Nearly 100-year old South African clothing retailer The Foschini Group (TFG) made its first major Australian acquisition yesterday, picking up menswear retailer Retail Apparel Group in a deal worth $302 million.
Retail Apparel Group (RAG) currently operates a number of menswear brands in Australia, including Tarocash, .yd, Connor, and Rockwear, and has around 400 stores. This deal will see TFG acquire 100% of RAG’s issued share capital, and certain members of management staff will stay on after the $302.5 million deal is finalised.
The deal is still subject to regulatory approval, but if it goes ahead, TFG will own one of the largest menswear retailing networks in Australia. The Foschini Group is already one of the largest retailers in South Africa, boasting a turnover of 21.1 billion rand ($2.1 billion) in the last financial year.
The 93-year old business owns 22 retail brands in over 3000 stores, covering a range of sectors including clothing, jewellery, and homewares through brands such as Colette, Fabani, and Markham. Despite being known primarily as a fashion retailer, 15.3% of the group’s turnover growth came from smartphone sales in 2016 financial year.
TFG first made inroads into the Australian market through a franchising deal with Dutch fashion retailer G-Star Raw earlier this year. At the time, head of G-Star Raw in Australia Alastair Davies told Fairfax the company would use agreement as a “springboard” into Australia.
“The Australian market and climate is very similar to South Africa and we see it as a good growth opportunity,” Davies said.
In a statement to Fairfax, TFG chief executive Doug Murray said the company was “excited to be able to realise our ambition to expand into Australasia through the very successful RAG business and its well established and experienced management team”.
The acquisition of RAG by TFG is just sees yet another global retailer take an interest in the Australian market. Most recently, retailer TK Maxx expanded down under through its acquisition of a number of Trade Secret stores.
Expansion via investment often successful, say experts
Retail expert and academic at Queensland University of Technology Business School Gary Mortimer told SmartCompany this morning that an acquisition is one of three ways international players can get a foothold in Australia, and he believes it’s one of the most successful.
“There are a number of ways for global retailers to enter the Australian domestic market. Some come through direct investment such as Zara or H&M, and others get in through a franchising arrangement such as Topshop,” he says.
“The other way is entrance via acquisition like we see here.”
Mortimer believes the most successful methods are through acquisitions or direct entry, with franchising models potentially facing a number of issues around lack of control and higher fees.
Yesterday the Australian franchise of UK fashion brand Topshop entered voluntary administration, with experts saying the brand’s late entry into the Australian market, combined with the relatively small consumer base here, made conditions challenging for the brand.
The Australian retail market continues to be appealing for international players despite a spate of recent collapses in the sector. Mortimer believes this is due to the potential for growth through low volume and low margins, saying retailers with massive profits and big supply chains can just “walk in and continue to grow”.
As for TFG’s collection of other brands, Mortimer says it’s “not uncommon” to see further expansion via the launch of other brands the retailer has on the books, and that growth can sometimes be “quite aggressive”.
“What we’ll see is better supply, better procurement, and naturally lower prices, so other menswear retailers might be getting worried,” he says.
“We’ve seen that Australians love trialling and testing new global fashion retailers.”
SmartCompany contacted The Foschini Group for further comment but did not receive a response prior to publication.