South African retailers are being challenged by the surge of big, multi-national brands entering our local market. Not having previously had to deal with major international competition, local retail brands have to ensure that they remain up-to-date with international best practice and industry trends. How can local retailers adapt to the new playing field and become more globally competitive in an already tough economic environment?
The growing influx of global retailers, such as Walmart, H&M, Zara, Burger King and Starbucks, has resulted largely from our highly attractive and well-developed local retail market. According to research previously conducted by Lodestone Brands, in 2013 South Africa had over 500 major shopping centres, compared to 43 in Kenya and just 4 in Nigeria. Other reasons multi-national players are increasingly targeting South Africa are:
- Our advanced financial system is one of our country’s major strengths. By emerging market standards, our payment methods (credit cards, store credit and electronic funds transfer) and the security of transactions are well developed.
- For an emerging market, South Africa has a sophisticated supply chain. Getting product into the country is easier than in many other emerging markets, and particularly other African countries. Durban, Cape Town and Port Elizabeth have globally competitive harbours, and our customs control is relatively efficient. With an effective manufacturing sector in both apparel and food production, local sourcing is a viable option. This is especially relevant for clothing retailers, who are able to secure short runs of certain high quality products with short lead times towards the end of a retail season.
- Although our local market is the main attraction for many of the global players which have opened for business in South Africa, they often also see our country as a platform or springboard for further expansion into the rest of Africa, especially into neighbouring countries.
- In both fashion and food retail, South African tastes are similar to those of more developed markets. Local fashion buyers have for years gone to the London, New York and Paris shows to study the next season’s trends and bring them back to South African consumers. This is supported nowadays by the rise of online browsing and shopping, and e-commerce.
The international retailers entering South Africa are increasing the need to ensure that global best practices are in place, in terms of modern technology and management and, of course, sheer size. South African operations are up against highly structured, organised, large-scale businesses with world-class procedures and systems. While they are doing many things right, local retailers will need to adapt if they want to remain relevant. This includes developing comprehensive and robust omni-channel strategies, which will become increasingly necessary as South African consumers become more connected, tech savvy and comfortable with online shopping.
We believe South African retailers need to consider the following:
- Recognise that there is a challenge. It cannot be business as usual – local companies need to put clear strategies in place if they wish to remain in the race.
- Appoint people with global experience in the top jobs. Much of the leadership in South Africa’s main retailers have extremely long tenures within the same company. This is a double edged sword, in that it helps maintain institutional memory but can also discourage the introduction of new ways of doing things. Over the last few years several of the larger South African retailers have appointed international leaders as CEOs. Although this on its own is no guarantee of success, retailers need nothing short of the world’s best throughout the organisation, bringing in the knowledge and experience required to adapt organisations to continuously changing circumstances.
- Ensure technology and management systems are globally competitive. International supply chain management is in many respects far ahead of that in South Africa. Efficient procurement processes, accompanied by very short runs and time to market, is making it difficult for local retailers to compete with multi-national players in the same industry.
- Enter into joint ventures (JVs) with international partners. This can bring increased efficiency and access to global sourcing capabilities for the local partner. For example, the annual sales turnover of Walmart, which has bought a portion of Massmart, is greater than the gross domestic product of Austria – imagine therefore how much global sourcing power Walmart can bring to Massmart.
- Consider expansion into Africa, but watch the home market. Since South Africa is often seen by international retailers as a first step into other, high-growth, African markets, our retailers should be pushing to establish a strong foothold north of our borders first. Some already have, especially the more established players like Woolworths, Pick n Pay and Pepkor, but others still consider the rest of the continent too risky. On the other hand, it is vital to ‘clean up shop’ on home turf first. A blended approach may be best – South African retailers must ensure they have a very strong business base and can compete with success in their local market, and then they should start looking beyond our country’s borders for future growth.
We believe one of the most important challenges local retailers will need to address is the fact that with the influx of global players, customer needs and expectations are changing rapidly. South African shoppers have much greater choice today, and they have access to online shopping. Retailers can no longer rely on traditional store and even brand loyalties. Shoppers today are looking for great products and the best prices. Those retailers who can give customers the best total experience are the ones who will be able to ward off the threat from international entrants and increase market share going forward.
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