The Masterplan – South Africa’s Value Chain Strategy Development

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South Africa’s MrPrice (MRP) group reported that during the first four months (18 weeks to 4 August 2018) of the financial year ending 30 March 2019, its retail sales growth. Interestingly it reported that its online sales continued to grow strongly by 28.1% to R83.2m.  (Read More)

A number of South African cotton-textile-apparel-footwear-retail value chain stakeholders are currently engaged in a process that will lead to the development of “Masterplan” for firms in the industry.

A management superstructure has been created:  called the “Retail-CTFL Masterplan Project Industry Reference Group (IRG)” :

Some groups joined relatively late; a huge swath of the value chain is not represented, and the broader public consultation process has been weak. It’s astounding that in this day and age that a value chain plan could be developed until the year 2030!

As can be seen from the trading update of the MRP group “online sales” growth has been impressive. In my view, it appears that the “Masterplan” strategy has not seriously bothered (or even at all) to take into account the possible entry into the South African apparel retail marketplace of a company like Amazon or Alibaba. When these online behemoths hit South African I predict that there will have to be a fundamental reworking of the apparel and apparel accessories retail model for they will rely on huge amounts of imported garments – and hence the “Masterplan”.

It’s highly likely that these online retailers will enter the South African market long before 2030 – they will simply swallow existing online-only fashion retailers operating in the region such as Zando (Know more) and Spree/Superbalist (Know more)

It, therefore, seems like a folly to plan a strategy to such an end date – no matter how catchy the “end of the third decade” end date appears to be.

I wonder if any of the retail stakeholders engaged in the “Masterplan’s” development have shared the research that they surely must have done on the impact of Amazon and Alibaba. The member of the National Clothing Retail Federation of the SA (NCRFSA) are all large stock exchange listed companies so I guess they must have commissioned some research on this; or at least bought some off-the-shelf reports. It has been reported that the e-commerce market in South Africa is growing exponentially.

 According to data from World Wide Worx, e-commerce (all products) has grown by an average of 20% a year since 2000, while new research by Ipsos for PayPal showed that e-commerce in South Africa is likely to reach R45bn (US$ 2.96bn) in 2018 and R61bn (US$4bn) by the year 2020. (Read more)

Any industry plan, especially one that goes to 2030, that does not in detail consider online apparel retail must be considered to be not only “lazy”, but also weak!

And talking about retailers its really strange that the “Masterplan” seems strangely centered around South Africa’s largest footwear and apparel retailers that are members of the NCRFSA – shopkeepers like Woolworths, the Foschini Group, Truworths, Edcon, etc. I like to call this grouping of retailers the “Mall Rats”. For sure they sell a huge amount of clothing and footwear – but they are not the only show in town. Those who are glaringly absent from the “Masterplan” deliberations appears to be the myriad of smaller retailers that occupy the South African fashion retail marketplace.

Those left out are not the retailers that one generally sees in the malls of affluent South Africa. Their shops are near bus and taxi ranks, and train stations where working class people commute to and from work; they are in smaller towns, and in the more accessible strip mall type shopping centres. They are not members of the NCRFSA.

Here I am talking about fashion retail groups such as: Pepkor (Pep Stores and Ackermans – who may constitute more than 30% of South African textile/apparel retail sales), Retailability (almost 500 stores), Otto Brothers / Power Fashion Factory (about 100 stores), Fashion World (about 200 stores), Decorfurn/CB (about 70 stores), Gemelli’s stores, Contempo (61 stores), Traders Warehouse, Goodhope Sales, etc many of whom are virtually of the radars of economic development consultants, and the head offices of many retail executives, and most union officials.

The draft “Masterplan” presentation does doff its hat at these smaller retailers – but it does so under the (draft) “illegal trading” section of the “Masterplan”. As if it is some of these shops that are the only ones engaged in buying
i) imported garments whose customs values are not correctly declared;
ii) garments made in South African plants where the correct minimum wages have not been paid.

Another interesting proposal in the draft “Masterplan” is that any retailer wanting to operate in South Africa should set up a sourcing office in South Africa. This is surely targeting the likes of Zara and H&M and others that may follow them.

The proposal is made – apparently in order to set a “level playing field” – that would compel all South African based retailers to have local sourcing offices. This will be done by introducing a new South African retail (trading) licensing regime. Its most probably the Southern African Clothing & Textile Worker’s Union (SACTWU) who are the prime movers of this provision. Its important to note that SACTWU not only represents workers, but it is also owns a number of high employment textile and garment manufacturing enterprises in South Africa (Know more); and also in Mauritius (Know more). SACTWU may not only see foreign store owners importing mechandise as local job destroyers, but also competition to its own local and foreign commercial interests!

Its likely that this proposal would have been backed by some of South Africa’s high-end fashion retailers (Woolworths, TFG, Truworths, etc) who have been concerned about the competition from foreign giants. Interestingly the “Masterplan” proposal states that no obligations will be placed upon these retailers with sourcing offices to procure locally made garments.

So its hard to see what this kind of proposal – which in effect has no teeth – can have on any retailers’ buying practices.

MASTERPLAN DEVELOPMENT: Why the Secrecy?

Not only has the “Masterplan” been developed by a small group of stakeholders – which has left out important sections of the South African value chain – it has often been stitched together in secrecy.
The latest (draft) version of the “Masterplan” presentation – discussed at a meeting of the Industry Reference Group (IRG) in Durban in late August 2018 – was labelled DRAFT – DO NOT QUOTE OR REFERENCE“.
Why?What are the consultants or South Africa’s Department of Trade & Industry (ultimately the “Masterplan’s” funders) concerned about? I will not, at this stage, raise questions as to why this (mainly) publicly funded consultancy was not tendered! How can value chain representative stakeholders who participate in the IRG agree to this? How can they liaise with their memberships if they have been told that they should not share details with their general membership?Surely the consultants and the DTI should not be afraid of having to defend the proposals they have developed? Much of my working life has been undertaken as an official in a trade union – some of this time was in apartheid, South Africa.In that period the strength of the union movement was essentially based on the principle that union membership was continually advised of what was going on with regard to issues that affected their lives. 

In this period we lived on the principle of MANDATE, REPORT BACK and ACCOUNTABILITY. This enabled the union movement to succeed in the first part of its quest – to improve the working lives of its members and to defeat apartheid.

A number of South African cotton-textile-apparel-footwear-retail value chain stakeholders are currently engaged in a process that will lead to the development of “Masterplan” for firms in the industry.

This “Masterplan” – essentially a value chain development strategy for a defined niche of the broader cotton-textile-apparel pipeline – will run between 2018/19 until the year 2030

A management superstructure has been created called the “Retail-CTFL Masterplan Project Industry Reference Group (IRG)” .

This appears to be composed of:
i) Government / parastatals (the SA’s DTI and the IDC);
ii) Trade Unions (SACTWU, NULAW);
iii) ‘Fashion’ Retailers: NCRFSA;
iv) Employers/manufacturers: Cotton SA, TEXFED, SAA-A, ATASA, AMSA, Hometex.

Some groups joined relatively late; a huge swath of the value chain is not represented; and the broader public consultation process has been weak.

(The comments made here under reference a “draft” PowerPoint presentation prepared by the “Masterplan” consultants – circa late August 2018).

 

Adjusting South Africa’s (SACU) Customs Tariffs for the Retail – Clothing – Textile – Footwear -Leather Value Chain

 

The “Masterplan” consultants make proposals related to how the customs tariff structure should look for the industry. They propose the following:

The consultants also propose that all customs tariff rebates for the value chain should be eliminated.

The consultants state in their PowerPoint that the changes are necessary because “South African tariffs are excessively high” – and this raises the “arbitrage” rate, which impacts upon legally compliant businesses, and which raises value chain input cost. They state that tariff increases represent remedy failure; and that rebates result in excessive leakage.

I should imagine that many of South Africa’s retailers would have been ecstatic about the proposal to reduce customs tariffs on clothing. Of course regional value chain manufacturers (fabrics, garments, garment trims) and value add services suppliers (e.g. commission laundries, screen printers) may be very worried.

I would be interested to know whether these recommendations to reduce tariffs were made on the basis of an impact analysis – or were they made on the basis of some orthodox economics, or merely were made in order to make some apparel retailers satisfied!

In my view some of the textile customs tariffs of the Southern African Customs Union (SACU) should not be place – as the products which they apply to are not manufactured anywhere in the customs union. It is these duties that could be removed – in some cases reduced to MFN 0% or reduced to 0% via the creation of a customs tariff rebate.

No doubt some members (what few they have left) of South Africa’s Textile Federation (TEXFED) will protest loudly. How often have I heard some of their members claim they can make product “X” – even in the smallest of runs. Some textile manufacturers in South Africa should grow up! They cannot claim to be able to make so many textile products when they know they cannot make some product lines economically.

Telling potential customers that they can make product “X” … when they have not made that product in the past 10 years is doing a massive disservice. The consultants would have been better off proposing the elimination (perhaps by putting in place rebates) of customs duties on a tight range of woven fabrics; and once this had been successfully done then moving onto to a second category of textile products; and then a third; and then a fourth; etc.


About the Guest Author

Mark S Bennett

Editor, The African Cotton, Textiles & Apparel Monitor

He has 28 years of experience working on USAID, DFID, Tanzania Cotton Board, ComMark Lesotho, IDC, SACU programmes; prefers long-term, in-country, consultancy positions.
Mark specialises in creating practical development interventions and programmes that drive private sector development thereby contributing to the alleviation of poverty.


This article is purely based on Mark’s point of view about South Africa’s value chain strategy development.

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