Load shedding, inflation be damned … TFG will open ‘stores, stores and more stores’

By the end of March, TFG Limited will have opened around 350 new stores in its Africa operation (primarily South Africa). In this financial year, its store base will grow by a remarkable 10%. It says these new outlets will deliver R2.9 billion in annualised revenue.

While load shedding has cost the retailer R400 million in turnover since March (plus a margin loss of R100 million), it remains “cautiously optimistic” even as inflation and exchange rate pressures bite.

Read: TFG invests in backup power to insulate turnover from load shedding

To counter the impact of load shedding, it has rolled out back-up power to nearly six out of every 10 stores, protecting 68% of turnover. It has also deployed mobile point-of-sale systems to a number of “priority” stores so they can trade during load shedding.

In the first six months of its current financial year, TFG opened 159 new stores and revamped a further 51. The capital investment for these projects was R346 million and R228 million respectively.

During the peak trading season (October to December), it says it will deliver five store projects per day.

Key to this push is getting its choice of location right. The group says it is “using enhanced data driven insights from external sources to select and price location opportunities” resulting in “more stores in better locations”.

Some of its brands – such as Foschini, Markham, Sportscene and @home – are more mature and growth in the number of stores in these will be very measured.

New store brands

This year it has launched two new brands, Anatomy and Luella, and says it will keep building new brands.

One of its major opportunities is to grow several of its brands, particularly those targeted at the mid-market and value segments. It says it will focus on “scaling Redbat, Relay, Union Denim [and] RFO [Renegade Fashion Outlet]”.

In its local unit, it says it has a number of “high brand equity businesses ready to build out their footprint in new locations”. In the next three years, it sees the footprint of Jet Home growing more than sixfold from the 20 stores currently to around 150.

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It also sees triple-digit growth for RFO (400% to 200 stores) and Sneaker Factory (250% to 340 stores). Even in its more developed brand Relay Jeans, it sees the opportunity to increase store count by 40% to 156 in the next three years. (In its Australia business, it plans to increase its footprint by 20% to 700 in the same timeframe).

Tapestry Home Brands, which TFG acquired for R2.1 billion in March, has been integrated into the rest of the group and it will have added 17 new stores in this unit by the end of this month.

Tapestry, which owns Coricraft, Dial-A-Bed, Volpes and The Bed Store, will generate annualised turnover of R2.7 billion this year, with Ebitda (earnings before interest, tax, depreciation and amortisation) of R430 million.

It wants to grow turnover in this unit to R10 billion in the next five years. The transaction was important for TFG as it says it has historically been “under-indexed” in homeware.

Read: TFG beats Pepkor to secure Coricraft and Volpes owner for R2.35bn

Given this opportunity, it will add around 100 stores in this unit in the next three years, an increase of about 50% from the current roughly 200.

Along with the prospect offered by a larger footprint – as well as the group’s know-how in securing “flagship locations” – it has introduced credit into that business’s brands. This, it says, is a “key success factor”.

It has 2.7 million credit accounts as well as 29 million Rewards customers. It says one in two South Africans is a TFG Rewards member. Since the 2019 financial year, it has doubled the size of this base with nearly one million new Rewards members in the last six months.

TFG reported a 23.5% increase in retail turnover to R23.5 billion for the first six months, with headline earnings per share up 18% to 464 cents.

TFG Limited share price

Source: moneyweb.co.za