INVESTMENT OUTLOOK: Could a blue wave in the US transform the red wave in local retailers?

A possible oil-price correction may bring festive relief as Truworths and TFG prioritise profitability over sales growth amid pressure on South African shoppers.

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The blue wave in the US delivered a sharp correction in the oil price in the past week. Goodness knows that a drop in fuel prices would be most welcome after the damage done to South African consumers in recent months.

Will the drop in oil prices stick? And how long will it take for this to filter through to the prices paid at local pumps?

We don’t know the answers to these questions yet. But we do know that it can’t come soon enough, as consumers (and retailers) desperately need some Christmas cheer this festive season.

Blue wave, meet red wave

If you draw a chart of share prices in the local retail sector this year, you’ll be met with a sea of red. There are only a few exceptions, with only the best of the best retailers managing to keep their heads above water this year from a shareholder perspective.

We are now heading into the most important time of the year for the retail sector, with all to play for over Black Friday and the festive season.

But will the retailers try to outdo each other this year? Or are we heading for a Black Friday that will be light on genuine deals?

If you read between the lines in company results and discuss the current retail environment with executives in the sector, there’s one theme that comes through clearly: they are tired of the race to the bottom.

Put differently, South Africans have become far too good at bargain-hunting and chasing down deals.

In fact, retail CEOs regularly describe South Africans as being among the most price-sensitive customers in the world. This puts constant pressure on gross margin, with retailers having to offer discounts just to attract shoppers. Combined with inflationary pressure in operating costs, this tends to be bad news for investors in the sector.

Margin protection at Truworths

A sales update at Truworths gives us a great example of a retailer that has clearly decided to prioritise gross profit over top-line sales growth.

In Truworths Africa, sales fell by 2.7% in the 17 weeks to 25 October 2026, yet gross profit is described as being “maintained” vs the prior period.

The group explicitly references the rand value of gross profit, not the gross profit margin. This type of thinking is really interesting to see, as it indicates a focus on the absolute level of profitability.

The 2.7% decline in local sales is bad enough, but it gets worse when you drill down to cash sales at Truworths Africa. This metric fell by 8.6%, indicating that credit sales are propping things up.

The sales update doesn’t give any information on profitability below the gross profit line, but it seems unlikely that Truworths has done enough here to offset the inflationary pressures in the operating cost base.

What will really matter, of course, is the remaining nine or so weeks of this interim period, covering almost the entire holiday season in South Africa. This will make or break the interim results that are due for release in February.

Some progress at TFG Africa

The Foschini Group released results for the six months to September 2026, so we have a full set of numbers to work with here (vs just the sales update from Truworths).

TFG Africa contributed 68% to the group numbers, so it’s important to remember that nearly a third of sales come from businesses in the UK and Australia. This means that the group numbers at The Foschini Group aren’t necessarily reflective of the situation in South Africa.

For this reason, we are going to focus only on TFG Africa here.

The shift in local sales channels is remarkable: 120 underperforming TFG Africa stores were closed during the period, with a further 60 to 80 closures planned for the second half. Conversely, Bash grew online sales by 53.3%, now contributing 10.9% of TFG Africa’s sales (up from 7.4% in the prior period).

The shape of sales growth in this period was unusual. Sales grew by 1.2% in the first quarter (with a particularly weak June) but then rebounded in the second quarter with growth of 6.2%. There can be many reasons for this in an apparel business, including the timing of seasonal weather conditions.

With sales in TFG Africa up 3.8% for the six-month period, it’s interesting to look at which categories outperformed and underperformed. The clear loser is cellular, dropping by a nasty 5.1%. Beauty was the star of the show, up 11.4%, while jewellery was good for 6.5%. Clothing is the anchor category (71.1% of sales), growing 4.0% for the period.

The metrics for credit sales are concerning. Although credit sales declined by 2.4%, the gross debtors book increased by 3.0% and net bad debts were up 10.2%.

Chalk that up to another cautionary tale for the health of consumers. I’ll say it again: fuel price relief is desperately needed.

With sales out of the way, how did margins perform?

As we’ve just seen at Truworths, TFG Africa is focused on the gross profit line. It’s encouraging that gross margin increased by 10 basis points after gross profit grew by 4.1%.

Here’s another piece of good news: operating expenses at TFG Africa increased by 4.0%, a rate slightly lower than the growth in gross profit.

This means that against all odds, TFG Africa managed to grow operating profit by 2.7% in this period.

What is the market saying?

At the time of writing, Truworths is up 4% in the past week, and The Foschini Group has rallied 9.5%. The market isn’t blind to the opportunities presented by a blue wave in the US.

As for what will wash away first – high fuel prices or the renewed positive sentiment towards local retailers – only time will tell. DM

Business Maverick

Retail sector

Consumer spending

Oil price correction

Truworths

TFG