AFTER THE BELL
The inevitable and unsurmountable rise of China is put to the test by The Foschini Group
To me, the strange thing about history is not that it repeats itself, or that nobody learns from it, or some other trite adage. The incredible thing is that nobody seems to learn the most obvious thing from history. And that is, ta-da! – things change.
To put it more completely, our beliefs about the future are invariably confounded, and nothing about our knowledge of history seems to help us very much to understand how things will unfold. Of course, history doesn’t repeat itself, but it rhymes. And more profoundly, beliefs which we take as unimpeachable are as vulnerable as beliefs we take as undependable.
I will give you one such example. Here is a statement of fact: it’s impossible for the South African clothing industry to compete with China.
Everything we know about how the world works would seem to underline that belief. China is huge, with large towns devoting themselves to a single product. One example is “Sock City”, the town of Datang, in Zhuji province, just south of Shanghai.
The town had a population of 1,000 people in the early 1980s, but now has a population of about 100,000. By 2008, the town was producing 8 billion pairs of socks each year, more than enough for a pair of socks for every person on the planet.
With that level of specialisation, combined with those kinds of volumes, every economics journal would surmise that they could undercut every other factory on the planet.
Yet times change and things change and, as proof, I present the results of The Foschini Group, or TFG, which came out on Friday.
For reasons best known to it, the group decided some time ago on a radical new path; it would make clothes locally.
Part of the reason has to do with the dynamics of the clothing industry.
One of the biggest curses of the industry is unsold stock. Every clothing line is built on the supposition of success, so every store has to have stock of the item in a range of sizes. One way to solve this problem is to import products from China very cheaply and sell them very cheaply and hope people will buy them. And they do.
But as clothing retailers around the world have discovered, there is another way; make only as much as you need. But this is a tougher call, and requires some absolutely fantastic – and I do mean fantastic – stock control.
Everything has to be aligned: your logistics, your advertising, your market intelligence. You have to know what is happening with every stock item at all times and you have to be able to create more stock very quickly because the only crime worse than having excess stock is having none at all.
Trust me, this is not a game you play at home.
TFG has been nibbling at this problem for years, but I suspect the latest results show they are close to cracking it. For years, the proportion of clothing made locally by TFG has been rising.
When President Cyril Ramaphosa made his State of the Nation speech in Parliament earlier this year, he proudly mentioned that he was wearing a locally made TFG suit and that the company produced 50% of its clothing locally.
But the company is now heading for about three-quarters local production for its African business. Ten more manufacturing business units will be built this year. This is all about supply chain integrity, and what has happened recently in China does demonstrate its value.
And the results are extraordinary.
TFG helpfully tabulates its performance against its local competitors, something you presumably don’t do unless you are grinding their faces in the mud.
Suffice it to say that TFG’s five-year revenue compound growth is a lot higher than Woolies, PEP and Truworths.
Overall, the numbers are excellent; revenue is up to a record R42-billion, a 27% increase, and profit up about R5-billion.
There is lots of Covid bounce-back in that, and a surprise payout for the looting, and the acquisition of JET. But a decade ago, turnover was R11-billion. Debt is low, and to top it all, the company is succeeding in Australia. This is impressive stuff.
But what interests me is that unshakable, unquestionable wisdom that you can’t compete in clothing manufacturing with China.
Well, you know, things change. We change. History teaches us that. BM/DM
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