As fast fashion gains a significant following in South Africa, a growing number of international retailers are building their presence in the market.
More than 12 international clothing and shoe retailers have set up shop in the country in the last three years including the likes of H&M, Forever 21 and River Island, competing with domestic retailers such as Mr Price and Edcon for a growing middle class with higher levels of disposable income and an eye on the international catwalks.
It’s becoming a key business growth area with the clothing industry, accounting for just under 20 percent of retail sales a notable contributor to household consumption expenditure, which in turn comprises 60 percent of South Africa’s GDP.
Zandile Makhoba, Head of Research, JLL South Africa, says: “Clothing and footwear imports measured in tons have grown by an average of 15 percent per annum, reflecting strong local demand and the shortage of suitably sized local producers to offer alternatives in this market. This is despite the significant weakening in the local currency which should have seen the size of imports slowing.”
The new kids on the retail block
Last year alone, South Africa imported over 32 million tons of clothing, shoes and wearable apparel as retailers snap up space in some of the big malls such as Johannesburg’s Sandton City. On average, clothing retailers and department stores account for 45 percent to 55 percent of gross leasable area in super-regional malls.
And the tough economic environment and initial regulatory hurdles aren’t putting retailers off. Australian chain Cotton On says it sees South Africa as a key growth market in the coming years while H&M is also planning to open another four stores in the market, bringing its total to nine.
When it comes to establishing their presence, international retailers are choosing not to leverage off existing retailers and instead are opting for unique operating models to manage costs and improve efficiency.
Key to this is overcoming domestic trade and logistic challenges, according to Makhoba. “While Durban remains the main port of entry for the sector, accounting for 40 percent of all imported shoes and clothing, backlogs and bottlenecks at the Durban port have seen retailers looking for alternatives,” she says. “Although it is still early days, the three international airports – O.R. Tambo, King Shaka and Cape Town International – are beginning to play a bigger role in the industry.”
International retailers are also bringing change to South Africa’s existing retail real estate arrangements such as the length of lease terms and the traditional relationship between occupiers and investors.
“International retailers are demanding the increased flexibility which they are accustomed to in more developed markets such as Europe,” says Makhoba. “However, these challenges are potential opportunities for land owners and industrial developers who are quick enough and willing to adapt to the needs of global occupiers.”