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Discount fashion retailer Mr Price plans to accelerate its expansion in the rest of Africa this financial year with its low-risk franchise model.

July 2, 2008

By Tom Robbins

Cape Town – Discount fashion retailer Mr Price plans to accelerate its expansion in the rest of Africa this financial year with its low-risk franchise model.

At present the company has a small footprint, selling clothing and homeware to just seven entrepreneur-owned stores in Ghana, Kenya, Mozambique, Zambia and Mozambique.

It intends to add another 15 stores this financial year, including one in the Middle East.

The retailer said franchising had turned a profit in its first full year of operation and offered an “exciting” growth opportunity.

Nedcor Securities retail analyst Syd Vianello said yesterday that the continent offered “a nice add-on” opportunity, but he did not expect it to become a significant contributor to profit any time soon. “It’s tiny to them.”

Vianello estimated the store footprint would have to be extended to about 60 shops before contributing 15 percent to 20 percent of clothing profit.

At the end of March the company had just more than 340 Mr Price clothing stores. The total number of stores, including Mr Price Home and Sheet Street, was just shy of 900.

It is taking a calculated risk that trendy clothes with relatively low selling prices will find a market in countries where the retail sector is dominated by independent traders.

The franchise model allows Mr Price to avoid the risk of signing up long store leases and paying retail staff.

Vianello said it was relatively easy to earn a margin selling clothing to franchisees.

But a “big issue” for the sustainability of the strategy was whether the franchisees were profitable.

He expected Mr Price to pick countries carefully.

Shoprite, South Africa’s most aggressive retailer in Africa, has found that not all of the continent’s bigger cities are easy to trade in or keep stocked with goods.

It has since refined its strategy to follow the high growth rates in oil producers such as Angola and Nigeria.

Stable countries with little competition, such as Ghana, also meet the criteria.

In the year to March Mr Price’s profit from operating activities was up 16.9 percent to R716 million as it benefited from consumers buying down.