We provide clothing retailers with a strong voice on trade and economic issues
The National Clothing Retail Federation (NCRF) of South Africa represents retailers catering to millions of consumers in clothing, footwear, and fashion accessories. With annual sales exceeding R50 billion ($2.78 billion), the federation supports the local economy through payments to suppliers, employee wages, and taxes, and employs over 80,000 people. Speaking to Fibre2Fashion, executive director Michael J Lawrence discusses the South African clothing retail industry.
What are the main challenges currently facing the clothing retail industry in South Africa?
The main challenges currently facing the clothing retail industry in South Africa revolve around the misconception that making clothes is easy. Many believe that there are no substantial barriers to entry regarding product sourcing or positioning products for sale. However, the reality is far more complex.
Understanding the market and market conditions, consumer interests, and fashion trends is crucial. Even weather patterns play a significant role. For example, while it is currently winter in South Africa, planning for summer 2025 is already underway. Predicting which colours, designs, and styles will be popular is quite a challenge. Investing in the necessary fabrics and manufacturing outcomes requires considerable courage.
Despite these challenges, the industry’s complexity is also what makes it interesting and commercially viable. The clothing and textile industry, including leather and footwear products, has historically been a significant part of industrial development in various countries. With the new African Continental Free Trade Area (AfCFTA) agreement, there are ongoing efforts to ensure that the clothing, textile, footwear, and leather (CTFL) industry can thrive across the continent.
Clothing remains essential, and people will always seek to express themselves through their attire while maintaining functionality. Therefore, it is vital to provide a fair playing field for the industry, ensuring that both industrial opportunities and associated services like retail can significantly contribute to the economies they operate in.
Can you describe the primary mission and vision of the NCRF? How have these evolved over time?
The National Clothing Retail Federation (NCRF) has been in existence since 2006, and we are now approaching our 20th anniversary. The NCRF was established to provide clothing retailers with a strong voice on trade and economic issues. South Africa has various interests in social and labour issues, and my role is to address these from a trade and economics perspective.
Our primary mission is to ensure that the commercial, economic, and trade frameworks within which clothing retailers operate are structured in the best interests of all parties involved. We represent nearly all the major retailers in South Africa, advocating for a fair and beneficial environment for commerce, economics, and trade.
We are also very careful to avoid activities that might be considered anti-competitive. Our members are highly competitive among themselves, making it easier to focus on broader issues without worrying about competitive conflicts.
Over time, our mission and vision have evolved to address the dynamic challenges and opportunities in the retail sector, ensuring we continue to support the growth and sustainability of our members in an ever-changing economic landscape.
How does the NCRF advocate for policy changes beneficial to the clothing retail industry? Can you provide examples of successful advocacy efforts?
The South African retailers I represent, along with a few others, work very closely within the Southern African Customs Union (SACU), the oldest customs union in the world. This historical precedent enables us to collaborate effectively to benefit the entire value chain within the customs union. Additionally, we have developed strong relationships with the Southern African Development Community (SADC), which includes countries as far north as Tanzania and the Democratic Republic of Congo. Through this community, we are increasingly expanding the value chain. Furthermore, we engage with the AfCFTA to advocate for beneficial trade policies.
Locally, we engage in policy discussions to assist the government in developing policies that support the growth and sustainability of the value chain. Our interactions with a very aggressive and robust trade union movement, which looks after workers in South Africa, are frequent and sometimes contentious. However, this is a natural part of ensuring that all parties protect their interests. Despite occasional conflicts, we maintain strong relationships and have robust conversations on a continuous basis.
An example of successful advocacy is our work with SACU and SADC to streamline trade regulations and reduce tariffs on imported clothing items. This has not only made goods more affordable for consumers but also supported the local textile industry by providing more competitive market conditions. Another example is our collaboration with trade unions to develop fair labour practices and policies, which has improved working conditions in the retail sector. These efforts demonstrate our commitment to fostering a thriving, equitable, and sustainable clothing retail industry.
Can you elaborate on the reasons behind implementing the 45 per cent VAT on packages under R500?
The government has implement 45 per cent VAT on packages under R500 (~$27) with effect from July 1, 2024. This is not a new policy but rather an enforcement of an existing one that had been previously overlooked. Decades ago, when small parcels arrived, the revenue system deemed it too cumbersome to calculate the duty on these small shipments. Consequently, they either applied a zero rating or a 20 per cent rating instead of the correct 45 per cent duty plus 15 per cent VAT. This oversight created a gap in the market.
Over time, offshore online retailers began to exploit this gap. While I cannot name specific companies, some names have been mentioned in the public domain. The volume of small parcels exploiting this gap grew substantially, turning a minor oversight into a significant market segment. This shift had considerable implications for revenue collection and the overall trade environment.
In summary, the gap in duty enforcement on small parcels became a substantial market, significantly impacting revenue collection and creating an uneven playing field. Therefore, the implementation of the 45 per cent VAT is an effort to correct this imbalance and ensure fair trade practices.
What outcomes do you expect from these new tax measures in terms of market fairness and local economic impact?
The primary outcome we expect from these new tax measures is increased market fairness. The previous price differential created an unfair competitive environment, making it difficult for both local and offshore manufacturers who adhered to full duty regulations. This imbalance was problematic for local retailers and manufacturers, as well as for those offshore manufacturers who complied with duty requirements.
By enforcing the 45 per cent VAT on packages under R500, we anticipate a more level playing field, which will simplify the competitive landscape for all market players. This measure is expected to support the local manufacturing sector by reducing the unfair advantage previously enjoyed by some offshore retailers, thereby fostering a more equitable and sustainable market environment.
How do you anticipate these new tax measures will affect South African consumers, particularly those who frequently purchase from offshore e-commerce websites?
For South African consumers who have benefitted from the gap in the market, the new tax measures will unfortunately result in price increases for purchases from offshore e-commerce websites. However, this change is part of a broader effort to create a more accountable and fair market environment for all consumers.
In the bigger picture, these measures will ensure that South African consumers are protected by the country’s robust consumer protection legislation. There is a concern about offshore operators without a local presence, as they do not provide the same level of consumer protection and recourse that local South African-based operators, whether locally or internationally owned, are required to offer. This move aims to enhance consumer safety and ensure fair competition within the market.
How do you believe this new tax will impact the competitive landscape for local retailers?
South African retail has always been highly competitive, with the clothing retail sector being no exception. This strong competitive spirit has greatly benefitted South African consumers through aggressive pricing and a diverse range of products sourced both locally and internationally.
Even with the new tax measures, we do not anticipate any significant changes in this competitive landscape. Retailers will continue to strive to offer the best deals to consumers, whether the products are purchased from a physical store or an online platform. The commitment to competitiveness and providing value to consumers will remain a key focus for South African retailers.
Are there any additional support measures or policies you think the government should implement to further support local retailers?
We have a local initiative called the Retail Clothing, Textile, Footwear, and Leather (R-CTFL) Master Plan, which has been in operation for five years. This programme involves the entire value chain and focuses on commercially sustainable ways of responsible local sourcing. While we will always have imported products on shelves and websites—an essential aspect of healthy competition—we aim to be as competitive as possible while also fostering local development.
Do you have any important announcements which you would like to share?
Yes, we have several important announcements to share:
Firstly, we are closely monitoring the production of certain types of fabric. The knitted fabric community has struggled to gain traction, but we are proud to report that they are making significant progress. We have implemented rebates and collaborated with woven fabric textile producers and will continue to support their development. For the knitted fabric textile producers, we are hopeful about introducing a rebate mechanism that will encourage local sourcing. This would allow local producers to receive credit for importing fabric without duty, potentially providing substantial benefits to the local knit fabric industry.
Secondly, we are continuously exploring opportunities to expand retail operations, particularly within the SADC. We aim to see South African retailers become more present in these markets. The advantage of having our big retailers established in these regions is that it provides us with a clear understanding of market demands. With this insight, we can increasingly encourage and enable local manufacturing production by aligning supply with the demand side.
Lastly, we remain committed to fostering a strong, competitive, and sustainable retail sector that benefits both consumers and local producers. By continuing these efforts, we hope to see further growth and development within the industry.
20230103183907.png)
