Analyst warns of SA drain as Foschini buys second UK retailer

The Foschini Group’s (TFG) acquisition of a second UK retailer comes as South African companies are trapped in an economy without growth and seek diversification of their risk exposure.

TFG said on Thursday that through its UK subsidiary, Phase Eight, it acquired the entire share capital of Whistles, a British contemporary fashion brand for men and women.

Sasfin Securities director David Shapiro said on Thursday that he was not surprised by the announcement.

“It’s the only escape route for local companies trapped in an economy without growth,” he said. “Africa is also not proving to be the Nirvana everyone thought it would be.”

“Soon if we take out the foreign holdings of the JSE there will be nothing left,” he warned. “But all credit to our private sector that never give up and keep adapting their business models.”

Phase Eight, which is another acquisition of TFGs, surpassed its expectations in the first half-year financial results to September 30, released on November 12.

Whistles has 46 standalone stores in the UK and is stocked in selected departmental stores across the world, including Bloomingdales in the US and Harrods in the UK. It also sells its merchandise online.

TFG now trades in 31 countries globally.

“Whistles is a brand that we have long admired, for which we believe there is a significant opportunity for growth,” said TFG CEO Doug Murray. “We look forward to working with the team to further develop the brand.”

TFG’s performance has improved considerably since the acquisition of Phase Eight, showing strong cash sales growth of 15.8% (including Phase Eight, 67.4%) for the six months ending September 2015.

TFG’s shares fell 3.78% at 12:45 on Thursday to R135.28, valuing the company at R29.13bn with a price to earnings ratio of 15.13.

South African retailers are increasingly looking to overseas markets to diversify risk in an economy battling low growth and inflation.

In the last few years, the industry has seen Woolworths’ acquisition of Country Road and David Jones in Australia; Truworths’ acquisition of Office Retail Group in the UK; and Brait’s acquisition of New Look in the UK, in addition to TFG’s acquisitions.

Although Phase Eight is not a large part of the TFG business, Murray told Finweek in November 2015 that it is a part of the group’s long-term strategy. “We suspect they will be slightly accretive for the full-year results and we are very happy with the way the integration is going with the business and on plan,” he said.