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Possible price war among big SA retailers

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The general retail outlook for South Africa is anticipated to be challenging and this could make a price war likely among the biggest local players, Jaco Prinsloo, a principal with global management consulting firm AT Kearney told Fin24.

"There should be warning bells for local companies. Not only is there increased competition - especially in the fashion industry - but economic growth in SA is slower and the rand is losing a lot of ground," said Prinsloo.

"This will create rising input costs and reduced consumer spending and most likely lead to a price war among big retailers offering food and general home ware. They would have to look at their operational costs to become leaner and get their own house in order. This would probably be good news for the end consumer."

AT Kearney released its second African Retail Development Index (Ardi) this week.

Prinsloo said in the SA fashion industry the competition has become very fierce and a lot of international retailers have joined in - like Cotton On and Zara.

"International brands enter the SA fashion market with good offerings. They are well-established organisations and come with a lot of buying power," said Prinsloo.

"They can source on a global scale and focus on the middle- and upper class consumers where they can see rich margins."

He said big general retailers in SA are still making good margins locally, but increased competition - including from Botswana's Choppies, which now already have more than 20 stores in SA - might push them to look at expansion in the rest of the continent.

"These kind of expansions take a long time to have a big effect, so, short term price wars and cost optimisation are more likely among the big general retailers in SA," said Prinsloo.

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