How TFGLabs is redefining online fashion

TFG co-chief omni officers Luke Jedeikin and Claude Hanan
Luke Jedeikin and Claude Hanan have been in the ecommerce game since its infancy in South Africa. They launched CityMob in 2010, sold a stake of the business to wantitall in 2013 and soon rebranded to Superbalist. In 2014, Takealot acquired Superbalist and Claude and Luke remained co-CEOs of Superbalist and served as executives, where they stayed for six years at the coal face of Takealot’s hyper growth.

They have been involved in the growth of some of South Africa’s biggest ecommerce names, and now they have taken their skills, expertise and experience to The Foschini Group, where they are spearheading the growth of the group’s digital play – TFGLabs.

Finding new opportunities

When Luke and Claude exited Takealot in 2020, they had a one-year restraint of trade to wait out – which gave the ecommerce entrepreneurs time to think. Did they want to launch something new? Or was there an existing business they could partner, to unlock growth using existing assets? The answer lay with The Foschini Group, one of South Africa’s fashion retail giants.

“We were introduced to the group CEO and its chairman Anthony Thunstrom and Michael Lewis, and we really bought into their vision,” says Claude. “The group owns businesses in the UK and Australia and have first-hand experience of global trends and the importance of digital. But they don’t have a strong digital business yet – and that’s where we saw our opportunity.

“Together, we’ve created a start-up, TFGLabs, inside a large, listed company that has the customer base, product catalogue, store network and vision to build a large-scale ecommerce consumer business. It would cost billions to replicate what we believe we can achieve with TFGLabs.”

The Foschini Group has over 3 000 stores nationwide and a product catalogue of over 120 000 styles. It’s a mature retailer with an immature ecommerce platform, which presents an incredible opportunity for the two entrepreneurs.

“The real opportunity lies in the fact that TFG is a group of federated businesses that are run independently by design, but as a result, ecommerce has followed the same approach,” says Luke.

“Some brands were digital bulls and went ahead and built websites and apps. Others haven’t focused on digital strategies at all. When we pull these brands together and leverage their fans and social media followers, we have millions of users. We also have the biggest product catalogue in the country. H&M has 22 000 products. We have many times that. The opportunity to bring it all together in a mobile-first way is what’s exciting us.”

Defining the pillars of ecommerce success

Claude and Luke’s strategy to dominate the retail fashion online world begins with the four pillars of ecommerce 101: data, mobile first, rationalisation of fulfilment, and selection.

“It’s important not to fall into the trap of thinking that ecommerce businesses will only succeed if they are investing in new, fancy solutions,” warns Luke. “It’s difficult to get these pillars right in South Africa. You need an experienced team who understands the local ecommerce landscape and the challenges we face and who can adapt to the pace of change that we’re seeing in the digital world. You have to have the basics in place and do them well in order for that to happen.”

Success in this market is based on the ability to not only have these four pillars in place however, but to be able to roll them out at scale. “At its core, ecommerce is a sophisticated fulfilment business with inventory and a brand on top of it,” says Luke. “The inventory you sell can and will change, which means that how you package your delivery service proposition is what’s really important. You can’t start with a cool brand and website and then try to find inventory and convince customers to buy. You need to start with your fulfilment model. How will you get your products into your customer’s hands quicker and more cost effectively than anyone else? You can’t do this without scale – you will never deliver faster, cheaper, after hours, and across the entire country unless you’re pushing major volumes through the network.

“Unfortunately, most online stores struggle to get past poor service and mediocre delivery because of this paradox. You need a brand to grow volume but volume to grow a brand.”

The pair also caution that in ecommerce, you have to sweat the small stuff. Warren Buffet has said that if forced to choose between a “bad” business model with “good” management or a “good” business model with “bad” managers, he’d pick the good business model any day. This is particularly true for ecommerce business because you have multiple touchpoints and razor thin margins.

“Ecommerce is the intersection of retail, technology and fulfilment (includes warehousing and logistics). Each of these industries is complex on its own. Together, you have an industry that requires the business to be extremely disciplined, efficient and with a laser focus on the details. Bezos and countless other successful ecommerce businesses have managed to achieve this, but it requires a culture that demands a particularly disciplined approach to operational rigour.”

With that in mind, let’s review the four pillars that are critical to ecommerce success.

1. Data

You can’t fix what you can’t measure, which is why Claude and Luke’s first step was implementing data, KPIs and measurables throughout the business and buyer’s journey. “We always start with the data, and needed to organise and store data in a modern and nimble way. Next came improving how we interpret and visualise this data - and the final step, which we’re embarking on now, is democratising that data first throughout Labs, then throughout the entire TFG organisation. We’re measuring everything. If you can think it, we can measure it,” says Claude.

From all the online store notifications, including delivery tracking, email communications, and push notifications, every step of the customer journey is supported by technology and data. The pair believe ecommerce is the byproduct of a digital-first business, not the starting point. “Digital transformation happens first, and this transformation is what allows world-class ecommerce offerings. Ecomm in itself does not define or create digital transformation.”

In and amongst all the metrics being measured across so many touch points, Claude goes on to say: “The most important metric in an ecommerce business is arguably ‘customer retention’ because it covers so much: Are you actually retaining your customers month to month and year on year? If yes, then you’re getting product selection, service delivery, and the broader shopping experience right and you can confidently spend more on acquiring new customers. But if churn rate is high, you need to relook things – there is friction in the customer experience that you need to fix.”

2. Mobile first

According to data from the World Bank, 88% of adults on earth have a mobile phone. Within emerging markets, and SA is no different, mobile (mobile, web and app-based) commerce is the dominant shopping channel.

Within the Foschini Group, over two thirds of online traffic is mobile based, and yet at the time of TFGLabs’ launch, mobile was not a priority. Taking a TFG app to market is therefore a priority. The strategy is to develop this in-house and Labs made the acquisition of mobile development agency, Flat Circle, in 2021, a step towards securing its mobile first future.

3. Rationalisation of fulfilment

Delivery costs and the customer’s experience are largely impacted by how far an online store’s product is from the customer. If a business has one distribution centre (DC), then any delivery on the periphery of the DC’s geographic location is at risk for more friction, time, costs and failure.

It’s therefore critical to ensure that your inventory is close to your addressable market. In TFG’s case, the bulk of the group’s inventory is within 5 kms of the retailer’s addressable market thanks to over 3000 stores nationwide. It’s a huge opportunity that TFGLabs is leveraging. “We have the footprint, but we need to leverage and optimise it,” says Luke. “We are working out what we fulfil from store, what is fulfiled centrally, who our preferred couriers are and what SLAs need to be in place. It should cost us less to get to a customer in a shorter time than anyone else in the market, but only if we streamline our distribution. We’re already making big improvements here.”

The stakes are also getting higher at an accelerated rate. Waiting a few days for a delivery used to be expected. Now 60 minutes is fast becoming the norm – and 30-minute deliveries are close behind, depending on the just-in-time fulfilment expectations of the product category.

To develop their own last mile delivery capability, TFGLabs has also aquired Quench, a third party last-mile fulfilment provider that currently delivers for local retailers and pharmacies. Quench brings the technology and fleet that TFGLabs will ultimately need to complete full end-to-end delivery fulfilment, including the last mile.

4. Selection

Maximising inventory selection is one of TFGLabs’ biggest competitive advantages. Online stores are all about choice. The more products you offer, the better. For example, Amazon’s inventory has hundreds of millions of products. TFG has this advantage over both its listed competitors, and local pureplay businesses.

However, simply having a large selection isn’t enough if you want to drive ecommerce in the retail fashion world. A studio process that photographs, catalogues and loads products online with descriptions within a few days’ turnaround time, plus ensuring inventory is easy to find once online, are crucial to ecommerce success.

“This is such an important step,” says Luke. “We’ve spent our first year implementing tools and onboarding technical talent to ensure both of these aspects are taken care of. Does every product you publish have colours, sizes, and a description loaded? A good online retail experience lies in these details – especially when it comes to fashion.”

Bringing it all together

Achieving success with all four pillars would not be possible without the right talent in place. Finding and hiring a team that has ecommerce domain knowledge, with the ability to sweat the details and the specialised skills required in each pillar has been a top priority for TFGLabs.

“We’ve been hiring aggressively,” says Luke. “We hired 83 people in six months and are still growing. We believe we already have the best ecommerce team in the country.”

Many big businesses choose the outsourcing route when it comes to building technology, but Claude and Luke recommend bringing the skills and talents required in-house.

“There are two major issues with outsourcing,” says Luke. “The first is that most websites can’t scale without constant development. So, what worked for 1 to 10 000 orders doesn’t work at 100 000 orders and you have to build from scratch. However, if you have an internal development team, the platform will naturally scale because of cycles of continuous improvement.”

The second issue is the pace of technology changes and how customer experiences are changing. “Cutting edge today is obsolete in five years’ time,” says Claude. “It used to be acceptable to wait five days for an order. Now it’s 60 minutes. Ten years ago, everyone wanted a website. Now it’s an app. The only way to stay on top of market shifts – and even ahead of them – is with focused, in-house teams and talent. What’s also not widely appreciated is that in-housing is also more cost effective. So, outsourcing ends up being more expensive, and less effective. That’s our experience. Building core competency inside the business, on the other hand, means you have the core capabilities to succeed in your market.”

Ultimately, while Luke and Claude believe that they need the basics in place to succeed in this market with TFGLabs, the basics are difficult to get right or replicate, which means the business they are building is well positioned to grow into a major online retailer and redefine what ecommerce, and omni-channel (the intersection of online and offline retail) looks like in South Africa’s fashion retail sector.
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