Two of South Africa’s largest and most acquisitive apparel retailers, TFG and Mr Price Group, remain on the hunt for opportunities — but with different approaches. TFG is targeting scale, while Mr Price is focusing on smaller, tactical bolt-ons.
Both recently reported solid full-year results after enduring soft first halves. Marked second-half improvements were driven by such economic tailwinds as payouts from the two-pot retirement system and positive sentiment about the GNU.
TFG, with 35 brands across South Africa, the UK and Australia, continues to chase both scale and value. The group targets a higher LSM than Mr Price, but has expanded into the value segment via its acquisition of Jet. Both groups operate in apparel, beauty, jewellery, homeware, furniture, sports and mobile devices.
While TFG has nearly 5,000 stores and outlets across 23 countries, Mr Price Group has 11 brands across South Africa and eight other African countries. Its acquisition journey began more recently and it has focused on integrating and scaling new purchases such as Power Fashion, Studio 88 and Yuppiechef.
I think every player in South Africa knows the large acquisitions out there and we’re not interested in them
— Mark Blair
Acquisitions have buoyed both groups. In the financial year ended March, Mr Price reported a 7.9% rise in revenue to R40.9bn, crossing the R40bn milestone for the first time. The group posted a record operating profit of R5.8bn, with margins up 20 basis points to 14.2%.
Despite its acquisition appetite, Mr Price is not eyeing large deals. CEO Mark Blair emphasises that future acquisitions will be tactical and complementary.
“I think every player in South Africa knows the large acquisitions out there and we’re not interested in them,” says Blair. “There may be smaller strategic moves, but nothing big we’re actively pursuing.”
With GDP growth in South Africa struggling to reach 1%, Blair says future upside lies in optimising the group’s existing portfolio and supply chain.
The acquisitions of Power Fashion and Studio 88 were initially met with scepticism, but sentiment has shifted. An Investec report earlier this year suggested that Power Fashion could be the most promising growth opportunity for a single apparel brand in South Africa over the next decade.
Power Fashion, now Mr Price’s fastest-growing division in apparel, has 324 stores, with ambitions to triple this base. Yuppiechef also saw double-digit growth, with Blair describing it as “one of the most sought-after concepts by landlords”.
Mr Price Apparel plans to add 40 new stores next year and expand into underindexed segments such as children’s wear — it now has 39 standalone children’s wear stores.
Not all divisions are firing, however. Miladys underperformed in the cycle, though it did better in the second half. The group plans to double capital expenditure to R1.6bn, including R200m for store refurbishments, which Blair says are yielding strong returns.
TFG CEO Anthony Thunström says the group continues to explore bolt-on acquisitions, noting the success of Jet and Tapestry that now serve nearly 40-million customers. Its Bash e-commerce platform, with more than 8-million downloads, has become a key growth engine and reached profitability two years ahead of schedule.
“We have an enviable mix of organic and inorganic growth opportunities over the next five years,” says Thunström.
For the year ended March, TFG posted a record R6.2bn operating profit, up 4.4% year on year, fuelled by stronger sales in the second half. Several divisions hit record turnover and profit, with Thunström attributing gains to market share expansion in a stagnant retail environment.
In the UK, TFG London posted a 15.35% sales increase (measured in rand), but comparable sales fell 9.5% (8.6% in rand terms). White Stuff, acquired during the year, contributed more than R2bn in turnover in just five months, benefiting from strong casualwear demand.
In Australia, sales fell 6% (2.6% in rand terms), though the region still represents about 13% of group sales, similar to the UK.
We have an enviable mix of organic and inorganic growth opportunities over the next five years,
— Anthony Thunström
Thunström notes: “We have been accused of growing through acquisitions. While acquisition and capturing a greater share of our customers’ wallets remain core to our strategy, it’s gratifying to note the outperformance of our core business.”
TFG generated R62.6bn in revenue vs Mr Price’s R40.9bn. TFG also boasts a higher gross profit margin (46%) compared with Mr Price (42.4%).
Steph Erasmus, investment analyst at Anchor Capital, prefers Mr Price for its simplicity and domestic focus. “It’s a South African story. From an investment perspective, it’s less complex — geographically and in terms of foreign exchange exposure.”
While acknowledging that multinational diversification offers some protection, Erasmus is cautious about TFG’s international exposure, particularly in the UK — aside from the White Stuff acquisition.
“TFG’s core South African business appears solid, and post-period sales have been strong. But I prefer a pure South African retailer rather than a retailer with broad international exposure.”
On Mr Price’s recent acquisitions, Erasmus notes that investor doubts have largely abated. “Mr Price disclosed that [the acquisitions] contributed R1.2bn to operating profit during the period.”
Ultimately, he stresses sustainable growth. “If you can expand while maintaining margins, you will generate more profit in absolute terms. What you want to avoid is shrinking margins or a bloated asset base, which decreases returns.”
Looking ahead, Erasmus sees TFG focusing on Bash, and Mr Price on integrating its supply chain, protecting margins and maximising returns from existing assets. “TFG, meanwhile, appears to be pursuing acquisitions in markets like Australia and the UK — so these are very different stories.”
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