Load shedding costs one of South Africa’s biggest retailers R1 billion
Homeware and fashion retailer The Foschini Group (TFG) estimates that rampant load shedding reduced TFG Africa’s retail turnover by about R1 billion, following abnormal costs, lost trading hours and decreased footfall in its stores over the 2023 financial period.
In a trading update for the year ending 31 March 2023, TFG revealed that the ongoing energy crisis and elevated load shedding levels significantly impacted its operations.
Despite TFG previously reporting that 70% of its turnover in South Africa is protected from the impacts of load shedding due to the group’s investment in alternative power solutions, running independently from Eskom is still proving costly, the group said.
To date, the group says it has spent around R220 million in capital expenditure on backup solutions while incurring a further R65 million in unbudgeted direct costs for diesel, security and maintenance, added the group.
As a result, TFG estimates that the operational and financial impacts of load shedding have reduced TFG Africa’s retail turnover by approximately R1 billion in FY2023 – and by more than R250 million in the past two months alone.
Compounding the losses released was the decline in footfall and trading hours as a secondary effect of the power cuts.
“TFG lost 345,000 trading hours for the 11 months ending 28 February 2023. The true impact, however, has been estimated at close to double this figure (685,000 lost trading hours) as customer demand is dampened by the associated disruption and inconvenience with reduced footfall observed before, during, and immediately after load shedding periods,” said the group.
“The ongoing energy crisis and elevated levels of load shedding are having a profound impact on South Africa’s economy and society at large, making it difficult for businesses to trade, operate and plan at normal levels,” TFG noted.
“This adds abnormal costs to the business, including the inability to pass on the impact of inflation and the costs of dealing with load shedding to the consumer in full.”
“Further, due to load shedding, retail footfall has declined in some regions, and this, together with a change in consumer spending patterns, has impacted all South African retail.”
These sustained losses are forecast to have an impact on the group’s overall retail turnover performance for the year, with the 48 weeks ended 25 February 2023 – excluding the performance of the newly acquired Tapestry business – expected to show a decline in growth of 1.2% to 11.4% in retail turnover of R30.94 billion.
In response, TFG noted that it would strengthen its independence from the failing national grid by investing a further R30 million to increase turnover protection to 80% in the next few months.
However, the group added that it could only do so much to escape Eskom and load shedding – adding that backup power solutions are most effective only up to and including stage 4 load shedding but are less effective at stages 5 and 6.
Despite this, TFG noted that it saw a slight recovery in the first two weeks of March 2023, with TFG Africa’s retail turnover – excluding the Tapestry business – increasing by 15.9% to R1.2 billion, stronger than the R1.07 billion reported during the same period in 2021.
Additionally, Bash – TFG’s new fashion and lifestyle online shopping platform – was successfully launched in February 2023, and early indications are very encouraging across a range of online performance metrics, said TFG.
The group also noted that it continues to see positive results from its investment in the value segment of the South African market following its acquisition of Jet.
“Load shedding in South Africa is expected to continue to significantly impact our business in FY2023 and FY2024. We continue to monitor the impact carefully, but given this prevailing uncertainty, it is difficult to accurately predict the extent of these impacts.
“Considering this, we (TFG Africa) will continue to open new stores in South Africa, in line with our strategy. However, we do so cautiously and responsibly given the current environment,” added the group.
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