local quick-response manufacturing equipment in the past year which has increased its ability to make those last-minute fashion calls by 57%.

In an Insights piece that Sasfin senior equity analyst Alec Abraham compiled after engaging with some of the listed South African clothing companies, he noted because of its higher proportion of local supply, TFG had greater stock flexibility to respond to the growing demand for casual and athleisure apparel.

Qongqo said local production also helped TFG reduce the risk of being stuck with redundant stock that it might be forced to discount heavily to move off the shelves.

"I wouldn't say they are fast fashion, but still they do play in that segment where they need to have the right stock on time. And that has a direct impact on your profit margin because if you cannot respond as quickly as Foschini is able to, you are forced to discount a lot months later when you can't sell stock," he added.

Despite the Cape Town-based retailer being best placed for the changes in the South African retail sector, the Foschini Group's shares have underperformed over the past five years in line with a struggling economy.

Over the past five years, its shares have fallen to just under 50%, while rival Truworths has seen its valuation fall 54%. Woolworths, affected by the weak domestic economy and weighed down by its Australian operations, has seen its stock fall by about 65%.

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