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Walmart entry a mixed blessing

Published Jun 10, 2011


Walmart’s acquisition of a 51 percent stake in Massmart will be a mixed blessing for the clothing industry.

This is according to a survey by the Redress Consultancy, which found contrasting views among clothing producers on the benefits of the deal.

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Walmart’s entry into South Africa will no doubt have an operational impact on the retail sector.

Edcon, the owners of Edgars and Jet, reportedly said that new entrants to the market could result in lower prices and margins or a decrease in its market share.

However, the consequences of the deal for the clothing sector is uncertain.

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Most respondents to the survey said South Africa’s clothing sector had the potential to entice more local procurement if it realigned itself to global productivity and delivery standards. But this could only be achieved through strengthening skills, productivity output and restructuring wages as has been proposed by clothing companies that don’t comply with minimum wage deals.

The industry is close to crisis with many firms saying they cannot afford the minimum wage, while the bargaining council is proceeding with writs of execution against firms that are not compliant.

Some of the respondents said the Walmart/Massmart deal might bring the industry, the union and the bargaining council closer to finding solutions that would make the sector more competitive.

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One respondent argued that if Walmart did source from local clothing manufacturers, it would provide new opportunities for the industry and hopefully entice South African retailers to source more locally.

Job growth would escalate if the industry was able to become more competitive, but in order to do this both the industry and the union would need to revisit wages, the non-compliance issue and productivity.

Another respondent commented that if South Africa’s clothing sector was able to rejuvenate its productivity and competitiveness, “local retailers would resort to purchasing locally and the quicker turnaround and understanding of local conditions would give them an edge against the colossal giants like Walmart”.

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But another said the competition between local retailers and Walmart could escalate into a price war that would have a negative impact on the clothing sector.

“I am not sure how much further down prices can go… they (Walmart) are very price sensitive and it would be an immense challenge for clothing manufacturers to meet their price points.”

Illegal imports are plaguing the clothing manufacturing sector as well.

One respondent summed up the industry’s view by saying: “If the authorities would apply the same vigour to limiting illegal imports as they did to investigating the Walmart proposal we might have a stronger value chain with broad-based benefits for South African workers and consumers.”

It is expected that the clothing merchandise stocked by Massmart stores will increase.

Asda, Walmart’s UK subsidiary, has a low-priced clothing label, George, which Walmart has rolled out in seven markets worldwide. It is expected to be launched in South Africa as well.

A report earlier this month on the Fibre2fashion website stated that George had announced joint sourcing with Walmart in order to moderate the increases in cotton prices and other input materials.

George and Walmart will jointly procure fabric, which accounts for 40 percent to 45 percent of the garment cost, and the clothing label is considering joint sourcing for garments as well.

George is evaluating its production units and is also considering options to bring manufacturing nearer home from southeast Asia. It has already started a production unit in Turkey and is procuring some fabrics from the UK. - Samantha Enslin-Payne

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