Australia is fast becoming an important market for South African retailer and investor Steinhoff International Holdings, and the company’s interest in the local market will only likely continue to grow, following the announcement it intends to take over Australian furniture retailer Fantastic Holdings for approximately $361 million.
Steinhoff owns a number of major retailer in Europe, the United Kingdom, and Africa, and has been making waves in the Australian retail sector since its purchase of fellow South African retailer Pepkor Holdings in 2014, which added Harris Scarfe and Best & Less to its investments.
Steinhoff’s Australian expansion should be expected, says Gary Mortimer, retail expert and associate professor at QUT Business School Gary Mortimer.
“We’ve had a lot of strong global players enter the market, either through acquisitions or just setting up stores here. Woolworths South Africa have bought David Jones, and Swedish retailers like H&M are expanding here too,” Mortimer says.
“It’s clear that Australia is considered a viable market.”
Mortimer believes the choice to expand is fuelled by Australia’s strong economy, mainly our “low unemployment rates and low-interest rates”.
He also believes once a multinational retailer has established one store Down Under, expansion becomes significantly easier.
“One of the biggest challenges in the Australian market is its distance from the US and Europe. Just having one store here costs lots of money because of importing costs, but once multiple are set up it becomes a lot easier,” Mortimer says.
“Due to this, we’ll keep seeing rapid expansion from global retailers.”
As Steinhoff continues to expand into the Australian retail space, businesses are likely to see the name more and more often. Here are four things you should know about the South African retail giant.
1. Humble beginnings in Germany
Bruno Steinhoff established Steinhoff in 1963 by reselling furniture in Germany. The fall of the Berlin Wall in 1989 kickstarted Steinhoff’s growth, the company taking advantage of the growing European middle class, reports the Wall Street Journal.
The company moved to South Africa in 1988, due to a merger with South African company Gommagomma, and the low production costs in the country.
A $US5.7 billion acquisition of South African holding company Pepkor in 2014 saw Steinhoff take off internationally, and the retailer now owns such brands as Best and Less, Ackerman’s, and New Zealand clothing chain Postie Plus.
These days, Steinhoff has a presence in 30 different countries, with 40 different retail brands hiring over 90,000 collective employees. The company had annual sales of nearly $18.9 billion in the past financial year.
2. A contender for Big W and Masters sites
In June, Steinhoff chief executive Markus Jooste was reportedly in talks with Woolworths about a potential purchase of languishing home goods retailer Big W. At the time, the rumoured purchase was also thought involve a number of sites of Woolworths’ hardware retailer Masters, which is in the process of closing down.
These sites could soon host one of Steinhoff’s stronger international brands: home furnishing retailer POCO. Dubbed the “Aldi of home ware and hardware,” POCO already has two Australian stores, but reportedly wants as many as 100 outlets in five years.
Steinhoff’s investigation into a potential Big W purchase was not the only Australian purchase the company was reportedly considering, as it was one of the rumoured buyers for electronics retailer The Good Guys ahead of its potential $1 billion initial public offering.
However, The Good Guys was instead sold to JB Hi-Fi for $870 million in early September.
3. Purchase of Fantastic Furniture
On Friday, Steinhoff revealed it would be acquiring 100% of Australian furniture company Fantastic Holdings.
The deal will be valued at approximately $361 million, with Steinhoff paying Fantastic’s shareholders $3.50 in cash per share.
This price is 43% above the company’s stocks last trading price, which was $2.45 a share on October 13. The acquisition is scheduled for completion by the end of this year.
Fantastic Holdings’ chairman Julian Tertini said in a statement the proposal “provides Fantastic Holdings shareholders with the opportunity to realise a significant premium, reflecting the underlying strength of our brands, operations and people”.
Fantastic’s board of directors unanimously supported the acquisition, which will give Steinhoff a significant footing in the Australian furniture market, estimated by IBISWorld is to be worth $7 billion.
4. Steinhoff’s current Australian brands
While Steinhoff has ramped up its presence in the Australian market recently, with its 2014 acquisition of Pepkor providing the South African company with a number of well-known Australian retailers, including Harris Scarfe, Best and Less, and Mozi, the retailer has owned a number of Australian furniture brands for some time.
In the early 2000s, Steinhoff acquired major Australian furniture retailer Freedom Furniture, along with mattress and bed retailer Snooze. These brands, along with some smaller New Zealand retail chains, make up the majority of Steinhoff’s Australasian presence.
This includes a total of 149 stores and over 2,000 employees.