For years, South Africans wanting clothes from stores such as Zara (ITX) and Topshop could only get them when traveling abroad. Now, they’re available at the local mall as mid-market apparel retailers rush into the country, seeking to create a base for expansion across Africa.
In the last year at least a half-dozen foreign clothing brands, including Superdry, Steve Madden and G-Star, have opened outlets in South Africa.
Arcadia Group Ltd.’s Topshop is slated to open its first stand-alone outlet in South Africa before December, in the Johannesburg suburb of Sandton. A few kilometers away in Hyde Park centre, LVMH Louis Vuitton Moet Hennessey SA (MC)’s Thomas Pink in June opened its first shop in Sub-Saharan Africa.
Retail sales in South Africa advanced 8.3 percent in June from a year earlier, compared with a 1.2 percent decline in the euro region. Spending on clothing and footwear in South Africa totaled 86.9 billion rand ($10.5 billion) last year, according to the central bank.
While there’s no shortage of retailers in South Africa, “the average person has not had access to these brands, so there is growth for them,” said Mashuda Cassim, managing director of fund manager Cachalia Capital Ltd. in Johannesburg.
Linda Kamauj spent a recent afternoon flipping through 499- rand jeans and 259-rand T-shirts at Zara in Sandton, opposite the newly renovated flagship of local clothing retailer Truworths International Ltd. (TRU) The Zara store appeared to be at least twice as busy as Truworths, with a line of more than a dozen mothers, teenagers and young professionals waiting to check out.
“I’d heard Zara had come to South Africa and came to see what was on offer,” said the 34-year-old Kenyan, visiting friends in Johannesburg. “I like the materials and styles, they’re a bit different from what I can get back home” in Nairobi.
South African shoppers have been able to buy brands such as Gap and Levi locally for some years, though mostly in other companies’ stores and typically at prices that were 30 percent to 50 percent higher than in their home markets. For many South Africans, having foreign brands in your closet meant you had money to travel and buy abroad.
“These brands are seen as aspirational in the South African market,” said Gabriel Sacks, an assistant fund manager at Aberdeen in London. “To be seen buying or wearing a foreign brand is still associated with wealth.”
The newcomers have to compete with South African stalwarts such as Truworths, Woolworths Holdings Ltd. and the Foschini Group Ltd., which operate chains that sell clothing, cosmetics, jewelry, accessories and sporting goods.
“South Africa is quite a sophisticated economy with lots of young emerging professionals who are increasingly becoming aware of fashion,” said Truworths Chief Executive Officer Michael Mark. The foreign brands “will have to still prove to the local market that they can serve them.”
Woolworths Holdings Chief Executive Officer Ian Moir says he welcomes the competition, since the arrival of companies such as Zara will help raise consumer awareness of fashion. His company, which has no relation to other Woolworths in the U.S., Britain and Australia, focuses on office attire, casual wear and lingerie.
“If your prices and quality are good, you will see customer loyalty,” Moir said. “Whether I’m competing with Zara, Topshop or Truworths, it makes no difference to me -- it’s about getting the fashion mix right.”
The real prize for both the South African incumbents and the foreign interlopers may lie to the north. Political stability is increasing, and Africa’s 1 billion-plus people are young -- 42 percent are under 15, World Bank data show. As these people increasingly migrate to cities in search of greater opportunity, a new retail culture is springing up. In the Nigerian cities of Lagos and Abuja, at least nine new malls have opened in the past five years.
Sub-Saharan Africa’s economy has grown an average of 5.2 percent a year over the past five years, according to the International Monetary Fund, fueling the expansion of the middle class. Africa now has more families earning in excess of $20,000 a year than India, according to McKinsey & Co.
“Africa remains a good long-term investment,” said Woolworths CEO Moir. And he insists that his company and other South African retailers have advantages over the foreigners when it comes to working in Africa. “We’ve been around longer and have developed relationships,” he said. “And it’s easier to supply and source from South Africa.”
South African retailers are planning new stores in countries from Angola to Nigeria to benefit from rising wealth on the poorest continent. Woolworths expects to more than triple the proportion of sales it derives from other African countries, Moir said, from about 3 percent today to 10 percent within seven years.
Truworths expects to increase its stores on the continent outside South Africa to 45 by yearend, up from 35 in June. The company said revenue from Africa, excluding its home market, rose 14 percent to 268 million rand in the year through June, versus 12.5 percent growth in South Africa.
“The brands that get in first will have first mover advantage, to get your brand firmly in the mind of the consumer,” said Syd Vianello, an analyst at Nedbank Group Ltd. (NED)’s securities unit. “You don’t want to be the last one in.”
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