Retail giant Foschini slowing down expansion due to load shedding

Retail giant Foschini decided to slow down its expansion plans due to load shedding, the constrained consumer environment and macro-economic conditions while it also expects a challenging year ahead.

The group’s store expansion rollout would have created more jobs more quickly.

Presenting the Foschini Group’s provisional condensed consolidated financial statements last week, Anthony Thunström, CEO, said the group delivered solid results for the financial year despite significant headwinds in the local business environment mainly due to unprecedented rolling blackouts, especially during the last four months of the period up to 31 March.

The Foschini group lost, at a conservative calculation, 360 000 trading hours during this time, but he pointed out that the true impact is estimated at more than double this figure as customer demand is significantly dampened by the associated disruption and inconvenience of rolling blackouts, with reduced footfall observed before, during and immediately after load shedding periods.

“We estimate that the financial impact of load shedding reduced TFG Africa’s retail turnover by more than R1.5 billion in the year ending March 2023, with a simultaneous impact on operating costs and inventory.”

The investment in alternative power, including battery back-up power, partially mitigated the impact of recent rolling blackouts, although the units are less effective due to more frequent and longer outages.

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A total of 1 875 stores that represent 75% of the group’s retail turnover now have back-up power after the group spent R200 million on alternative power solutions. This expense was not planned and increases the cost of doing business, Thunström said.

In addition, the elevated levels of load shedding started in the middle of the festive trading season resulting in reduced available trading hours during a key trading period, resulting in a moderate increase in inventory levels.

Year ahead to remain challenging for Foschini

He said the year ahead is expected to remain challenging especially for the South African business where rolling blackouts and increased consumer pressures are expected.

“Due to the current load shedding, constrained consumer environment and macro-economic conditions, the year ahead is expected to remain challenging. We are therefore treating our new financial year as one of consolidation and are focusing on improving operating leverage.

“Maintaining operationally effective expense control remains a key lever and various cost savings initiatives are planned for the year ahead. Planned capital allocation for the year ahead has been revisited and planned new store openings have been curtailed, resulting in our store capital expenditure likely to approximate half of what was incurred in the previous year.

“The Foschini Group’s future brand and store roll-out pipeline remains as robust as ever but current market conditions require a slower execution timeline of this roll-out,” Thunström said.

Trade was muted across all three of the group’s trading territories since the beginning of April and for the two month trading period to May 2023 (compared to the same period ending May 2022), TFG Africa had retail turnover growth of 15.4%.

What needs to happen for the expansion to go ahead in the future?

“We would need more certainty around the country’s energy supply as well as the continued engagement and collaboration between business and government to find solutions to the challenges facing South Africa,” he said.