In 2015 alone, South Africa imported over 32 million tons of clothing, shoes and wearable apparel. The clothing industry, which accounts for just under 20% of retail sales, is a notable contributor to household consumption expenditure, which accounts for 60% of GDP. The sector is becoming a notable player in the property industry, driving growth in retail developments. On average, clothing retailers and department stores account for 45% to 55% of gross lettable area in super-regional malls. But the sector’s role in the property industry doesn’t end there.
South Africa’s clothing and apparel sector is a typical story of the pros and cons of globalisation and competitive advantage. Over the years, local producers have all but vanished in the country, opening the field to international players. Major local retailers like Edcon and the Foschini Group stock from competitive producing countries such as China and the local consumer is being given more choice with over 12 international clothing and shoe retailers having entered the South African market in the past three years.
Despite the challenging economic environment, clothing and footwear imports measured in tons have grown by an average of 15% per annum, reflecting strong local demand and the shortage of suitably sized local producers to offer alternatives in this market. This is despite the significant weakening in the local currency which should have seen the size of imports slowing. In addition, some international brands have entered the market without leveraging off existing retailers, allowing them to compete on price and quality, achieved through unique operating models.
At the heart of these models is the ability to manage costs and improve efficiency, raising the importance of storage and logistics services in the retail sector. With this, international retailers are looking at innovative ways of overcoming domestic trade and logistics challenges. By way of example, while Durban remains the main port of entry for the sector, accounting for 40% of all imported shoes and clothing, backlogs and bottlenecks at the Durban port have seen retailers looking for alternatives. The Durban port has seen a marginal 2% rise in apparel imports over the past five years in comparison to the overall 15% growth nationally. In contrast, O.R. Tambo International Airport has seen a 17% y/y increase in the same time period, with 2015 alone recording an exponential 53% y/y increase in imported apparel measured in tons. Although it is still early days, the three international airports (O.R. Tambo, King Shaka and Cape Town International) are beginning to play a bigger role in the industry.
The gradual introduction of international retailers in the South African market is also changing the business culture of the light industrial sector and challenging the traditional relationship between occupiers and investors. In JLL research on Trade trends and the impact on industrial developments, these challenges between international occupiers and local investors are briefly unpacked. From the length of lease terms to the attitudes around escalations, international retailers are demanding the increased flexibility which they are accustomed to in more developed markets such as Europe.
However, these challenges are potential opportunities for land owners and industrial developers who are quick enough and willing to adapt to the needs of global occupiers. International retailers have been well received in the local market, and their growth in the local market is promising for demand in the light industrial sector. The potential for industrial and logistics transactions is on the rise – but investors will need to develop a global perspective to take full advantage.