Clothing retailers eye local supply

Published Oct 4, 2015

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Johannesburg - South African retailers are waking up to the need to work more closely with a resurgent domestic textile industry to help fend off fashion giants muscling in on the continent’s most lucrative market.

Cheap Chinese clothes imports almost broke the back of local garment makers, but the sector has started to recover after the government invested more than R2 billion in upgraded production lines and more innovative technology.

However, the majority of clothing sold in South Africa by local brands such as The Foschini Group, Truworths, Mr Price and Edcon is still sourced from Asia.

But more competition is expected from global brands such as Inditex’s Zara and Hennes & Mauritz as they expand in a sector whose value rose to more than R200bn at the end of last year.

 

Brand-conscious

Among the continent’s most brand-conscious consumers, South African households spent an average of 5.3 percent, or R582, of monthly income on clothing and footwear last year, above spending on education at R373, according to the Bureau for Market Research at the University of South Africa.

In impoverished shanty townships where the black majority live, the trendiest clothes and latest fashions are common features of township life.

“If we are able to take raw materials to the season’s hottest, in-demand products faster than anyone else, that’s good for our business, for the local manufacturing industry and for our customers,” said Graham Choice, the head of Foschini’s manufacturing and design centre.

Keen to tap into this vibrant market, Zara opened in South Africa four years ago and now has six stores. Australian no-frills chain Cotton On has described the country as its fastest-growing market while Britain’s Top Shop and Forever 21 arrived recently.

Hennes & Mauritz is set to open a vast store next month. At 4 700m2 the outlet in Cape Town’s trendy V&A Waterfront mall will be one of Hennes & Mauritz’s biggest and the Swedish retailer will open another outlet in Johannesburg in November.

Inditex, which pioneered the idea of producing a constant supply of new styles from factories close to its biggest markets – a concept known as “fast fashion” – flies in clothes twice a week from suppliers in Portugal, Turkey and Spain.

Hennes & Mauritz, which produces the bulk of its garments in Asia, is expected to adopt a similar approach.

“The signs are there, we could bleed market share, unless we change,” Justin Barnes, the chairman at B&M Analysts, which advises the government and the clothing industry, said.

To defend their market share, South African retailers should take advantage of the faster speeds at which local suppliers can get clothes to market, analysts said.

The Foschini Group says it is aiming to work more closely with local suppliers, and about 65 percent of its women’s wear is now made in South Africa.

Some South African factories can get fresh garments into stores within 32 days, and most are aiming to regularly beat a maximum cut-off target of 42 days, though not surprisingly that is still slower than the fast fashion pioneer.

Inditex says in some cases, depending on the availability of fabrics and the complexity of production, it can race from design to the store in less than two weeks.

South Africa has about 900 clothing factories left, just over half an estimated 1 600 plants at the sector’s peak in 1996, according to data from the clothing manufacturing industry bargaining council.

 

Productivity

From 2010 to 2014, productivity jumped 36 percent while employment in the clothing, textile, footwear and leather industry rose to 88 657 in the year to March 2015 from 87 386 a year earlier. That is still a far cry from the 1996 peak of 228 000 jobs, before Chinese imports hammered local factories.

But now rising wages and salaries in China and a weaker rand, which touched record lows of R14 to the dollar last month, are starting to favour local clothes production.

“Fundamentally, the currency has effectively changed the landscape completely.

“The longer-term trend is for it to weaken and, given that fact, retailers want to be predisposed to an environment where you benefit and are not penalised,” said Abdul Davids, the research head at Kagiso Asset Management.

Before taking into account any shipping costs or import tariffs, a South African factory could already produce a cotton T-shirt for just under $2 (R28), compared to $1.12 in Turkey and 50-80 US cents in China, said Kagiso’s Davids.

Most contracts with Asian garment factories are denominated in US dollars, further helping the relative competitiveness of South African factories whenever the greenback strengthens.

Global brands could eventually be tempted to source locally.

Hennes & Mauritz, which is already considering buying clothes from Ethiopia, said that it had no plans for production in South Africa, but did not rule it out for the future.

Asked whether it could consider sourcing from South African factories, Inditex would only say its garments were manufactured by the most appropriate suppliers, no matter the final market.

For now, local clothes makers hope more local retailers will be turning to them to help rival the big brands coming to town.

“The worst is behind us and the industry, and we are moving forward on the back of ‘fast fashion’.

“It is exciting times,” said Sam Schaffer, the managing director of Rotex Fabrics, a textile mill in the Western Cape, the heart of South Africa’s clothing industry. – Reuters

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