annual report 2009
Abigail Bisogno
Foschini
POSITIONING
The Foschini division remains the primary womenswear fashion division in the group. It comprises the following four chains:
Foschini
The stores in this chain offer contemporary clothing, footwear and cosmetics.
The Foschini brand has undergone a repositioning process over the past two years to raise levels of fashionability and quality. This allows the ranges of products offered to be more desirable to the target market and to be consistent with the modern and fashionable image which the Foschini name and reputation is intended to project.
The positioning of the sub-brands Oasis, News, Instinct and WWW, which are house brands applied to ranges of clothing and accessories located within their own areas in the stores, has been clarified and redefined in the division’s overall branding strategy. The product ranges in these brands have been relaunched with a greater lifestyle identity and ownership within buying and displayed with greater clarity on the shop floor.
The target market of the Foschini chain remains 18 to 35 year olds in the LSM 6 – 10 categories. The stores are located in prime shopping centres and CBDs.
donna-claire
donna-claire was launched in 1994 and has met with great success. The stores offer products at a fashionable level for larger-sized women of all ages. The target market is the LSM 6 – 10 categories.
The stores are located in prime shopping centres.
fashíonexpress
This is a price-centric chain catering for customers in the LSM 5 – 9 categories. Its stores are located in smaller towns and in secondary positions in shopping centres. The stores offer clothing and footwear.
Luella
This is a relatively new chain devoted to footwear and handbags, offering moderately priced products in a modern international store format. The current 18 Luella stores are all in key shopping centres.
Recent indications from the market, in response to new product ranges featuring genuine leather shoes, boots and bags, reinforce the view that this chain is finding appeal among customers seeking high-quality fashion items.
| 2009 | % change | 2008* | |||
| Turnover (R million) | Foschini | 2 402,5 | 1,2 | 2 375,1 | |
| fashíonexpress | 347,2 | 5,4 | 329,5 | ||
| donna-claire | 325,5 | (1,6) | 330,7 | ||
| Luella | 28,3 | (19,6) | 35,2 | ||
| Total | 3 103,5 | 1,1 | 3 070,5 | ||
| Number of stores | Foschini | 217 | 2,8 | 211 | |
| fashíonexpress | 115 | 15,0 | 100 | ||
| donna-claire | 82 | 17,1 | 70 | ||
| Luella | 18 | (5,3) | 19 | ||
| Total | 432 | 8,0 | 400 | ||
| Floor area (gross m2) | Foschini | 151 728 | 8,2 | 140 201 | |
| fashíonexpress | 34 221 | 14,9 | 29 782 | ||
| donna-claire | 22 106 | 16,1 | 19 045 | ||
| Luella | 2 604 | (5,6) | 2 759 | ||
| Total | 210 659 | 9,8 | 191 787 | ||
| Number of employees | Foschini | 4 133 | (1,6) | 4 199 | |
| fashíonexpress | 599 | (0,5) | 602 | ||
| donna-claire | 494 | 4,9 | 471 | ||
| Luella | 95 | (18,8) | 117 | ||
| Total | 5 321 | (1,3) | 5 389 | ||
| *Note: | The comparative figures between brands have been adjusted due to store conversions from Foschini to fashíonexpress. |
REVIEW OF THE YEAR
In total, 34 new stores were added during the 2009 year across the division’s four chains. This is the highest number of new stores ever opened in a year. In addition, 16 stores were enlarged or relocated. During the year two underperforming stores were closed.
In total more than 18 000 square metres of retail space were added during the year, representing growth of 9,8%.
The largest developments were in the following shopping centres:
| Zevenwacht Mall | – | new centre in Kuilsriver, Cape Town |
| Mountain Mill | – | new Foschini store in existing centre in Worcester |
| Richards Bay | – | enlargement of already successful centre |
| Westwood | – | new centre in Durban/Westville |
| Wonderboom | – | new centre in Pretoria North |
| Highveld Mall | – | new Foschini store in existing centre in Witbank |
| Mooiriver Mall | – | new centre in Potchefstroom |
| Oshakati | – | new centre in Oshakati, northern Namibia |
| West Coast Mall | – | new centre outside Vredenburg, Western Cape |
| Melrose Arch | – | new centre in Johannesburg |
The weak trading conditions encountered towards the end of the previous year, as outlined in last year’s report, continued into the start of the 2009 year. In retrospect it is clear that the winter range fell short of customers’ fashion expectations and that the demand for some key items outstripped the available supply. Sales in the first half were down 4,2%.
The summer range, in contrast, received customers’ approval as a result of the division adopting a more strategic approach to the buying process and consistently raising the fashion level of the products entering the stores. Despite the financial pressures experienced by customers the division managed to grow the second half sales by 6,3%.
For the full year, sales were up 1,1%.
Cosmetics
The cosmetics business has continued to perform well and revenue grew by 13,3%, with growth in comparable stores of 6,8%. Turnover in cosmetics now exceeds R550 million.
The Foschini cosmetics range brings together a number of major international brands including Clinique, Elizabeth Arden, L’Oreal, Revlon and Yardley. In most of the new-format stores in shopping centres the cosmetics departments have their own entrance, creating a stand-alone ambience. It has once again been shown that this layout increases footfall and benefits the other departments of the Foschini stores.
We have recently launched the international Clarins brand into the Foschini cosmetics departments. We believe this brand will have great success and in conjunction with Clarins hope to expand to approximately 50 stores in the near future.
Cellular
Cell phones had another successful year with sales growth of 8,7%. In comparable stores sales grew by 6,8%. Annual sales of cellular products now exceed R250 million. Although the gross margins in this business are low, there are only minor incremental costs as the MTN ’kiosks’ are located within existing Foschini stores. The division’s strategy to date has been to be an exclusive MTN retailer carrying the major product brands.
While airtime is sold within stores, 95% of turnover is in handsets.
The second half of the year was adversely affected by shortages of key types of stock, particularly Nokia products.
The roll-out of cellular products to selected fashíonexpress stores has been successful but will be limited to key locations.
Local manufacturing and supply chain initiative
The Foschini division is one of the main beneficiaries of the group’s supply chain initiative, which is intended to increase efficiency at all stages in the processes between the ordering of stock and its arrival in the stores. Reduced turnaround times enable the division to react more promptly and effectively to customers’ buying trends, for instance by early purchases of strategic fabric to be allocated to local manufacturers who would not readily have access to it, or by restyling items if it appears that they are not generating adequate volumes of sales.
One of the gains resulting from an optimally functioning supply chain is the ability to operate successfully with low volumes of stock on hand, since it is possible to obtain additional stock at short notice. Conversely, poorly selling items can be quickly identified and action can be taken to ensure that the stores do not receive further supplies of those items. These factors translate directly into lower volumes of marked-down stock and smaller product clearances.
With improved stock turn the division aims to bring newness into its stores so that customers always enter the stores with a sense of anticipation and a readiness to purchase.
The supply chain initiative has already had concrete benefits for the division.
Fashion trends in the economic downturn
The division is seeing a trend toward greater and earlier fashion adoption in the sense that merchandise which shoppers find new, exciting and innovative appears to have increasing appeal, and customers are prepared to pay higher prices than previously to secure this type of product. This does not represent faddish buying but rather a considered move towards merchandise that is fashionable, easy to wear on diverse occasions, and which delivers excellent value for money. This is exactly where the division has set out to position itself with a view to enhancing profitability and growth of the business despite the current difficult economic climate.
Foschini
Total sales in the Foschini chain grew by 1,2%. Negative growth of 5,4% in the first half of the year was attributable to winter ranges which lacked appeal. The second half was much improved, showing growth of 8,1%.
Nine new Foschini stores were opened during the year, including the prominent Melrose Arch centre in Johannesburg which was opened at the end of March 2009. It includes an escalator joining the Foschini store to the @homelivingspace store to create a group store concept. This is an innovative approach to a new store and the results so far have been promising.
In addition, 15 stores were enlarged, relocated or refurbished, taking the total number of new-concept stores at the year-end to 127.
The Global Art range (see below under corporate social investment) was launched during 2009 and is showing great potential.
Top to Toe dressing
The Foschini chain introduced the ’top to toe’ theme into its stores during the past year. The objective of this concept is to encourage customers to see the Foschini stores as the source of compatible or matching sets of clothing, footwear, accessories and fashion incidentals (like cosmetics, haircare products and handbags). This enhances the brand footprint in stores and increases the chain’s standing among the public as a source of fashion products. Ultimately the Foschini name and trade
mark should become synonymous with fashion, and will differentiate the Foschini chain from retailers who are only providing individual parts of the overall fashion ‘package’.
‘Top to toe’ is also about having eye-catching window displays that draw shoppers into a Foschini store, fashion ramps on which models show how to wear the new products, and in-store displays of matching items that make it easier for customers to buy the combinations they desire. This approach is foreseen as generating multiple purchases and, importantly, making the customer feel special.
The underlying thought is therefore: “Why go somewhere else if you can buy the total look at Foschini?”
New-concept performance
The new-concept Foschini stores continue to perform at above-average levels in terms of turnover growth and trading density, and now account for 75% of the chain’s total turnover.
| Performance by store | New | Old | |
| concept | concept | format | |
| Number of stores | 127 | 90 | |
| Sales growth (%) | 2,8 | (3,0) | |
| Sales contribution (%) | 75 | 25 | |
| Trading density/m2 (incl. VAT) | R19 500 | R14 700 | |
| Total number of stores | 217 |
fashíonexpress
This value chain, created initially out of ailing Foschini stores, had another good year and has become well established in the marketplace. Built around the concept of ’express yourself for less,’ this chain offers fashionable garments in a pleasant shopping environment at prices that rival those of traditional cash retailers.
Total sales for the year grew by 5,4% with comparable store sales up by 1,4%. Particularly pleasing was the sales in the second half, with growth of 10,0% and comparable store sales up by 4,0%.
The new store format has been widely accepted and will continue to be rolled out both in newly opened stores and in the course of conversion of existing older stores. Once completed, this programme will make the fashíonexpress image consistent across all locations.
During the past year five new stores were opened. A further four are planned for the next year. The division is confident that this chain will continue to increase its profit contribution and that it can easily expand to 150 stores.
donna-claire
The total turnover of this chain declined by 1,6%. The process of shifting the merchandise offering from a traditional upmarket customer to a mass retailer has taken longer than anticipated. In the dynamic and fast-paced environment in which the division trades, it is necessary to ensure that donna-claire remains the preferred fashion brand for women with fuller figures. The task which the division has set itself is to continuously review the ranges stocked in order to ensure that existing and new customers are offered fashionable, tasteful and flattering clothes.
With a commitment of six new stores for the next year, this niche chain should have 100 stores within three years.
Having high trading densities and low markdowns, donna-claire stores are the most profitable stores in the division.
Luella
This fledgling chain has not yet reached its full potential. A change in the management structure was made during the year, and new ranges embodying a new strategy based on genuine leather were delivered to the stores in the period from January 2009 onwards. Sales in February and March grew by 17% and 24% respectively, indicating that there is acceptance of the genuine leather products.
During the year one unprofitable store was closed. This leaves 18 stores, all of which are in key shopping centres.
The division considers that the Luella chain could, by improving the fashion level of its products, become a greater contributor to profit within three years. It has the potential to be a 50-store chain.
Stock levels and markdowns
As a result of tighter stock control and improved ranges of merchandise in the summer, the value of markdowns reduced by 15,5% to R380,8 million. However, because sales were lower than had been hoped, the markdown ratio did not drop to the level of 12% which had been set as the upper target for this indicator.
Stock levels at the year-end were within an acceptable range. Current and projected stock levels are considered to be appropriate. The medium-term goal remains to reduce clothing and footwear markdowns to between 10% and 12% of sales, and to increase stock turn significantly.
| 2005 | 2006 | 2007 | 2008 | 2009 | |
| Markdown value (Rm) | 266,7 | 349,3 | 371,0 | 450,6 | 380,8 |
| % of sales | 13,3 | 15,1 | 15,1 | 17,4 | 15,1 |
The Foschini group has a tight but flexible stock management system that administers deliveries of merchandise into its warehouse. It reacts to current performance in determining what future orders need to be restyled or cancelled and replaced with items which have proved to be popular with customers. These principles are entrenched in the thinking of all buying teams, which now have key controls in place on an ongoing basis.
CORPORATE SOCIAL INVESTMENT AND OTHER LOCAL INITIATIVES
Foschini Annual Fashion Design Awards
The Foschini Annual Fashion Design Awards event was first launched in 2002 and is the only design competition in southern Africa that offers entrants the opportunity to design reality fashion.
The Fashion Design Awards programme is one of the division’s biggest social investment projects. Its aim is to develop design talent at the level of tertiary education, and is only open to fashion students at recognised southern African design schools. It creates an opportunity for unleashing talent at different stages of the students’ careers.
In the demanding and highly competitive fashion design industry, this project provides its finalists with a platform to become recognised and an opportunity to experience the reality of fashion during a week’s internship at the Foschini head office.
Global Art and SafeSpace
In May 2008 the division introduced into the top 50 stores a new home-grown eclectic range of locally inspired merchandise called Global Art. This range combines local design and inspiration with an international eclectic flair. Drawing from ethnic influences around the world, Global Art expresses an individual identity offering the customer a point of difference.
A percentage of the proceeds of Global Art are donated to SafeSpace, a non-profit organisation led by Rape Crisis, which aims to promote the creation of safe spaces for all South Africans in their environments. The Foschini Group has committed itself to a three-year plan, which was kicked off by donating R500 000 to SafeSpace.
Miss South Africa sponsorship
In 2008 the Foschini division embarked on a long-term partnership with the Miss South Africa pageant, taking the role of the official clothing sponsor. This sponsorship not only allows the division to feature Foschini clothing ranges during the stages of the competition, but also to dress the title-winner and the two runners-up.
The Miss South Africa title comes with various responsibilities to the communities, including working with the Tapologo Aids Hospice which focuses specifically on Aids orphans. The Foschini division is proud to be associated with this pageant that continues to reach out to and provide help to communities in need.
STRATEGY AND PROSPECTS
There is general awareness that the South African consumer is under pressure and that levels of disposable income have declined. Despite this, the Foschini division considers that it is well positioned in terms of the number and quality of existing and planned stores and its flexible buying processes to withstand a continuation of the current economic downturn. Its objective is to emerge strongly, in order to capitalise on the upswing which will follow.
The division’s continuing investment of capital in its programme of new store openings and the refurbishment of existing stores, even during a period of economic decline, is part of a long-term strategy to capitalise on South Africa’s proven pattern of economic growth despite periodic downturns in the business cycle.
In the next year the division will open more than 20 new stores and upgrade approximately 12 stores. The stores to be upgraded include some of the division’s premier CBD stores in cities such as Johannesburg and Pretoria. These measures will add substantial turnover and improve the visibility of the division to the consumer.
Among the developments in which the division will have stores are the following regional shopping centres:
| Reds | – | Centurion Pretoria |
| Lynnwood Grove | – | Pretoria |
| Hemingways | – | East London |
| Galleria Centre | – | Amanzimtoti |
| Gugulethu | – | Cape Town |
The division’s strength in the markets it serves and its growth over the years are reflected in the table below, setting out details of the numbers of stores in its four chains.
| Store statistics | Projection | ||||||
| 2005 | 2006 | 2007 | 2008 | 2009 | 2010 | 2011 | |
| Foschini | 196 | 201 | 207 | 211 | 217 | 225 | 233 |
| fashíonexpress | 86 | 90 | 97 | 100 | 115 | 125 | 135 |
| donna-claire | 53 | 59 | 64 | 70 | 82 | 90 | 100 |
| Luella | – | 6 | 18 | 19 | 18 | 20 | 25 |
| Total no. of stores | 335 | 356 | 386 | 400 | 432 | 460 | 493 |
| Closures | 15 | 6 | 3 | 5 | 2 | 2 | 2 |
| Floor area (m2) | 154 025 | 163 703 | 178 206 | 191 787 | 210 659 | 225 000 | 240 000 |
