- Local retail chains are eager to sell more local goods.
- Locally made goods are more profitable.
- Buying local also insulates retailers against the disruptive global supply chain.
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If you have been shopping for clothing lately, you would have certainly noticed a lot more “Made in South Africa” ads and labels in the stores.
Chains like TFG (formally The Foshini Group), Pick n Pay, and Mr Price have all been eager to show how they are supporting the local economy by sourcing goods made in SA.
The reasons for this are many, but one of the more obvious ones is that retailers tend to make more money from it, especially when they make the products themselves.
Retailers will have a larger margin in having the manufacturing integrated into the entire group’s supply chain, says Alec Abraham, senior equity analyst at Sasfin Wealth.
In SA, TFG has arguably been the leader when it comes to this kind of integration. About 18% of the clothing sold in its African stores were supplied from the TFG Merchandise Supply Chain.
The retailer’s commitment to local production can be seen in its manufacturing division, Prestige Clothing, setting up a factory in Johannesburg in October. This is in addition to the ones it has in Caledon, Epping, and Maitland in the Western Cape, and in Durban, KwaZulu-Natal.
It has also acquired manufacturing assets from House of Monatic, Trade Call Investments Apparel, Radeen Fashions, and Hanes South Africa for a total of R21,7 million.
TFG is not alone. Mr Price is also making a big effort to source more goods locally, saying in November 2021, that it planned to increase the number of local products it sold from 79 million to 100 million units.
Aside from being profitable, retailers also want to secure their supply of products in a difficult global supply chain.
“Supply chain disruption has become a real risk for businesses around the world,” says Abraham.
By getting supplied locally, they mitigate the risk they will not be able to get stock from overseas.
The seriousness local businesses take supply chain disruption can be seen in Pick n Pay increasing its stock level by 15,1% to R8.3 billion for the year to end March 2021.The group said it did this because it wanted to secure its supply of goods.
There was a similar story at Mr Price, which increased its inventory from R3,29 billion to R3,95 billion for the same period.
Aside from mitigating against supply chain availability risk, sourcing locally also protects it some extent it from currency risk, notes Abraham.
He also points out that housing manufacturing and a retailer in one organisation, like TFG has done, gives the retailer an advantage when it comes to responding to changes in the market.
If a retailer, for instance, sees that a product is gaining traction in the market, it can now respond quickly – in a matter of days and weeks – as opposed to waiting for months for a shipment from abroad to arrive.
Retailers looking to source more local goods are in luck. The Retail, Clothing, Textile, Footwear and Leather Master Plan 2030 was launched in 2019, and it has the goal of increasing local procurement from 44% to 65%.