Foschini upstages its iconic rival

The status of Truworths as the iconic local retailer has been dented by lower sales growth and a surge by former laggard Foschini.

Truworths has an impressive history of strong earnings growth. With its business model targeting youthful consumers, it got it right for so long that the bar was raised high.

Its margins and sales per square metre of store space have been among the best in the world, making it a darling with overseas investors.

However, this month Truworths issued disappointing numbers, admitting it had misread the market. For the six months to December, the chain grew sales just 10.7%.

Stuart Sinclair, analyst at Efficient Select, said margins at Truworths were at peak levels, which exposed the business to downside risk if there was increased competition or poor merchandising decisions.

By comparison, Foschini was "reading the market right after getting it wrong for so many years".

Its brand diversity was geared to the recovering South African consumer. It had also partnered with local suppliers to ensure a quicker turnaround time. Most importantly, Foschini was getting the merchandise mix right, said Sinclair.

The recent acquisition of Fabiani gave Foschini a foot in the door at the high end of the market. It plans to open at least another 20 Fabiani stores in the next few years.

Truworths and Foschini, both based in Cape Town, date back decades - Truworths to 1917 and Foschini to 1924.

Ronnie Stein, chief financial officer of The Foschini Group, said the retailer was opening new stores after being "behind the curve" four or five years ago. This year, the retailer will open 7% more floor space.

TFG (as the group is now known) was cyclical, admitted Stein. Historically, it had done worse in downturns than its peers, and better in upturns.

Truworths had a "reasonably good" Christmas, and returns would probably be impressive by international standards, said CEO Michael Mark.

"Historically we've always said we're very focused on the youthful, fashionable South African customer, and cater for all her needs with our iconic unique brands.

"We are human - there will be times when we make tactical mistakes. But in our context we don't see any need to change our business model, philosophy or our strategy," Mark said.