The following article was published in GautengBusiness on Monday 2nd July 2007.Whip the import threatClothing manufacturer RSA Leisurewear has been in business for eight years. In 2002, the company had an annual turnover of R12 million. Today, turnover sits at R8 million.
The SA textile industry has just escaped a general meltdown with the introduction of Chinese import quotas.
Nevertheless, other threats remain and to stay in business, industry players will have to be innovative and reinvent themselves in a new market.
Managing director, Grant Reid, has a plan to rescue his business – empowerment.
RSA Leisurewear recently completed an empowerment deal with the Young Professionals Group (YPG) BEE investment group, who will take control of 27% of the business.
Notably, however, YPG does not just want to help turn the business around – they expect to see RSA Leisurewear become a R100 million turnover company in five years. To do this, RSA Leisurewear will overhaul their business model. Instead of just manufacturing corporate clothing which is then sold to agents, the business will now directly target the end user.
Reid explains that the margin made when selling to a middleman is not sufficient to remain competitive in an import environment. Selling directly to the end user, however, may prove to be quite lucrative.
“Chinese manufacturers do not sell directly to SA’s corporates. They sell to middlemen who then sell the clothing to corporates,” Reid says.
But, targeting SA’s corporates directly brings its own challenges and this is where YPG will make the difference.
YPG is a collection of black professionals, each with their own extensive networks.
RSA Leisurewear is a fully vertical operation. This means that within the current textile environment, the manufacturing arm of the business is taking strain.
Reid says while moving to imported clothing for their corporate wear is an option, in-house manufacturing still presents a competitive edge.
“We can produce specialised clothing that matches the client’s exact needs much faster than if we had to import the fabric. We can also make sure that the colour for instance, is an exact match to their corporate colours,” Reid explains.
He adds that keeping the manufacturing arm also means that RSA Leisurewear can react to smaller orders – something their importing competitors may struggle with. The new YPG equity deal is not RSA Leisurewear’s first encounter with the empowerment process. Reid says that RSA Leisurewear attempted to sell equity on three separate occasions in the past. However, each of these deals fell through.
“When a small agent that buys maybe R10 000 worth of stock a month starts asking for your empowerment status, you take notice,” Reid says, explaining part of the reasoning behind empowerment. The business also supplies many leading corporates, who now insist on a competitive empowerment status. Interestingly, YPG approached RSA Leisurewear with the empowerment deal.
YPG director, Sifiso Kunene, explains that the group’s strong manufacturing focus lead them to look at textiles. It was also YPG that proposed the new business plan. “We believe not enough manufacturers in the textile sector are selling directly to the end user,” Kunene says.
He adds that this new way of doing business will also allow the end user to access better prices while RSA Leisurewear can react quickly to market needs.
Kunene believes that aggressive marketing and consumer education will lead to more business, as corporates spend their money with local and empowered manufacturers. A brand creation process will accompany this education process.
“Achieving a R100 million turnover in five years will not be easy, but it is certainly achievable. With three of four large contracts, I see this company easily reaching the target.”
He adds that YPG will also actively seek new and different markets such as protective clothing. Reid echoes this, saying that to remain competitive, RSA Leisurewear will have to look at clothing items that present bigger profit margins. Manufacturing seasonal lines under contract is yet another strategy Kunene mentions.
“With a few structural changes, the business will reach its potential,” he says.
In the long-term, they even envisage exporting the clothing that RSA Leisurewear’s 170 employees manufacture locally.
. Visit www.rsaleisurewear.co.za for more information
