Analysts cautious over new clothing labels entering SA
IOL Business - Mar 26th 2012, 09:36
A wait-and-see approach should be applied to gauge the performance of international clothing labels as more foreign stores were making their way to the South African market, retail analysts said last week.
US retailer Gap opened two stores last week, in Johannesburg and Cape Town, after having traded through Stuttafords stores in this country for the past five years.
It is believed that the company has plans to open a third store in Pretoria in August.
Meanwhile, Gap would continue to sell through Stuttafords while the label proceeded to roll out stand-alone Gap stores in malls across the country.
Stuttafords chief executive Hilton Mer said on Friday that the company held a franchise licence for the Gap stores, and that it also held an agreement allowing it to sell Gap products in its department stores. However, the businesses remain separate entities.
Mer said the Gap clothing range had been “in South Africa for some time and it had probably gained some brand awareness”. He added that it could survive, but would not be able to attract the mass market because of its steep prices.
Gap managing director Stefan Laban said: “South Africa is the natural next step for expanding our presence on the continent. The country has a thriving economy and a high Gap brand awareness, so we believe there is tremendous opportunity for us in the market.”
Absa Investments analyst Chris Gilmour said a wait-and-see approach should be applied, especially for the Gap stores. He said the market that these retailers were trying to reach was limited, especially given the economic uncertainty and the low prospects of new jobs being created.
Syd Vianello, an analyst at Nedbank Capital, said Gap planned to be more visible and to enjoy a better trading environment.
“Even if the store does not attract the mass market it would be able to offer quality to the upper-market consumer,” he said.
Vianello raised concerns about the retailer’s prices in South Africa, saying that they were a lot higher than in other countries.
In the US, a pair of Gap jeans cost $60 (R461), while in South Africa the same item sold for about R1 000, Vianello said. He speculated that this could be because of the high import costs attached to the clothing items.
However, Mer said Gap’s store pricing would be in the same ball park as competitors, but it did not mean that the price would be the same. “It could be a little bit higher or even lower but it should remain competitive.”
In the past six months, Zara, which is owned by Spain’s Inditex Group, has opened two stores in South Africa, one in Durban and another in Johannesburg.
This week the Spanish retailer said it had posted a 12 percent rise in full-year net profit to e1.9 billion (R19.3bn) as the group reached 5 527 stores worldwide.
Vianello added that Zara could still improve because it was “a mainstream store and could compete with Mr Price and other local major retailers”.
Brands like Gap, Woolworths’ Trenery and Country Road, and Kurt Geiger have a relatively small market share.
However, it was doubtful that these brands would gain a strong market share in South Africa as the country had a small number of wealthy people.
They also wanted to open stores in smaller regional malls in addition to the major shopping centres as the new brands were planning to take their products to a much wider audience rather than the urban-based, Vianello added.
He said Zara was also using South Africa as a springboard to gauge the African market.
The company would also attract the mass market and be able to compete with Woolworths’ upper market labels such as Trenery and Country Road, as well as Truworths and Foschini.
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