John Craig’s well-thought-out business model is proving to be an example to follow for the entire SA fashion industry as the men’s clothing and footwear specialist expands its offering into Africa.
As the saying goes; longevity is a true mark of greatness, but in business today, sustainability is a problem. In 2010, ABSA reported that around 63% of start-ups failed within two years and in 2014, Standard Bank reported that 50% failed in the first two years because of the inability and inexperience of their owners. In June this year, SME South Africa reported that 80% of start-ups failed to make it past three years – it makes for grim reading.
However, there are some businesses out there that have managed to not only get through their first two years but they have managed to survive, grow and thrive. There’s even a handful that have defied the odds and successfully navigated economic turmoil, political transformation and ever-changing market trends for over fifty years.
One of these companies is men’s fashion retailer, John Craig. Founded in 1943 in Johannesburg, John Craig sells top quality men’s branded apparel, footwear and accessories to its target market of middle income, 30-plus male South Africans.
To be successful in fashion retail requires close attention to detail and precise implementation of strategies that satisfy the vexatious four P’s of marketing: Product, Price, Place and Promotion.
Over the years, the company has worked hard to get these areas right and thanks to its commitment to customers, always looking to provide products that people want (not what marketers think they want), John Craig has built an extremely loyal customer base which continues to grow as the business continues to open more and more stores.
Managing Director, Lily Moreira explains that even though the country’s economic outlook is depressed, this fashion star has no intent on resting on its laurels and will continue to look for exciting opportunities in South Africa and across its borders in neighbouring countries where economic growth is still positive.
“We’ve only recently ventured into Namibia,” she says. “We started off in Windhoek where we opened two stores (Maerua and the Grove). They are great malls because they have many South African brands so it’s a good benchmark for our own company.
“Recently we opened another two stores further north, one in Rundu and one in Oshikango. These have started a bit slower but sometimes it takes customers a little longer to get familiar with the John Craig brand and what it offers.
“Another potential area for us would be Botswana but we are moving onto a new IT platform in the next six to 12 months, so we felt that it was best to wait until this conversion has been concluded.
“We still have a number of opportunities in South Africa. A number of factors are reviewed in this process – is it in a mall, the location within the mall, the catchment area, rental etc? We prefer to trade in malls. CBD locations over the past few years have been severely affected by malls due to customer convenience.
“Ultimately we look for the right rate of return; if we don’t think we’re going to get it then we won’t open.”
GROWING WITH THE GROUP
John Craig’s history has been varied. When it comes to ownership, the structure has changed a number of times. In 2000, there was a management buyout from the then owner, industrial group Waco International.
In 2006, Pan-African retail company, Pepkor, purchased John Craig allowing the company to continue on its growth path.
Pepkor boasts an extremely strong position across Africa, Australia and Poland (with over 4100 stores) and John Craig utilises the experience and expertise of the group when expanding its own footprint.
“We’re trying to align ourselves with the rest of the group in terms of where they perform better and the group is trading well out of Namibia and Botswana. We looked at Namibia because firstly, the currency is one for one which makes things a little easier and secondly, the group was showing the best growth there,” explains Moreira.
Southern Africa has seen excellent conditions for retailers in the past decade, with many prominent international players entering the industry because of the growing middle class. PWC said in a 2012 report: “Growth is driven by the numberof black consumers rising into middle- and upper-income groups, with a consequent expansion in their disposable income. By 2016, some 11 million households are expected to have an annual incomeabove R89,500 (US$10,000). At the upper end of the income scale, some forecastersbelieve the country is already home to about 71,000 dollar millionaires.Their spending power is further bolstered by widely available consumer credit, both from retail banks and retail chains.”
After gaining a foothold in Botswana, the logical next step in the company’s African expansion plan would be other neighbouring countries like Zambia or Mozambique before heading further north and attacking markets with huge potential like Nigeria and Kenya. Pepkor is in the midst of a R100m expansion into Nigeria where it hopes to eventually open 50 outlets.
“There’s no reason why can’t go into those markets,” says Moreira. “If the group trades there then there’s already a logistics platform for us to benchmark ourselves. We need to explore these markets to make sure they make business sense for John Craig – it wouldn’t make sense to have just one store, you’d have to have a node of stores to be able to build a full infrastructure. When the time comes, once we’ve explored Botswana, then we’ll probably look at Zambia and other places where the group trades like Kenya and Nigeria. There’s no cap on the opportunities in Africa but we feel we still have a number of opportunities in Southern Africa before we move further north.
“We’ve slowed down our new store growth slightly in the last few months. At one stage we were growing at about 20% year-on-year with new stores but with the way the economy is at the moment that was a little too aggressive.” she explains.
ECONOMIC PRESSURE
With the growth forecasts for the SA economy giving many business and political leaders’ sleepless nights, there is definitely a need for companies that operate across the country to focus on productivity and value creation. When the economy slows, consumers generally lose spending power and this makes things tough, especially for retailers and especially for those in the mid-high price sector.
“High inflation has been a challenge in the past few years as the Rand/Dollar has devaluated considerably,” explains Moreira. “Consistently, in the last three seasons we’ve seen double digit inflation making trade difficult – the value retailers have benefited from this. Consumers are transacting less often and definitely looking for more value items. It’s a huge challenge at the moment and I don’t see it changing in the next six to 12 months, at least not until the exchange rate stabilises.
“We have our own private brands and we buy from local agents but they source their materials from overseas so whether it’s our own private label or any of our brands, like Polo or Jonathan D, all of those brands are actually sourcing internationally so they’re having the same challenges bringing their product into South Africa – the exchange rate is a killer,” she says.
Fortunately, it’s not all doom and gloom. Although economic pressure puts a strain on business, organisations like John Craig, which has support from an international group and a clear strategy, is well set to ride the wave.
“The fact that we have a great mix of brands and a wide assortment of products which allows the consumer to have a choice is important. He may aspire to buy a top end brand but may choose to purchase a similar product at a lower price point, still getting the best quality for his purchase. John Craig offers world class premium aspirational brands that adds value to the customer’s lifestyle,” she says.
INDUSTRY LEADERS
Weathering the storm comes from not only a good selection for customers to choose from, it also comes from having products that are better than others on the market – a real focus on quality, style and timeless product crafted for today’s market. John Craig and Moreira certainly have this.
“The quality of our products ensures John Craig is the house of premium classical brands,” she says.
“The brand has been around for many years; we’ve got a very loyal base of customers. We’re constantly looking at how we can improve prices and fashionability. Service does play a big part – people are loyal if you give great service and a product that they can rely on. All retailers are going to see challenges in the next six to 12 months and hopefully our customers will continue to be loyal and continue to shop at John Craig.”
Customer loyalty is an extremely difficult thing to create and even more difficult to sustain. In these times of online shopping, where everything can be found at a cheaper price one way or another, to come across a retailer that enjoys genuine loyalty from its customers is rare. You need to successfully mix all elements of your offering and John Craig does this perfectly. The company offers multiple payment options, it has clearly defined its target market, it connects with its customers both digitally and physically, and it makes life easy for people with its broad spread of stores.
A lot of this is down to the equally loyal staff who implement strategies and ideas set out by the MD. She is clearly a deft business person and an experienced and savvy fashion expert who, after more than 15 years in charge of this successful company, has no intent on slowing down any time soon.
“The only way you can guide your company in the right direction is to be as hands on as you possibly can. It’s about knowing who your customer is and what he is wanting form you in terms of product. As far as I’m concerned, as long as I’m MD, I’ll be as hands on as possible,” she concludes.