South African fashion retailer TFG (TFGJ.J) said on Monday the country’s rolling power outages are likely to have reduced the annual retail turnover of its African business by about 1 billion rand ($55 million).
State electricity utility Eskom is implementing the worst rolling blackouts on record, leaving households in the dark for up to 10 hours a day.
While TFG has backup power in 70% of its South African stores, it lost about 345,000 trading hours in the 11 months ended Feb. 28, it said.
“The true impact, however, has been estimated at close to double this figure as customer demand is dampened by the associated disruption and inconvenience with reduced footfall observed before, during and immediately after load shedding (blackout) periods,” the retailer added.
This has in turn reduced retail turnover growth for the 48 weeks ended Feb. 25 to 11.4%. This excludes sales from recent acquisitions, it said.
Retailers must also decide whether to pass on the costs of back-up energy to consumers or take a hit to their margins by absorbing them.
Additional unbudgeted direct costs of about 65 million rand have been incurred in respect of diesel, security and maintenance, while capital expenditure of about 220 million rand has been spent to date on back-up power solutions, TFG said.
For the year ended March, an additional 30 million rand will be spent to ensure that 80% of TFG Africa’s stores have backup power over the next few months, it added.
TFG, which also sells upmarket homeware, said the resulting higher levels of inventory have also necessitated increased levels of stock provisioning, which would contribute to the “deterioration” of TFG Africa’s gross margin compared to the previous financial year.