Retailer TFG spends R200m to power up stores during SA’s rolling blackouts

Bongiwe Ntuli, CFO of The Foschini Group. (Photo: Supplied)

By Ray Mahlaka

1 Dec 2022

Eskom’s unrelenting rolling blackouts recently forced TFG, one of South Africa’s largest retailers, to spend R200-million to find alternative and emergency sources of electricity to power up its stores when the country is thrown into darkness.

This expenditure by TFG — the owner of Foschini, Jet, Markham, American Swiss, Exact, @home, Sportscene and a throng of other brands — wasn’t planned, but the retail group was pushed by Stage 6 in September to spend money on alternative electricity sources.

“The capital expenditure decision [to spend R200-million] within a day happened once we saw that load shedding intensified in September. We didn’t want to spend R200-million on backup power sources. But we didn’t have a choice,” said CEO Anthony Thunström in a briefing with journalists on Wednesday.

This underscores how the retail industry and large businesses have been forced to raise money to reduce their dependence on Eskom, which is not a reliable electricity supplier. The broader retail sector and TFG’s close competitors, including Woolworths and Truworths, are probably also spending millions of rands to protect their operations from the impact of rolling blackouts.

In September, Eskom’s coal-fired power stations faced breakdowns, forcing the power utility to implement Stage 6 load shedding. In Gauteng alone, where rolling blackouts usually last for four hours, Eskom customers could be without electricity for an average of 10 hours a day during Stage 6.

Without electricity for such a long period, TFG stores wouldn’t be operational, especially at shopping malls that are not fitted with alternative sources of electricity, such as a generator. And if TFG stores are shut, it means that the retailer is losing sales and, in turn, money.

TFG recently revealed that higher stages of load shedding in September cost it R400-million in lost sales, which translated into its overall profits taking a R200-million hit. Thunström has described this as a “conservative estimate” because measuring the true impact of power cuts is difficult. Sales are hard to predict even if there are no electricity disruptions.

Thunström said that before power cuts intensified to Stage 6, TFG sales were growing “strong at double digits of between 14% and 15%” during the six months to the end of September. But after September, sales went into negative territory and fell — for the first time since the first two months of the Covid lockdown in early 2020, which forced TFG stores to shut down.

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Realising that its sales were taking a hit, TFG dug in its wallet and existing cash resources to free up R200-million that would fund alternative sources of electricity.

To power its more than 500 stores in South Africa during rolling blackouts, TFG bought batteries manufactured by Elon Musk’s Tesla and lithium-ion batteries. These measures, some of which use solar energy and storage, kept TFG’s stores operating to ensure that further losses in sales were not recorded.

Thunström said these measures had significantly mitigated the effect of load shedding, and TFG plans to have 70% of the sales generated by its South African stores protected by backup power by Christmas.

“If we could have done 100%, we would have done 100%, but you’ve got to start somewhere,” he said.

TFG might be forced to spend more than R200-million if the situation worsens as power cuts are forecast to persist in the next two years unless more megawatts from renewable energy sources are added to the national grid.

Thunström said the worst-case scenario is that some shopping centres are not fitted with reliable sources of power, especially those in peri-urban areas, and TFG’s sales cannot be protected from rolling blackouts.

“If the shopping centre goes down, you will never generate the turnover [or sales] that you would have. But we would have protected at least 50% of our sales through simple measures like installing inverters at stores,” he said.

Bongiwe Ntuli, CFO of The Foschini Group. (Photo: Supplied)

Despite the impact of rolling blackouts, Thunström and TFG CFO Bongiwe Ntuli are optimistic about South Africa, with the pair saying that consumers remain resilient and those in the informal employment sector continue to drive up the company’s sales.

TFG has every reason to expand more in markets outside of South Africa considering that it is an international company that has bought retail companies in recent years in Australia and the UK, including Phase Eight, Hobbs and Retail Apparel Group. Speculation is rife that TFG might add to its international portfolio of brands by buying Joules, a fashion retailer in the UK that is under an administration process (similar to a business rescue process in South Africa). Sky News is leading coverage of this development, which can be read here.

Thunström declined to comment that TFG is interested in buying and rescuing Joules, but expressed interest in being part of the retail consolidation taking place in the UK.

“We have an ambitious team in Australia and the UK. Our view is that there are a number of UK-based brands that I think if you look in the next couple of months, particularly after the end of December, will be available for sale or will be in financial difficulty,” he said. DM/BM

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