Africa’s largest clothing retailer, Pepkor Holdings Limited is increasing investments in Brazil as it repositions its South America operations toward the discount segment.
Africa’s Pepkor is a value clothing and furniture retailer that bought a majority stake in Brazilian retailer Grupo Avenida.
Avenida was bought from its private equity and family owners, marking Pepkor first foray into South America.
Pepkor, majority owned by Steinhoff International, did not give an exact price for the 87% stake in Avenida it is buying from Kinea Private Equity and the founding Caseli family.
According to Pepkor, Brazil has a highly fragmented apparel retail market with only 14% of it linked to formal outlets.
“With approximately 85% of the population being in the lower and middle income bracket, it provides potential for Avenida to exponentially increase its store base and revenue into more traditional and rural geographies,” Pepkor stated.
Avenida, a 42-year old value clothing retailer, had a preliminary turnover of 773 million reais ($147 million) last year.
The Cape Town-based company now plans to open 50 stores a year in Brazil, doubling its initially planned rate.
Steinhoff International controls the south African retail group. This year the company made a pretax loss for the year ended Sep. 30 of 108 million South African.
Africa’s Largest Clothing Retail potential in Brazil
Currently, Brazil has a population of 212 million people. The move will provide an attractive opportunity for Pepkor as one of the world’s top ten apparel markets. Pepkor moves to Brazil with a $25.6 billion clothing, footwear home market and an untapped rural market.
Success in Brazil will allow Pepkor to consider further expansion in other emerging markets, accordingly to chief executive Pieter Erasmus in an interview after the earnings report.
However, disruption at South Africa’s ports has left discount retailer Pepkor Holdings struggling to import goods. Currently, goods worth $37.85 million are stuck at sea.
Although local retailers have been moving production closer to home. Some of them still rely on overseas markets for some products such as fabrics.
Pepkor’s board declared a dividend of 48 cents per share for FY2023, which represents a 12.9% slide compared to FY2022.
The market seemed disappointed with the financial performance despite the group’s guidance on lower Heps earlier this month. Its share price traded around 1.8% lower.