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Retailers still head to SA despite slow economy

Jul 16 2015 17:27

Johannesburg - Despite sluggish economic growth, and a weak expected growth of less than 2% in 2015, South Africa remains a popular investment destination for consumer food service and apparel and footwear companies, according to Thomas Verryn, research manager for sub-Saharan Africa at Euromonitor International.  

He said SA has the biggest middle class proportional to its population and continues to attract international investors. The country also offers well-developed infrastructure, a stable financial system - ranked 7th globally in the World Economic Forum‘s Global Competitiveness Index of 2014 - and attractive company tax rates.

"Although the country has underperformed compared to other comparable emerging economies, household income, the highest in Africa, is still on the rise. SA’s emerging and increasingly urbanised middle class drives consumer spending in a number of industries, including food service and apparel," said Verryn.

It is also easier to conduct business in South Africa compared to other faster growing African markets. SA is ranked 43rd in the 2015 World Bank’s Ease of Doing Business report, the second highest in sub-Saharan Africa.

"South Africa is also considered to have one of the most established and well developed retail markets in Africa. Offering a 'safe' route to market in one of the fastest growing regions in the world, South Africa is often used as a springboard for expansion to other Southern African and African markets," said Verryn.

Taste Holdings has just entered into a licensed partnership with Starbucks Coffee Company to open retail outlets in South Africa, this after bringing the Domino’s Pizza brand to the country in 2014.  

The latter master franchise agreement included the rights to six other Southern African countries, namely Lesotho, Swaziland, Namibia, Botswana, Zimbabwe and Mozambique.

"Despite sluggish overall economic performance, certain industries are growing at a faster rate. The South African consumer food service industry registered double-digit current value growth in 2014, driven by increased consumer demand for convenience, increased competition and supported by competitors’ efforts to increase their value-for-money offerings," said Verryn.

Similarly, apparel and footwear retailing registered more modest growth in 2014, registering 7% growth in current value terms.

"Upper middle-income consumers and the emerging and often aspirational black middle class continue to drive growth, with designer clothes, handbags and jewellery being popular. Market entry by international retailers’ entry into the country has been characterised by partnerships such as retail concessions," said Verryn.

For example, Edcon Holdings, through its Edgars stores, was the leading retail concession with brands such as Mango, Lipsy, Forever New, Tom Tailor, Dune and Topshop.

sa economy  |  retail
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