12 of 2023

Newsletter No 12/31 March 2023                              


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It’s all about the DNA, says Truworths boss

By Katharine Child

Michael Mark declares that it’s much more than a fashion business, but admits concern about weak economy

Is it once again hip to invest in fashion retailer Truworths International? The business, which has lagged behind some of its larger competitors over the longer term, certainly seems determined to stay abreast of fast-moving — some might say fickle — fashion trends.

For instance, “athleisure” may be more on trend globally as people dress more casually at work and at social events. What Truworths also understands is that many South Africans who are climbing the corporate or social ladder want to look the part.

While Truworths sells “a significant proportion of casual clothes”, along with glamour and evening wear, it describes its product as aspirational, higher-quality and higher-priced.

Speaking at a half-year results event near the end of February, CEO Michael Mark said: “We are much more than a fashion business.”

“The way we see it, we don’t sell fashion,” he says.

“Through our fashion offering, our image … social media and the behaviour of our staff … we actually offer our customers aspiration.”

In the 2021 annual report, Mark noted that the company’s position “as the aspirational better-end mainstream retailer” has been strengthened, as competitors “changed direction by offering lower-priced and more casual products”.

Discount brands Ackermans and Mr Price sold lower volumes over the Christmas quarter than they had in the 2021 festive season. By contrast, the Truworths debtors’ book was up almost 20% for the 26 weeks to January 1, to R7.1bn. Mark’s focus on image and aspiration has been proved right.

Truworths SA’s sales were up by 13.4% from July to December 2022, marginally above the 13.3% price increases.

The clothing and footwear segment of SA retail sales from Stats SA for clothing from July-November, were up only 9.1%. So a rough analysis suggests Truworths, by beating the average sales, gained market share last year, notes Sasfin analyst Alec Abraham.

But Mark tells IM the formal vs casual discussion is “with respect, simplistic when trying to explain the difference between our DNA and that of our competitors.

“We have always had a unique and broad ‘on trend’ collection of denim, casual, smart, glamour and formal ranges for men, women and children. Our denim and casual categories are significant in size and proportion due to the climate and the lifestyle of many South Africans.”

But what it sells is a better quality and more expensive product.

To sell aspiration to all South Africans and aiming at everyone, he says, Truworths uses credit.

It is a leader in offering the first bite of credit to students with part-time jobs, and to first-time employees. This drives its sales.

Because it has a captive market, Truworths had a gross credit margin of about 56.8% in 55 weeks to June 2022. This dropped to 53.5% in the six months to January 1.

JP Verster, CEO and founder of Protea Capital Management, says Truworths uses credit very well as a lever for growth. “It has  a history of managing through tough credit cycles and getting an acceptable return.”

And given how essential credit is to its sales, unlike Edgars which famously sold its credit book to a conservative Absa in 2012 and lost out on a significant portion of sales, Truworths controls its credit.

Mark said at the financial results: “We want to control the credit, because it’s such an integral part of our business that we feel … if we outsource it, then we are losing control of the risk.”

But what about the weak economy?

In its half-year results released in late February, bad debt under the line “trade receivable costs” rocketed to R804m from R454m in the prior interim period.

This has investors worried, as it signals the beginning of increased risk in a really weak economy.

How much bad debt accumulates will make or break Truworths’ results in the future.  Its sales are largely made on credit, with 70% of goods in SA on account.

Truworths’ provision for doubtful debts was 20.7% of the debtors’ book at December 2021, pretty much the same as the 20.9% at June 2022.

But it is concerned about the weak consumer.

Asked by IM about the economy, Mark says: “We are concerned. The macro environment currently reads: high inflation, increasing interest rates, catastrophic load-shedding and increasing utility costs. All this reduces GDP and disposable income and, therefore, there is a negative effect on consumers‌, and on account payment behaviour.”

In tough times, there is a natural contraction in credit offered.

He told investors at the February webinar: “We run our credit portfolio analytically using scorecards that inform us in our attempt to predict what is likely to happen.

“Account holders are regularly scored with these scorecards, and so in tough times there is a natural contraction in credit offered.”

It has also been careful in opening new accounts, with only 5.7% growth in new accounts to 2.8-million.

But this lower account growth doesn’t bode well for sales.

In a sign of tough times to come, it admitted trade in the first seven weeks of 2023, post year-end, was slow. Sales in Truworths Africa averaged 5.7%.

What this suggests is that volumes are lower than before.

Mark, however, says the Truworths concept is unique. He and deputy CEOs Mannie Cristaudo and Sarah Proudfoot were showing foreigners — described as seasoned retailers — around a large Truworths recently. They were impressed with what Mark describes as a large emporium of different brands.

“Each and every brand has a lifestyle, a character and a DNA to it. We spend hours and hours and days and days and weeks and weeks defining what each and every brand stands for.”

And they own nearly all the brands they sell.

Its newer brands, menswear brand Fuel and more affordable Sync, aimed at lower-income consumers, are doing well.

“We are getting particularly excited about them,” he said. “They’re all small, but they’ve got lots of legs to carry them into the future.”

It also focuses on high-quality kids and teenswear in its Kids Emporium stores and its Naartjie and Earthchild brands.

“Kids’ fashion has ‌grown very well over decades and we believe will continue to do so,” says Mark.

How does it compete with rival TFG, which  makes about 75% of products in-house? This enables TFG to respond much quicker to fashion trends and what is selling without a six-month lag time from abroad.

About 50% of the product is locally manufactured, some outsourced to local factories.

Of course, the big question hanging over Truworths is who will take over from Mark, who has been at the helm for three decades. Many think he is the reason behind the success and they worry that it could falter when he eventually retires. He had promised to retire at the AGM last November, but changed his mind (again, remembering that a previous CEO designate — with an international pedigree — had to be sent packing as Mark unexpectedly held on to the leadership position some years back).

Quite when he will ever step down is uncertain.

Last year, the retailer announced a leadership plan with Proudfoot and Cristaudo.

The fact that there are two deputy CEOs waiting to take over makes some analysts uneasy.  Joint CEOs don’t tend to work well, Verster says. Investors don’t want one executive to be promoted and the other to leave, because both are assets to the business.

Proudfoot understands merchandising and Cristaudo credit, adds Verster. They need a CEO who understand both, he adds.

But have investors misunderstood Truworths, with too much focus on the leadership debate and sideshows? It made the headlines for its board’s lack of diversity a few years back or its silly fights to retain the Primark name in its now casual retailer Sync. The UK company settled out of court in 2022 and retained the Primark brand.

“We think some analysts get confused and focus disproportionally on some, albeit important, issues while missing the essence of the DNA of each business model,” says Mark, “and they battle to understand the basics of the marketplace; which is why they sometimes get it so badly wrong.”

As an example, since January 2020, Truworths was able to buy back 51.9-million shares — 12% of the shares in issue — at an average price of R47.88.

Truworths has returned significant cash to shareholders. Its dividend at half-year was up 6.7% to 320c a share.

However, its share price is down about 45% in the past five years.

Mark says: “We distinguish between analysts, fund managers and financial reporters vs investors who are the actual owners of the assets and who are the ones who really take the risk.” He says some analysts make inaccurate assessments and their investors lose out.

A few sophisticated and well-informed analysts, fund managers and reporters do have the ability to look longer term, to look beyond simplistic financial analysis, and to understand the unique DNAs of different retail models in the context of a sophisticated and highly competitive marketplace, he says.

It’s a pity the share price doesn’t agree with Mark.  BL

Palesa Mokubung flys SA flag high with her collection ‘Mantsho’ at Africa Fashion Week Middle East

Fashion enthusiasts, creative community, and wider audiences gathered to welcome the firstfashion week edition of Africa Fashion Week Middle East (AFWME) that showcased for three days all Africa’s creatives. The event included a variety of activations such as panel discussions, workshop activities, and a runway show.. Guests witnessed designers debut an array of exquisite designs, showcasing the essence of creativity, industrial craft and a unique portrayal of fashion genius through timeless pieces at the Dubai International Financial Centre (DIFC), one of Dubai’s most sought-after lifestyle destinations.

The fashion brands included Urban Zulu – Congolese-South African;  Mantsho – South Africa; Ntombi Couture – Zimbabwean; Kiza Bespoke – Nigeria; OMAAD – Senegal; Caped Coast – Ghana.

South Africa’s very own Palesa Mokubung, the founder and designer behind the South African brand, Mantsho, H&M’s first African collaboration displayed her vibrant brand known for its distinctive signature prints and carefully curated textiles, echoed a collection that is based on confident African aesthetics with an international sensibility. The collection displayed a mix of earthy tones and bold colors, taking center stage and dazzling us all.

Mantsho designs have appeared on runways in Nigeria, Botswana, Senegal, the United States, Greece, India and Jamaica and Mokubung has dressed a variety of public figures including Bonang, Lira, Somi, Thandiswa Mazwai and Dr. Same Mdluli.

She made her debut at the Stoned Cherrie brand in 2004 when she was in her first year of studying fashion. “Stoned Cherrie was blowing up. It was revolutionary and I needed to be present, so I dropped out of school,” she said.

At first Mokubung didn’t see this as a setback because her job at Stoned Cherrie was giving her hands-on insight. The skills included private client service, running a studio, the full retail experience where garments go from a sketch to a client’s shopping bag as well fashion week readiness.

Three years at Stoned Cherrie were enough for Mokubung so she left to start her own fashion house, Mantsho. But, a few years later she decided to take an academic sabbatical from 2011 to 2013.

Aser Levron, Co-Founder at AFWME commented “We are proud to bring together such a wealth of talent and creativity under one roof and to share with our audiences all the wonderful creations that exist in the African continent. AFWME’s mission is to widen the circle and welcome even more talented individuals to join us season after season. At AFWME we aim to play a significant role in creating a sense of unity and awareness with Design and Art, allowing several customs to come together and create a community.”

Uniform dressing will always be in style

By Sandiso Ngubane

Fran Lebowitz.

Steeped in simplicity, it is the current wave on the catwalk and silver screen alike

One of my earliest memories as a child is that of my grandfather in his khaki, camel and — if I remember correctly — olive green-accented correctional services uniform. He retired when I was probably seven, so excuse me if I have the colours wrong. It’s very probable.

Whatever the case, these are the colours I recall, engraved in my mind, along with the roughness of his beard stubble — the bane of all his grandchildren’s existence as he always insisted on kissing us on the cheeks whenever he arrived home. Bless his soul.

My grandfather was an incredibly predictable man and his uniform made him that much more unsurprising, even though I wouldn’t call it boring. Maybe it’s just me, but I find the idea of a uniform appealing. Or maybe I do right now, as uncertainty continues to be a defining reality of our time.

Uniform dressing can be quite effective. It’s straightforward and practical because it eliminates the stressful nature of having to make a decision about what to wear on any given day. For some professions — and indeed for schoolchildren — it is the great equaliser. Outside the institutional or professional varieties — for nurses, cops, schoolchildren and the like — uniform dressing is also perhaps the easiest route to a defined personal style.

I don’t believe the late Steve Jobs intended to become a fashion icon. You probably don’t think of him as one, but he certainly fits the description if we define ‘fashion icon’ simply as someone who initiates or popularises a style that others follow. His incredibly uninspired turtleneck-and-jeans look has enduring appeal for many, including convicted fraudster and wannabe biotech genius Elizabeth Holmes.

If you’ve seen Cate Blanchett’s latest, Oscar-nominated performance in the movie Tár, about a fictional composer and orchestral conductor whose past exploits come back to haunt her as cancel culture does what it does best, you would have perhaps noted her restrained but nonetheless polished style of dress. It’s been described by some as ‘power chic’ — luxe cashmere sweaters, virgin wool coats, silk blouses, and the like. Lines are clean, and silhouettes are sharp. It’s an aspirational wardrobe, but it’s also typically back-to-basics. It’s a sort of uniform dressing — unassuming and stylish all at once.

It also happens to be trending right now as designers and brands send models down runways in similarly restrained styles. Neutral palettes, head-to-toe denim, classic cuts and clean lines — the sort of basics-centric styles that never go out of fashion.

Prada’s Fall ’23 collection from the recent Milan Fashion Week is a case in point. Isabel Marant, Christian Dior and Sarah Burton’s latest for Alexander McQueen followed a similar line, the latter showcasing pinstripe blazers and tailored off-shoulder numbers. I can’t give you a review of the Tár film because I fell asleep both times I tried to watch it, but this isn’t because I found it a bore but because, lately, the minute I find myself in front of a screen I am not using to type out articles, make Keynote presentations or shoot out Slack messages, I feel so comfortable and my eyes involuntarily shut off.

Perhaps this very-early-in-the-year exhaustion can be off-set by cutting one of the many things that deplete my brain power — deciding what to wear every morning. Like Lady Tár, my mkhulu, or even a schoolchild, Steve Jobs or — my personal fave — Fran Lebowitz, with her white shirt, jacket, blue jeans and boots ensemble, uniform dressing is perhaps the best way to still present myself as stylishly as I possibly can without letting the act of dressing add to my list of things to constantly worry about.

Rex True – board and board committees change

With effect from 1 April 2023, Mr Patrick Naylor will assume the role of independent non-executive Chairman of the board of directors on a permanent basis.

Following this appointment:

– Mr Naylor has resigned as a member and chairman of the Audit Committee;

– Mr Hugh Roberts has been appointed as the chairman of the Audit Committee; and

– Mr Masedi Molosiwa has been appointed as a member of the Audit Committee.

Ms Catherine Radowsky has stepped down as a member of the Risk Committee and Ms Catherine Lloyd has been appointed in her stead.

Woolies – board changes

Shareholders and noteholders were advised, that Mr Reeza Isaacs has resigned as Group Finance Director; as well as an executive director of WHL and member of the WHL Treasury and Risk, Information and Technology Committees. Mr Isaacs will be leaving the Group with effect from 30 June 2023 to pursue new interests.

The Board has appointed Mr Zaid Manjra as interim Chief Financial Officer of WHL effective from 1 July 2023.

Woolies – sale of shareholding in David Jones

WHL advised shareholders and noteholders that Legal Completion of the Transaction has been successfully concluded. WHL will retain ownership of the flagship property asset in Bourke Street, Melbourne, which has been leased to David Jones on a long-term basis on market-related terms. A total of R1.6 billion of capital has been returned to WHL from David Jones


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Cyndi Lauper

Cyndi Lauper is a real work of art in this cherub-patterned pantsuit.


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