TFG CEO Anthony Thunström sees two distinct groups of shoppers in South Africa: the vast majority are “pretty aspirational” when it comes to clothing brands, while the second grouping is firmly focused on a certain product at a certain price point.
This customer distinction helped buoy the acquisitive retailer in the past year, when the market might have expected a shabbier showing from TFG. Thunström says “almost all of our brands have high brand equity”. TFG — owner of brands such as Foschini, G-Star, Jet, Sportscene and Coricraft — saw its core TFG Africa division report an 8.9% rise in revenue to a record R60bn to the end of March. Importantly, it also registered market share gains “across all major merchandise categories”.
With 34 retail brands in the group’s portfolio, Thunström chooses to highlight Redbat, a sports brand the group has been building for the past 15 years within Sportscene, and the second most popular sports clothing brand in the country after Nike. He says the overall preference of the country’s consumers for brands with higher equity explains why names such as Nike and Under Armour do exceptionally well in South Africa, despite being expensive. It also explains the resilience of the brands in the group’s portfolio.
Thunström says the past year has been “pretty brutal” for the retail sector, globally and domestically. Businesses have been negatively affected by high interest rates, heavily indebted consumers, a cost of living crisis and shipping delays. South Africa was also severely affected by load-shedding and the consequent increase in unemployment.
But the group continues to grow. From 2015 to 2024, TFG has grown group turnover from R15bn to R60bn, quadrupling in size.
It invested in price across all its brands, increased the scale and reach of its value-orientated brands in South Africa and Australia, and grew the proportion of goods it manufactures through its in-house quick-response operations. TFG also honed its in-house last-mile delivery service.
“In a low- to no-growth market — which South Africa has been for the past decade — it is all about market share. And we continue to gain market share gains across all key categories.”
TFG has grown mens-, womens- and babywear ahead of the market, and interestingly decided not to fully participate in Black Friday, preferring to reinforce margin. Thunström notes that in the menswear category, there is a particularly strong trend to gravitate to brands with the highest brand equity in the market. He estimates the group has a 60% market share in jewellery and is growing ahead of a shrinking market. The newly formed value category grew at a slightly slower pace than the others, largely as a result of the closure of 33 Jet stores where TFG could not achieve acceptable rental terms.
Over the past year, TFG allocated the majority of its store capex to new and revamped stores in the highest growth potential categories — sportswear, menswear and homeware, in the form of expanding its recently acquired Tapestry business.
Thunström says the group has seen a seismic global shift with the recent emergence of Chinese pure-play fast fashion. He has been acutely aware of Chinese pure plays expanding globally; TFG, along with other large listed retailers, has been working with the South African Revenue Service to ensure a level playing field. Parcels below R500 that were attracting minimal duty will now attract the same tax as other products. “We don’t underestimate them, but we built a fairly successful moat, and successful local manufacturing puts us in a position where we can respond faster than another local retailer,” he says of the Chinese online retailers.
“We’ve been taking them very seriously; we saw their rise in the UK and Australia and as a result, we spent a lot of time and money on Bash delivery and our own manufacturing to ensure we can continue to compete online.”
The proportion of apparel manufactured locally for the group is 72%-73%, similar to a year ago, and it stood the group in good stead as global supply chains were disrupted. Thunström does not think the proportion will rise significantly, though the quantum will increase as the group grows sales.
Since financial 2019, margins have gone backwards and the returns for shareholders have not held up
— Casparus Treurnicht
Where product takes 10 to 14 days to arrive from Shein or Temu, local manufacturing allows TFG a quicker turnaround. Through Bash it initially did 8% last-mile deliveries from within the stable, but this year it was ahead of 25%. “It will give us the ability to offer same-day delivery.”
Despite facing the onslaught of offshore fast-fashion online retailers such as Shein and Temu, and most recently Amazon, online sales at a group level were up 22% to R5.6bn, contributing close to 10% to total retail turnover. That is largely attributable to the South African performance of its Bash platform, which recorded 44% growth in revenue and a 64% increase in first-time shoppers.
TFG Africa’s overall retail turnover grew 10.4%, driven largely by clothing, with a particularly strong performance in sports- and womenswear, as well as homeware. The business had record gross profit of R16.1bn. The group has invested nearly R10bn in its business over the past two years, and will consolidate its distribution centres from 13 to seven.
‘A year of two halves’
“This was very much a year of two halves — the first half [was] about the clearance of excess inventories,” says Thunström. He stresses that the group has been committed to consolidation and sweating recent acquisitions. The international businesses in the UK (Phase Eight, Hobbs and Whistles stores) and Australia (Connor, Tarocash, yd and Johnny Bigg) contributed 28% to group revenue and 29% to group profits. Offshore operations in the UK and Australia are coming off post-Covid bubbles and while down on last year, recorded their second-highest profits yet.
TFG recently negotiated a franchise agreement with JD Sports, a global leader in sports fashion, making the group its exclusive retail partner in South Africa (with plans to extend into Africa). The first store is set to open later this year, likely in Canal Walk, Cape Town. The plan is to open several flagship stores with JD, which combines globally recognised brands such as Nike, adidas, Puma and The North Face with strong private labels such as Pink Soda and Supply & Demand.
Thunström says its offering of street fashion and street culture is closer to Sportscene than Totalsports. “Because of its size, it has a unique relationship with the global sports brands and a significant proportion of its branded product is exclusive.”
While TFG is clearly exerting itself on all fronts, the market seems less impressed with its prospects. The share is up about 11% over a year, but down 23% over three years and more than 40% down over five years. The share reflects a forward earnings multiple of under 10, well off the more dashing multiples of yesteryear.
Gryphon Asset Management portfolio manager Casparus Treurnicht says the golden years of South African retail are over, and TFG is proof of that. “Since financial 2019, margins have gone backwards and the returns for shareholders have not held up. It might also have to do with the acquisitions that TFG has made.”
For example, he says, in financial 2019 the return on equity was north of 18%; now it’s about 12.5%. “What gives one a bit of comfort is that it has actively managed to keep debt relatively low, perhaps because management is very aware how tough retail has become in South Africa. And investors know this too — valuations are quite low as sentiment and foreign investor interest have gone down, so when a company like TFG releases results that still hold up … the share price jumps as investors were not that optimistic.”
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