Strategy
overview

Our strategy is informed by our vision, mission and values, as defined in the strategic snapshot. We remain committed to our strategic pillars of Customer, Leadership, Profit and Growth, which have remained unchanged since our 2015 financial year.

Our 10-year key performance indicators are evidence of strategies that have been well-executed and adapted to ensure growth while creating shared value.

* Numbers relate to a ten-year compound annual growth rate.

Each pillar has specific strategic objectives which were determined by the Operating Board and approved by the Supervisory Board.

A rolling, five-year strategic overview, which we refer to as our “5 Year Vision”, is updated annually. This Vision includes financial targets, where relevant, against the strategic objectives and is based on current market conditions, planned initiatives and expansion plans.

The strategic pillars together with its respective objectives apply to the Group as a whole. The international expansion strategy of the Group commenced in January 2015 and the performance and strategic objectives of these business segments continue to be included within the Growth pillar. This includes TFG London and TFG Australia.

How our sustainability strategy supports our business strategy

The links between our business strategy and sustainability strategy are highlighted in the diagram below. These linkages continue to be developed as we progress the elements of our strategy.

CUSTOMER

  • We will build trust with our customers and other stakeholders by delivering measurable progress on social and environmental challenges.
  • We will promote transparency and accountability, encouraging ethical practices across our value chain.

LEADERSHIP

  • Our training programmes will develop employee potential, delivering a capable and competent pipeline of talent.
  • By empowering women and black South Africans, we will enhance diversity, support transformation efforts and reduce the risk of gaps in our strategy.

GROWTH

  • We will support local communities to ensure our business has a greater chance of success in the long term.
  • We will respond to societal challenges that impact our operating environment by innovating to create shared value.

PROFIT

  • We will develop and support local supplier, manufacturing and design capabilities to enhance quality, flexibility and speed of delivery.
  • We will reduce waste and resource use by applying lean principles at TFG Manufacturing, mentoring local suppliers and changing behaviour at head office and distribution centres.

The Group’s shared value sustainability strategy is underpinned by four pillars – Local Supply Chain Development, Environment Efficiency, Accountability, Ethics and Governance and Drive Empowerment. The outcomes and initiatives for each of these focus areas are indicated below:

CUSTOMER

Objectives

  • We will deliver superior customer experiences across our retail brands.
  • We will grow our customer base through an appropriately targeted customer acquisition strategy.
  • We will leverage data science to improve our customer experience and engagement across all our retail brands.

Our customer context

  • Through our 28 fashion-forward brands trading out of 4 034 outlets in 32 countries globally, we offer our customers clothing (men, ladies and kids), jewellery, cellphones, accessories, cosmetics, sporting and outdoor apparel, and homeware and furniture.
  • 20 of our brands are available to our customers online.
  • Our loyalty programme for TFG Africa customers, TFG Rewards, has over 12,3 million cash and credit customers.
  • TFG Rewards provides our customers with the ability to be rewarded, with only one card and customer profile, across 20 TFG Africa retail brands – a rewards programme intended to suit every lifestyle and life stage.
  • Our customer base spans markets from value to upper market.
  • We have a cash to credit turnover ratio of 66:34.
  • We offer credit to our customers in South Africa, Namibia, Botswana, Lesotho and Swaziland/Eswatini.
  • We have a full in-house credit management capability for our TFG Africa customers supported by a 1 500 seat call centre.

Review of the year

  • During the year, the Group’s Voice of Customer (VoC) tool grew to include more brands and territories, with VoC surveys launched in Namibia and Zambia and eight additional brands added to the platform. All TFG Africa’s brands now use VoC to listen to their customers’ point of view on a daily basis.
  • Following on from VoC, we have successfully implemented Voice of Employee (VoE) during the past year. Employee ideas are escalated to senior management meetings for implementation consideration. The need to cultivate customer obsession among employees is now recognised as a key to delivering a great customer experience. Read more.
  • Customer obsession has been cultivated within the Group through workshops to ensure and enhance our customers’ experience. “Delivering superior customer experience” is now embedded in the strategic objectives of all TFG Africa brands during the year.
  • More than 800 store managers, area managers and sales assistants have gone through our TFG Retail Academy which focuses on delivering a good customer journey. Read more.
  • Customer conversion measurements are being rolled out by the Group per area and brand. Foot traffic counters have been installed in over 400 stores to date.
  • Customer acquisition was added during the year as a new objective within the Customer strategic pillar. This is to ensure there is a joined-up strategy across both the cash and credit rewards acquisition channels.
  • As indicated last year, the Group focused on and invested in a Group Analytics division that uses data science to identify opportunities to improve customer experience and customer engagement levels. Given the early success of this division, we continue to invest in both people and technology in order to deliver against these accountabilities.
  • The responsibilities of the Group Analytics division have recently been extended to include the TFG Rewards (previously Rewards & More) programme, using data science to further refine and enhance the rewards offering to stay relevant to our customers.
  • The conversion of ordinary cash customers to the TFG Rewards programme has resulted in a higher percentage of Group turnover being tracked at a customer level, which enhances our customer knowledge level and the relevance of our engagement strategies.

How we measure customer success

Focus areas indicated in prior year report

  • Continued enhancement of our customer experiences and relationships through service and offering improvements based on feedback from the VoC process.
  • Equal focus on the acquisition, conversion, growth and retention of our customers through targeted customer experience initiatives.
  • Training and upskilling interventions for all our customer-facing employees through the TFG Retail Academy.
  • Rolling out Rewards & More (now TFG Rewards) enhancements that will further improve personalisation and the digital experience, optimise processes, enhance in-store visibility, upgrade our reporting capability and drive increased cross-shopping opportunities (cross-shopping is defined as the average number of brands that a customer shops into over a 12-month period).

Risks and opportunities

  • Customer feedback and the use of group analytics provide customer insights that enable the retail trading divisions to continually improve their merchandise strategies and rewards offerings, ensuring that the Group remains competitive and relevant as a lifestyle retailer.
  • Consumers remain under pressure due to local and global economic challenges, which impact their purchasing power and ability to settle or open accounts.
  • In South Africa, new credit legislation regarding Debt Intervention is currently being debated in Parliament – difficult to assess the impact until the final Bill is published.
  • Customer experience skills development through the TFG Retail Academy will ensure that employees are competent to implement our strategic objectives.
  • The use of foot traffic counters within stores will provide the ability to more efficiently optimise staffing levels, ultimately enhancing customer service and the customer’s experience.
  • Through our Growth strategic pillar, we continue optimising our supply chain management process, as this is critical to provide our customers with their desired merchandise at the right price and time.
  • Business demand for data science initiatives is growing at a fast rate, and it is a challenge to keep up with the demand in terms of the ability to recruit and train new people as well as implement the new technologies required.
  • The constant growth in digital disruption and customer’s desire for instant gratification requires innovative and agile ways in delivering relevant benefits to customers through the rewards programme, while continuously improving the programme, especially as the younger customer base expands.

Future focus areas

  • We will continue to look for ways to improve and enhance our customer experience and, in particular, the ease and convenience of the new account application process for new credit customers.
  • New marketing channels for credit will be tried and tested during the course of the financial year in order to ensure that we remain relevant for both potential and existing customers. These campaigns will focus on the fact that customers can access 20 TFG Africa brands with just one card, underpinned by a rewards programme, and while accessing affordable credit.
  • We will continue to enhance our rewards programme to deliver increased customer and business value while focusing on the acquisition, conversion, growth and retention of our customers. We will further improve personalisation and the digital experience and processes to enhance in-store visibility and engagement level.
  • We will continue to broaden the coverage of VoC to listen to our customers at as many points as possible, while we continue to educate and focus on customer experience across the Group.
  • We will continue to focus on a “single view of customer” which enables the integration and utilisation of all customer-related data. This information can be used to improve both customer experience and engagement.
  • Delivering customer insight initiatives to the retail trading divisions will remain a key focus of the Group Analytics team for the forthcoming year. The analytical insights provided are used to further improve business strategies as well as ultimately enhance the customer experience.

LEADERSHIP

Objectives

We will embed a performance-based culture that ensures we attract, retain and develop the best talent in the industry.

Our leadership context

  • We are committed to our values of PRIDE2 (see strategic snapshot).
  • We have an experienced executive management team (average of 22 years’ service).
  • Our unique, growing multi-brand Group structure creates career opportunities for key talent and ensures optimised succession planning.
  • We nurture ongoing structured talent development and a strong performance management culture.
  • We believe that the youth are the future leaders and it is our collective responsibility to train and develop them into leaders who will positively impact our future.
  • Our CSI mission is to “Educate to Empower (E2E)” across educational levels – from early childhood development to post-school education. Our skills strategy is to “Educate to Employ“ and supports our CSI mission.

Review of the year

  • Leaders within the Group continued to focus on lean thinking and efficiency mindsets during the year by encouraging smarter working through efficient structures and by tracking employees’ productivity measures.
  • As the Group continues to expand, additional demands are placed on leadership teams to ensure that all opportunities are properly researched, all risks are assessed and all acquisitions are well integrated.
  • A number of executives attended international development programmes and/or local business schools with international footprints as part of our ongoing leadership talent development, while the focus on ongoing talent development across the business at all levels continued.
  • The succession for the Chief Executive Officer was finalised in March 2018 with the appointment of Anthony Thunström, the current Chief Financial Officer, as CEO Designate. We are delighted that an appointment of this importance and stature has come from within the Group, given our focus on executive development and succession planning. The process of appointing a new Chief Financial Officer is well advanced.
  • We continue to retain key talent through appropriate recognition and reward initiatives and our unique Group culture.
  • A key focus during the year has been on the reduction in “time to hire” of customer-facing employees, while the development of these employees is prioritised through enhanced training programmes and performance-based incentives.
  • We continue to embed a performance culture to ensure that individual performance criteria are measured and applied as moderator in the Group annual bonus scheme incentive. Read more in the Remuneration Committee report.
  • The launch of our Voice of Employee (VoE) platform gave our people the opportunity to submit ideas for business improvement as well as tell our leaders what they think about working at TFG.

Focus areas indicated in prior year report

  • Our leadership capacity to ensure that any new acquisition is well integrated.
  • Continued development of our customer-facing employees through the TFG Retail Academy and our merchants through the TFG Merchant Academy.
  • Continued leadership capacity building.
  • Continued focus on transformation and diversity.
  • Implementing “Voice of Employee”.

How we measure leadership success

Risks and opportunities

  • The theme OPPORTUNITY identifies our unique TFG Employee Value Proposition (EVP). It relates to the opportunities created for employees across the Group, allowing them to grow and succeed in any of our retail brands or in our service divisions in an environment of support, collaboration and respect. Our unique Group structure and international footprint facilitates career options and enables succession planning, in turn mitigating recruitment and retention risk.
  • The evolving complexity of the Group requires leaders to lead increasingly bigger teams, and to lead across functional and geographic boundaries.
  • Retail is a large employer both in Africa and in our International business. We promote retail careers throughout the Group through brand profiling, social media, career fairs and talent search strategies, targeting both customer-facing and head office employees.
  • As high unemployment in Africa continues to be challenging, we work within communities to offer learnerships for work experience and skills building.
  • Labour laws in the African markets in which we operate continue to place pressure on employee costs.
  • We value diversity and develop talent in a proactive way, which includes a continued focus on promoting attendance at our retail academies.

future Focus areas

  • We will continue to increase our leadership capacity to ensure that any new acquisition is well integrated.
  • Continued development of our customer-facing employees and merchants, facilitated by the TFG Retail Academy.
  • Development of our manufacturing capability with a specific focus on our factory employees.
  • A continuation of our focus on transformation and diversity.
  • Linking Voice of Employee data to our Voice of Customer data for retail brands and wider communication of “Ideation” (submission of ideas and feedback).

PROFIT

Objectives

  • Our brands will optimise their supply chain capability, including their suppliers, buying processes and quick response capability.
  • We will optimise the flow of goods from source to customer to enhance the customer experience.
  • We will enhance Return on Capital Employed (ROCE) by optimising profitability and capital management.

Our profit context

  • We have market-leading in-house capabilities for store design and upgrades, apparel design and manufacturing.
  • Our well-developed fabric and pattern optimisation systems support quick response capabilities to repeat “winners” in-season and implement quick interpretation of in-demand trends and fashion.
  • The Group has a natural currency hedge through TFG London and TFG Australia’s growing contribution.
  • We protect our income streams through the diversification of our footprint across numerous economies.
  • We continuously seek to optimise cost-efficiencies.
  • We have a compound growth rate of 7,8% in headline earnings per share from continuing operations over five years.

Review of the year

  • System changes were implemented during the year to enhance cross-docking. This enabled the Group to pre-pack 4% of total product received in our South African distribution centres during the year.
  • A project has commenced to increase product visibility across the product life – current deliverables are tracking according to plan with implementation planned in a modular, phased approach.   
  • ROCE and ROCE levers were introduced as KPI measures and significant effort was put into working with each division on their respective targets, which are now being tracked monthly. This, along with other initiatives such as workshops and communication drives, as well as management leading by example, ensured that ROCE has been entrenched as a way of thinking in the Group. A responsible approach was, however, taken with the introduction of ROCE to avoid unintended consequences that could impact our customers’ experience.
  • Group procurement opportunities realised during the year resulted in savings of 38% over the prior year.
  • Significant progress has been made on enhanced margin management, expense optimisation, working capital management and Group procurement initiatives during the year, but the focus on these elements will continue.
  • There was a greater adoption of quick response initiatives across our retail trading divisions during the year, aided by the strong performance of quick response products within our stores. TFG Design Centre and TFG Manufacturing have continued to expand on their ability to deliver this product, while the ability of our Maitland and Caledon factories to manufacture and deliver quick response products continues to grow.
  • Our quick response clearances and margins are above expectation and well above non-quick response product.
  • Our focus on sourcing initiatives continued with a number of new key suppliers introduced across the Group, while we continued to expand our share of direct sourcing.

Focus areas indicated in prior year report

  • Enhanced gross margins through sourcing initiatives, supplier relationships and optimisation of markdown.
  • Increased focus on clearances and the prevention of stock ageing.
  • TFG Design, TFG Manufacturing and TFG Merchandise Procurement initiatives to continue.
  • Continued focus on expense optimisation and the elimination of waste.
  • Improved focus on working capital management and the enhancement of the current capital allocation model.

How we measure profit success

Risks and opportunities

  • An inability to expand quick response due to the reliance on a single supplier (our own factories) and the lack of access to local raw material suppliers and finishes.
  • Visibility of accurate stock information will assist in replenishment processes and improve stock availability in store at a size level, resulting in an improved customer experience, additional turnover and stock control.
  • Direct sourcing will improve our margins and access to appropriate product and ensure we are able to manage compliance and sustainability matters.

Future focus areas

  • Continued focus on expense optimisation, elimination of waste, enhanced capital allocation and working capital management.
  • We will focus on improved stock accuracy and improve the customers’ experience through the introduction of radio frequency identification tags (RFID) tags. This is a complex multi-year project.

GROWTH

Objectives

  • We will be the leading lifestyle retailer in Africa whilst growing our international footprint.
  • We will deliver a customer-focused, digital omnichannel ecosystem.

Our growth context

  • We achieved a five-year compound turnover growth rate of 17,3% and a five-year compound growth in distributions to shareholders of 8,0%.
  • TFG Africa achieved a compound space growth of 5,4% over five years.
  • Our TFG Africa e-commerce site offers our customers a mall-like experience with our site’s unique cross-shopping functionality.
  • A further four brands launched their online selling during the year, bringing the Group’s total number of brands available online to 20.
  • Our continued strategic international expansion creates value for our shareholders through geographic diversification, the leveraging of our existing retail experience and additional revenue and profit.

Review of the year

  • The Group continued its expansion into Kenya and is now trading with four stores in two centres.
  • Botswana, Lesotho and Swaziland/Eswatini traded to expectations and continue to perform well. Namibia, Zambia and Ghana were, however, under pressure and performance was muted in line with their underlying economic growth.
  • A relatively small number of new stores (2018: 14; 2017: 9) were opened in African countries other than South Africa during the year, as we took a more measured approach when reviewing new locations.
  • The Group successfully concluded the following international acquisitions during the year:
    • RAG, a leading speciality menswear apparel retailer in Australia, effective 24 July 2017; and
    • Hobbs, a contemporary British womenswear brand, effective 25 November 2017.
    These acquisitions have already resulted in a positive contribution to bottom line Group earnings for the year.
  • With the Group’s additional expansion and acquisition activities this year, TFG is now represented in 32 countries on five continents.
  • Exact, @homelivingspace, SODA Bloc and Foschini launched their online selling during the year, bringing the total number of brands online to 20.
  • The following innovation was implemented to enhance our customers’ digital experience:
    • E-Receipts, E-Gift Card and digital payment solutions (both in-store and online).
    • A product fit guide for online sales.
    • The continued roll-out of WiFi to stores.
  • Online transactions across the United Kingdom continue to grow as customers prefer this retail channel ahead of brick and mortar. TFG London’s online turnover now represents 33% of their total turnover.

Focus areas indicated in prior year report

  • Creating growth momentum through the international roll-out of Phase Eight, concession store roll-out for Whistles and Damsel in a Dress and e-commerce options across all United Kingdom brands.
  • Continue driving strategic cost savings identified for Whistles and the implementation of its clearly defined turnaround strategy.
  • Further roll-out of our brands in the TFG eMall.
  • Continued focus on enhancing our customers’ experience in our TFG eMall, ensuring that it is as convenient and easy as possible, while providing the luxury of choice.
  • Integration of the Retail Apparel Group (RAG).

How we measure growth success

Risks and opportunities

  • The volume of jurisdictions in which the Group is present and the more onerous requirements of the various regulations increases the complexity of the Group’s regulatory environment.
  • Further opportunity for cost optimisation and margin improvement through the centralisation of shared support services within TFG London.
  • The Group is well positioned to benefit from further acquisitions, should the opportunity exist. We will, however, continue to apply our stringent acquisition criteria of a proven, profitable track record, a strong management team with a commitment to staying on to continue to grow the business, good future growth prospects and a strong position in a niche product category.
  • Further expansion opportunities across sales channels and territories are explored within TFG Australia and TFG London.
  • Under-performing department stores may impact some of the Group’s concession outlets.

Future focus areas

  • Further expansion opportunities in Botswana and Kenya are being explored in addition to exploring the launch of online selling in Namibia.
  • The launch of the Group’s commercialised e-commerce market place in TFG Africa, called myTFG.Shop, as well as the launch of a new mobile application for TFG Africa.
  • While progress has been made on the centralisation of shared support services within TFG London during the year, focus on this will continue in order to optimise cost efficiencies and share expertise across the different brands within TFG London.
  • Continued optimisation and enhancement of online channels within TFG London in order to provide customers with their desired merchandise at the right price and time via their preferred channel.
  • The Group continues to monitor developments around Brexit to ensure detailed consideration of the implications in order to progress responses as clarity emerges.
  • Store optimisation and new store expansion across the TFG Australia brands.
  • Launch of a TFG Africa brand within Australia.