RETAIL INDUSTRY-ANALYSIS: Retail boom could lure the likes of H&M, IKEA, Elgiganten and Fona to Africa

open | 11 December, 2006

JOHANNESBURG. Swedish mass market fashion chain store H&M has announced that it would enter Japan, after having set up stores in Dubai and Kuwait only two months ago. The group is also present in China and has a very strong presence across Europe.

But to date there are no signs of H&M setting up shop in South Africa - as a stepping stone towards conquering the continents 800 million consumers (of which some 80-100 million ready to go on a shopping spree).

A Spanish international fashion chain store, Mango, recently set up its first franchise in South Africa, in the Johannesburg suburb of Sandton.

The move led to speculation that other international chains, such as Zara, another successful Spanish fashion brand, and even that H & M could be on their way in.
H&M is one of a number of successful Nordic consumer stores that so far have shied away from South Africa and the African continent as a whole.

The same goes for Swedish furniture retailer IKEA, the largest furniture store in the world, which has resisted continuous rumours over the past ten years that it would enter South Africa.

As with H&M it would have made a lot of sense for IKEA to enter South Africa – both companies would, as others have, capitalized on very strong consumer growth figures.

While the South African economy grows by close to five percent this year, growth in many consumer areas has been well over ten percent. The furniture retail market grew by 14 percent last year. The boom is very visible, with millions of people decorating their new homes and throwing out their old wardrobes.

IKEA has sourced pine furniture from South Africa for a couple of hundred million rand, but the project was discontinued due to quality issues.

A myriad of large companies and entrepreneurs have approached IKEA hoping to become their partner, but the company has so far stubbornly repeated that it is too busy with other markets and that it is not prepared to enter franchise arrangements.

There are many more chain stores in just about every possible niche that would have an excellent opportunity to make it. El-Giganten, a home electronics store spread across the Nordic countries - acquired by British DSG International (Dixon) which also aquired a stake in Danish Fona in September - could do well too.

To be fair, not that many mass-market retail and franchise chains have entered the South African market.

Among the most notable exceptions are The Body Shop, Seattle Coffee Company, and – of course – MacDonalds.

In the luxury segment the picture is a bit brighter. Danish luxury hi-fi make Bang & Olufsen has a number of franchises in South Africa that are doing ok.

As much as foreigners continue to stay away South African retail chains are laughing all the way to the bank. Stocks such as Shoprite Checkers, Edcon and Lewis have hit all time highs on the stock exchange this year. Just about every South African chain store have also entered the rest of Africa and are doing very well in countries like Mozambique, Zambia, Tanzania, Uganda and Kenya.

AfricaScan Comment
Africa is hardly your number one consumer market.

But sentiment against the continent is changing fast. Mobile phone manufacturers have shown that there indeed are massive, largely untapped markets in Africa.

One in eight African, or just more than 100 million people, now has a mobile phone.

So why aren’t they making a move?

A tedious explanation is that Africa is too risky, but that doesn't wash if one look at the recent success by South African chain stores - many of them are being courted by local and foreign private equity firms that are eager to capitalise on a perceived continued consumer boom.