TFG rolls up its sleeves

TFG (previously The Foschini Group) is finally the proud owner of Jet. This means, at long last, it has a foothold in the only real growth area of clothing — value apparel.

"It will be an important area of retail for some time to come" says TFG CEO Anthony Thunström.

Though TFG has a wide spectrum of brands from the upmarket men’s brand Fabiani to Foschini, American Swiss in jewellery, @home to Totalsports, its Exact brand is the only one that operates close to the value retail space.

Thunström refers to the shift to value-for-money as one of the "seismic shifts" in retail.

But it doesn’t mean cheap: it means that wherever you are on the income scale, you feel you’re getting value for money.

"We’ve been very focused on that for a number of years," he says. "The shift towards value has been accelerated by the economic fallout of Covid."

Jet also stands in casualwear’s sweet spot, given that there’s very little reason to dress up at the moment. "I expect for at least six to nine months casual will be king."

Thunström was speaking, along with CFO Bongiwe Ntuli, at a media briefing last week, TFG’s first on the Jet purchase.

TFG had looked at buying Jet as far back as five years ago.

It wasn’t just the price that scuppered a deal, but the challenge of disentangling Jet from the Edcon mothership.

Back then, the asking price for Jet was about R6bn, and TFG would have needed to buy the book as well, yielding a total price tag of R8bn-R9bn.

The back-office systems supporting the various parts of Edcon, especially IT, were very centralised and a separation would have been costly and risky.

A few months ago interest swung back towards Jet. TFG executives learnt that despite there being a buyer for Edgars, Jet was still available. Obstacles were melting away. There was a comprehensive and proven plan to disentangle back-office components from Edcon and the Jet credit book was going to be owned by a specialist retail credit provider. And the asking price was no longer in the multibillions.

In the end, TFG paid just under R480m for about 420 selected stores, more than the 371 stores initially earmarked.

About 380 of the stores are in SA, taking the enlarged TFG group to more than 3,000 stores in Southern Africa and more than 4,000 outlets globally.

The combined TFG/Jet business will have about 1.18-million m² in SA, making it one of the biggest clothing retailers in terms of space in the country.

About 4,800 jobs have been saved through the deal, which was given the nod last Friday by the Competition Tribunal. There was huge public interest in saving the jobs, in addition to between 30,000 and 35,000 local manufacturing jobs.

Every store that closes means the loss of 30 to 40 jobs, says Thunström.

TFG itself has a large proportion of locally manufactured product, which it will continue to grow. It has two local manufacturing plants: one in Maitland in Cape Town, the other in Caledon.

That means local response times for the group run at an average of about 42 days from order to delivery, while orders from the Far East take 150 to 180 days.

One of Jet’s biggest problems is that it is low on inventory; it has less stock than it should. Thunström says the quick response from local manufacturing will soon get Jet back on track.

But, he says, local manufacturing is "not for sissies". It takes time to build skills, there’s load-shedding, fabrics aren’t always available and skill sets need to be retaught.

However, TFG plans to ramp up its two factories and the company expects to add several thousand more jobs in the future.

Jet will also be able to tap into TFG’s online offering, which is more advanced than most other retailers in SA.

At present, online sales account for about 6% of turnover but Thunström says: "I can foresee online in SA being closer to 20% of turnover."

Still, that doesn’t mean its focus will be only online — TFG has to get Jet’s in-store shopping experience right.

For example, the downtime in a Jet store terminal is five times higher than that of TFG, which Thunström says is unacceptable.

TFG was o of the first major retailers to engage (some would say play hardball) with landlords during lockdown.

While none of the parties wanted to concede on rentals at first, the impasse shifted quickly.

"Landlords don’t want or need empty space," says Thunström.

The Jet leases have been cut to three years, allowing for greater flexibility.

To try to make five-or 10-year commitments is crazy, says TFG.

The group has also been weaning itself off credit sales over the past few years.

"We used to accept 55%-56% of new account applications we received. A year ago that dropped to 25%-30% and now that’s running below 15%. In some months [it’s] single digits."

Over 60% of sales are now in cash.

Jet has a relatively new management team in place from just over a year ago. Shane van Niekerk, who heads the business, was formerly with Mr Price.

One of the first things Thunström and his Cape-based executives did was fly to Joburg to see if there was a "fit". There was.

The Jet executive team will stay in Joburg for the foreseeable future.

While SA grapples with a fast-shrinking economy, it’s not actually TFG’s toughest market. That dubious honour belongs to the UK, where TFG owns higher-end brands including Hobbs, Phase Eight and Whistles, which all sell smart workwear and occasion clothing, not tracksuit pants.

Part of the problem is that city centres are virtually desolate, though TFG is hopeful that people will eventually return to their offices.

As for Australia, harsh lockdowns continue to hobble trade out of its physical stores.

But the company may take some of its top-performing Australian brands international – especially Johnny Bigg, which recently launched online in the US — and Rockwear, its ladies athleisure brand, which is growing fast.

TFG’s shares, like those of most retail groups, have bounced back from their March lows, but they’re still down about a third for the year.

Hopefully, the contribution from Jet will kick in sooner, rather than later.