Our operating
context

fashion retail industry trends*

  • Traditional retail formats and requirements are transforming. Customers are increasingly dictating how they want to shop, where they want to shop and when they want to shop. Retailers have to adapt their business models accordingly to ensure they remain market-related, in line with changes in customers’ shopping behaviour and their demand for digitalisation.
  • A result of the shift to digital retail is the requirement for supply chain optimisation and shortened lead times by retailers to ensure speed to market and to meet customer demands.
  • Global economic uncertainty and volatility remains, with retailers in developed countries seeking new growth opportunities as sales and profitability outlooks in their core markets are stagnating.
  • While the fashion industry remains uncertain and challenging, there is a renewed sense of optimism with stronger sales growth forecasted globally across most categories, including apparel and footwear.
  • Watches and jewellery sales are forecasted to return to growth, albeit at a slow pace, while the athleisure trend is still expected to be the fastest growing category with continued strong demand, even though demand may have peaked in some markets.
*

Source: The State of Fashion 2018 (The Business of Fashion and McKinsey & Company); Global Powers of Retailing 2018 (Deloitte).

While, as the graph below illustrates, TFG’s revenue is still largely generated by TFG Africa, and in particular South Africa, the Group’s operating context is influenced by factors across all three business segments:

The geographic turnover contribution above includes each business segment’s e-commerce turnover contribution.

As varying symptoms of economic and political uncertainty across the globe continued, trading conditions remained challenging. Key factors impacting the Group during the year were:

TFG AFRICA

South Africa

  • Political uncertainty in South Africa continued to impact the economy for most of the financial year. However, the outlook, particularly in respect of consumer confidence, has improved with the inauguration of Mr Cyril Ramaphosa as President of South Africa on 15 February 2018.
  • South Africa’s foreign and local currency credit ratings were affirmed by rating agency Moody at investment grade, and they revised their outlook on ratings from negative to stable.
  • The Monetary Policy Committee of the South African Reserve Bank reduced the repo interest rate twice during the past financial year. The first cut was 25 basis points in July 2017, with a further cut of 25 basis points in March 2018. The current repo rate in South Africa is 6,5% and the prime lending rate is 10,0%.
  • The Rand strengthened against major currencies following the political developments that have occurred since the change in ANC leadership in December 2017. However, it remained volatile for the majority of the Group’s financial year.

Rest of Africa

  • The impact of the severe drought as well as commodity price pressures weakened economies in Namibia and Zambia. In Namibia the annual GDP growth rate was negative in five out of six quarters between June 2016 and December 2017. In Zambia, the annual GDP growth rate decreased from 5% in 2014 to 4,1% in 2017.
  • Both Zambia and Kenya were also impacted by political instability during the past year with their presidential elections. In Zambia, elections took place in August 2016 that were contested and led to a state of emergency from July to October 2017. The Kenya elections in August 2017 were coupled with civil unrest in certain areas and the first results were contested, resulting in a second election in November 2017.
  • Interest rates in the African territories the Group trades in showed a downward trend during the past year with interest rate cuts in all these countries. However, Lesotho subsequently had an interest rate increase towards the end of the financial year.
  • The number of African jurisdictions the Group trades in increases the complexity of the regulatory environment which is addressed by a dedicated Africa tax and regulatory team.
* Sources: Statistics South Africa, Bureau for Economic Research (BER)
CPI: year-on-year growth March 2018 versus March 2017
GDP: 2017 year-on-year growth versus 2016 year-on-year growth
FNB/BER consumer confidence index Q1 2018 vs Q1 2017
RMB/BER business confidence index Q1 2018 vs Q1 2017

TFG LONDON

  • Economic growth slowed during 2017 as growth in consumer spending moderated and consumer price inflation increased.
  • The interest rate increased to 0,5% from 0,25% on 2 November 2017, the first increase in more than a decade, with further increases likely in 2018.
  • The Pound remains weak and volatile compared to its pre-Brexit levels, particularly against the Euro.
  • The increased complexity of the United Kingdom regulatory environment (with a particular focus on the General Data Protection Regulation) resulted in additional compliance activities.
  • A continued channel shift in customers’ shopping habits from physical stores to online was experienced, particularly within the United Kingdom.
^ Sources: Office for National Statistics, GfK, Tradingeconomics.com
CPI: year-on-year growth March 2018 versus March 2017
GDP: 2017 year-on-year growth versus 2016 year-on-year growth
GfK consumer sentiment barometer March 2018 versus March 2017
CBI business optimism indicator Q2 2018 vs Q2 2017

TFG AUSTRALIA

  • Consumer confidence in Australia remains subdued but stable, as consumers are impacted by low levels of real wage growth.
  • Unemployment levels remain low and stable. This remains a key metric for TFG Australia.
  • Interest rates remain at a record low.
  • Within the retail sector, declining traffic in major landlord centres is evident, partially attributable to customers shifting to online sales channels.
  • Competitive behaviour is increasing with the internationalisation of retail, including the entry of Amazon and other internationals.
# Sources: Australian Bureau of Statistics, Westpac-Melbourne Institute,
Tradingeconomics.com, National Australia Bank, Reserve Bank of Australia
CPI: year-on-year growth March 2018 versus March 2017
GDP: 2017 year-on-year growth versus 2016 year-on-year growth
Westpac-Melbourne Institute Index of Consumer Sentiment year-on-year
March 2018 versus March 2017
NAB Business Confidence March 2018 versus March 2017

OUR RESPONSE

The Group’s mitigating activities in response to external factors, both regulatory or economic, are indicated in the Risk Committee report.

TFG’s strategic pillars, with their underlying objectives, are positioned to enable the Group’s long-term sustainable growth. Strategic initiatives such as those listed below, also provide the Group the required agility and diversification to trade through tough economic cycles:

CUSTOMER

  • We continue to invest in and enhance our TFG Rewards loyalty programme in order to improve our customers’ experience, deliver increased customer value and grow our customer base.
  • Our continued investment in data analytics provides direct input into optimising strategies for our TFG Africa retail trading divisions, which improves our customer experience and engagement.

LEADERSHIP

The investment in the development of our employees at all levels within the Group, and the Group’s performance-based culture, ensures that we attract and retain quality employees who are well-equipped to execute the Group’s strategic objectives.

PROFIT

Through a focus on cost control and the elimination of waste, working capital optimisation and our capital allocation model, we are strengthening our financial position and optimising profitability.

GROWTH

  • We continue to expand and enhance our customers’ omnichannel experience through customer-led innovation.
  • TFG Australia:
    • Growth through expansion of existing brands both in Australia and New Zealand.
    • Enhanced emphasis on digital sales channels with further investment in technology and people.
    • Launch of a TFG Africa brand.
  • TFG London:
    • Consolidation and integration of shared support services across the three brands to enable greater operating efficiency and control.
    • Once completed, this will largely replicate the structure of TFG Africa and TFG Australia and facilitate further bolt-on acquisitions.

Our diversification – across cash and credit turnover, physical and online sales channels, geography, portfolio of brands and merchandise categories – positions us well for future growth.