Foschini looks to rest of Africa as SA retail stagnates

FOSCHINI, the JSE’s worst-performing clothing retailer this year, says it plans to open 21 new stores on the rest of the continent by March as consumers in Africa’s largest economy struggle to repay debt.

The company, which owns the Fabiani and Charles & Keith fashion brands in South Africa, joins retailers such as Carrefour, Shoprite, Walmart’s Massmart and Truworths International in expanding in Africa. The continent has a rising middle class that may number 300-million people and an economy set to grow at three times the pace of the US next year. South Africa’s Reserve Bank has forecast an expansion of 2% for this year, the slowest since the 2009 recession.

Foschini planned to open five or six new stores in Zambia and four in Ghana, chief financial officer Ronnie Stein said this week. The retailer would open 42 new stores in the rest of the continent in fiscal 2015 and 38 in fiscal 2016.

Further, Foschini planned to add to its two recently opened stores in Nigeria as more shopping centres were built in the nation of about 160-million people. “That will take us to 205 stores by the end of 2016 when our turnover from the rest of Africa will be R1bn,” Mr Stein said.

“We always start with two stores in a country. Once we’re happy with the environment, the logistics, the legal side, the tax side, the staffing side, then we roll out.”

South African retail sales rose at the slowest pace in nine months in June as rising joblessness weighed on spending. South Africans with impaired credit records rose by 189,000 to 9.53-million in the first quarter, the National Credit Regulator said in June.

About 40% of Foschini’s sales in fiscal 2013 were done with cash, while the balance was done on credit using the retailer’s store cards.

Retailers “all recognise the need to expand outside South Africa, because South Africa is becoming competitive”, said Roger Tejwani, a retail analyst at NOAH Capital Markets who has a hold recommendation on Foschini. “It’s becoming overtraded.”

The stock has lost 29% this year, compared with an 18% decline for the 11-member FTSE/JSE Africa general retailers index.

Foschini’s sales would probably grow 10% for fiscal 2014, Mr Stein said. That compares with a median estimate of R14.28bn (10.7%) of eight analysts in a Bloomberg survey.

Mr Stein said trading conditions in the first three months to end-June were “tough” whereas last month was “pretty good”. Fluctuations in the rand might affect price increases on Foschini’s merchandise.

Foschini’s internal product inflation for the fiscal year to end-March was 5%. That compares with a 6.3% increase in consumer price inflation in July, according to Statistics South Africa.

“If the rand remains at the 10-ish level, the inflation for summer would likely be in the region of 7%, which is less than the devaluation in the rand,” Mr Stein said.

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