45 of 2020

                                                                                                            

                                                             Newsletter No. 45 / 27 November 2020                            

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Chairman’s Address – SAAA’s 95th Annual General Meeting – 20 November 2020

Chairman: Graham Choice

Dear Members,

This year was characterized by an unprecedented pandemic – we know as Covid-19.

The world has had to grapple to respond to the public health and economic implications that this crisis has caused.

South Africans were thrust into a period of shock, disbelief and uncertainty on the 28th of March this year when the President announced the start of a stage 5 lock-down with the intention of curbing the spread of the virus.

We have all had to live through an unprecedented 9-months and have been forced to navigate the uncertainty and sizeable emotional and financial consequences that comes with it.

On reflection, it is nothing short of miraculous, that our sector survived this once in a 100-year disruptor to the global economy. It is remarkable that so many in our industry survived.

Despite the severe hardships that resulted in job losses and business closures, it has been lower than anticipated.

Unfortunately this cannot be said for our South African domestic economy as a whole, and more so for our local clothing and textile industry.

More than 2-million South Africans have lost their jobs in the second quarter, bringing into sharp focus the devastating economic blow of one of the harshest Covid-19 lock-downs globally.

You will all be aware that our Association, its Executives and more specifically our Executive Director, did everything possible within the limit of our resources, to help so many of our members during the many weeks of lock-down.

Unlike many other Associations across many industries, this was only possible to the very effective methods we used in being able to communicate with all our members.  As such we were able to pin-point the most severe of the consequences and direct our energies towards resolving or minimizing those first, and with what remained we were able to address some of the more specific requirements that were related to individual members.

Stats SA, which released the results of the Quarterly Labour Force Survey in the first week of October, said the total number of jobless people stood at 14.1 million – that is one in four of SA’s 60-million population.

The number of people classified as “not economically active” also rose to almost 21-million from 15,4 million in the first quarter.

The pandemic has further more decimated many of the historical ways of doing business and has undoubtedly accelerated a structural shift towards the 4th Industrial Revolution.

Vladimir Lenin is famously quoted as saying: “There are decades where nothing happens, and weeks where decades happen”.

Looking back, it’s clear that a decade’s worth of change has happened in just 9-months in South Africa.

Many of the changes and support that has been implemented to combat the Covid-19 virus is clearly not sustainable.

If there is one thing all South Africans agree on, is that employing its citizens, is the only manner of creating sufficient economic stimulus, to create the growth required for a future healthy South African economy.

Across the political spectrum everyone realized that jobs are preferable to un-sustainable grants and financial handouts.

When it comes to economic growth we already know the situation is desperate. The economy slowed by 16.4% in the second quarter of 2020, compared to the first quarter of 2020.

Should this trend continue for the next 3 quarters evasive growth would have essentially slowed by 51%.

Such a decline is unprecedented outside of war-torn nations or instances of global systemic economic collapse.

The Reserve Bank and National Treasury all estimate that the economy will shrink by 7,5% this year.

The good news, in fact, if you can call it good news, is that all indications are that we will not lock-down in the coming months, irrespective of the second wave of infections, and the fact that in the third quarter the economic recovery is progressing more rapidly than expected.

In the previous two AGM’s much attention was paid to the retail lead R-CTFL Master Plan.

Much work has been done by the Executive Committee headed by the Minister of the DTIC, Mr. Ebrahim Patel, the respective CEO’s of the most large Apparel Retailers, and representatives of the respective R-CTFL industries.

The EOC, (Executive Oversight Committee) of the Master Plan has been effectively established and is now in place, and this has allowed the 7 Task Teams to begin its work and bring in some relief to our industry.

Each Task Team has specific objectives that need to be achieved in specific time frames, the detail of which is clearly described in the Master Plan document, which was previously broadly distributed and is also available from the Associations office.  The Task Teams are:

  • Trade Licensing
  • Illicit and illegal trade and manufacturing
  • Effective tariff protection
  • Future supply side incentives and support
  • Skills and productivity development
  • Export competitiveness & preparing for the African Continental Free Trade Area
  • Strategies for adjacent and niche CTFL value chains

It is historic, that in my almost 4 decades of working in our industry, that all large Apparel Retailers have supported such a strategic initiative and have also committed to specific local procurement targets, off-take agreements and employment figures.

You will remember that I reported that the Apparel Retailers, who are the signatories to the R-CTFL Master Plan, committed themselves to an event at the Sandton Convention Centre, where their commitment and those of the industry, were done in the presence of our State President.

These commitments are now individually assessed by the Minister and the respective CFO’s on a 6-monthly basis, in which each Retailer independently reports on the progress.

When you combine this with the achievement, in a very short time of the Task Teams, there is an incredibly positive silver lining emerging out of this terrible pandemic.

The words of Minister Patel when he addressed parliament for his budget vote in July this year stated: “History suggests that from the greatest human crisis, the greatest human advances can be made”

So, in the darkest hour, we must prepare for a brighter future – at the heart of which must lie a new economy – fit for future purpose, fair and just, sustainable and resilient, so that future shocks can be absorbed.

We must lift our heads above the dark clouds and work hard together to get it done!

I would like to conclude by thanking all the members for their resilience, fortitude and will to survive throughout the last 9-months.

In this regard and on behalf of all of you, I would like once again to thank our Executive Director; Mr. Johann Baard, who spent many more than his required 8-hours per day, including many weekends in supporting and assisting so many of our members in trouble, and in dealing with their many operational hardships.

I have seen reports and personally experienced hundreds of  orthodox and some of your un-orthodox self-help initiatives. This has thankfully resulted in so many of our members surviving this terrible crisis.

Many battered and bruised, but still able to continue and work towards a far more sustainable future.

Your achievements over these last 9-months prove what is possible and we all realize what more we need to do to survive further.

I believe, the secret of change, is to focus all of our energy not in fighting the old, but on building the new.

Edith, thank you for all your efforts in assisting all our members during this difficult year.

To all our members, thank you for your trust and support shown to myself and the Executive throughout this year.

On behalf of all of us, I wish you and your loved ones, good health, a peaceful festive season and some time to pause and enjoy a welcome well-deserved break.

Thank you.

Hugo Boss launches collection with Cotton made in Africa

With its third Hugo x Liam Payne capsule, Hugo Boss has launched a sustainable collection in support of Cotton made in Africa (CmiA). Hugo Boss is a leading luxury fashion house headquartered in Germany, which produces clothing, accessories, footwear, and fragrances. CmiA is an internationally recognised standard for sustainably produced cotton from Africa.

Created by Hugo Boss in conjunction with brand ambassador Liam Payne, this exclusive collection helps protect the environment and improve living conditions in Africa by using cotton verified through Cotton made in Africa, according to a press release by CmiA.

The CmiA initiative is committed to promoting sustainable cotton cultivation in Africa and to supporting around 900,000 smallholder farmers. Eschewing all genetic engineering and artificial irrigation, it advocates for equal rights and works to protect the rights of children. Since 2019, Hugo Boss has supported the initiative by incorporating the verified cotton, which is socially and ecologically sustainable, into some of its collections. This represents an important contribution to improving the cotton growing industry in Africa.

“We are thrilled with this celebrity support, because it helps us raise even more awareness of Cotton made in Africa’s work and our brand. By making our label easily identifiable, this enables customers to deliberately support African small-scale farmers and their families through their purchasing decisions,” Tina Stridde, managing director of the Aid by Trade Foundation said.

“I think with everything going on this year, we’re all thinking about the future a lot more than we used to. I’m proud of what we’ve achieved with this capsule; it looks great and at the same time is highlighting the important work that Cotton made in Africa does,” Payne said.

CmiA’s approach is based on the principle of help people help themselves. For every item bearing the CmiA logo, companies pay a licensing fee to the initiative, which uses the money to fund training programmes for smallholder farmers. With its focus on eco-friendly and highly efficient cultivation methods, this training serves to protect the environment while improving the farmers’ harvests.  F2F

Tribunal approves merger whereby Ivlyn Consolidated Holdings acquires companies trading as Baby City and Toyzone

The Competition Tribunal (“the Tribunal”) has unconditionally approved the proposed large merger whereby Ivlyn Consolidated Holdings (Pty) Ltd (“Ivlyn”) will acquire Fairy Tales Boutiques (Pty) Ltd and Somerset Baby Hyper (Pty) Ltd trading as “Baby City” and Global Toys (Pty) Ltd which trades as “ToyZone”.

The Tribunal considered submissions, made during virtual (online) proceedings, by the merger parties as well as the Competition Commission (“the Commission”), which investigates proposed large mergers before referring such to the Tribunal for consideration.

The Commission recommended the unconditional approval on account of the limited competitive overlap between the merger parties’ business activities and their relatively low combined market shares in the retail sale of baby and mother care products. The Commission’s investigation revealed that the merged entity will continue to face competition from numerous players active in the market for the supply of baby and mother care products.

The Tribunal is of the view that the proposed merger does not raise any competition or public interest concerns and has therefore approved the transaction without conditions.

Merger parties

Ivlyn, a designated holding company, controls, among others, Dis-Chem Pharmacies Limited.

Baby City is a specialist store supplying a wide array of products catering for moms-to-be, babies and toddlers. It operates various stores throughout the country.

ToyZone is a specialist toy store which stocks and supplies toys, games and activities-related products which cater for both children and adults. It operates numerous outlets in South Africa.

Mr Price – resignation of director

In compliance with the JSE Limited Listings Requirements, the following information is disclosed: Brenda Niehaus has resigned from the Group as independent non-executive director and member of the Risk and IT committee with effect from 31 December 2020. Brenda was appointed to the Board in February 2018 and member of the Risk and IT committee in March 2018. Her expansive IT knowledge and experience has been key in providing insights and guidance on information and technology best practice. The Board and management express sincere thanks to Brenda for her valued contribution to the Group, and wish her well with her farming operations.

Pepkor final results September 2020

Revenue came in higher at R63.679 billion (2019: R61.454 billion), gross profit increased to R22.442 billion (2019: R22.399 billion), operating profit decreased to R1.384 billion (2019: R6.484 billion), while loss attributable to owners of the parent was R3.034 billion (2019: profit of R2.160 billion). Furthermore, headline earnings per share from continuing opertions was lower at 62.6 cents per share (2019: 95.5 cents per share).

Dividend

As communicated during the group’s interim results published on 27 May 2020, no dividend is declared, based on heightened levels of prudence applied by the board and the focus on liquidity preservation and allocation of resources.

Outlook

Pepkor’s sales performance since the relaxation of lockdown measures has been excellent and has underscored the strength of its business model and market positioning. The group has gained significant market share in the period since May 2020. The strong sales momentum continued into the months of October and November 2020 with double-digit like-for-like sales growth reported in PEP, Ackermans, Speciality and the JD Group. Providing the South African consumer with affordable products has become even more important in the current environment and the group is ideally positioned to execute on this.

While the evolution of the COVID-19 pandemic and its economic impact in the near to medium term remains uncertain, there is an expectation that the toughest times for the economy and customers are still to come as unemployment increases and special grants and other benefits are reduced. Our view on the future remains cautious and conservative. Cash generation has been excellent and the balance sheet has been significantly strengthened which provides security and the ability to capitalise on potential opportunities that may arise in the market. Significant progress was made in restructuring and consolidating the group’s portfolio of operations to enhance efficiency and profitability levels.

Pepkor is well positioned to continue gaining market share in a future constrained retail environment. The group will continue to entrench its discount and value positioning through providing affordable products to the consumer as it stands to benefit from consumers in search of value. The resolve, resilience and loyalty shown by the group’s employees and customers during one of the most challenging periods in history is most encouraging. The strong and healthy corporate cultures of the group and its retail brands have helped sustain the business during this trying time and resulted in a commendable, market-leading performance for the year. The support and understanding from our loyal, long-standing suppliers and business partners have been invaluable, and similarly we value the support from our investors.

The group’s operations are prepared for changes in consumer behaviour with accelerated progress in e-commerce and fintech capability, supplemented by its convenient and accessible retail store footprint. The group continues to identify opportunities for store expansion driven mainly by PEP and Ackermans, in addition to the development of new retail formats. In terms of new markets, exciting opportunities exist in the adult wear market, while the group will also consider other expansion opportunities.

Pepkor – resignation of chairman

The board of directors of the Company (“the Board”) advised shareholders that the current Chairman of Pepkor, Mr. Jayendra Naidoo, who has been in office since August 2017, has advised the Board that he will not make himself available for re-election as Chairman when his term ends on 30 November 2020.

A process is underway for the Board to appoint a new Chairman. Shareholders will be kept advised of developments.

Pepkor – appointment of chairman

In accordance with paragraphs 3.59(c) and 6.39(c) of the JSE Limited Listings and Debt Listings Requirements, the board of directors of the Company (the Board) wishes to advise that Wendy Luhabe has been appointed as the Chairman of Pepkor. Wendy’s appointment will be with effect from 1 December 2020 and will be for a three-year period commencing at the end of the term of office of the current Chairman, Jayendra Naidoo.

Woolies – trading update

Group sales for the first 20 weeks of the 2021 financial year (‘current period’) increased by 3.5% compared to the 20 weeks ended 17 November 2019 (‘prior period’) and by -2.0% in constant currency terms. Trading conditions across the Group continued to be impacted by Covid-19. The changes in consumer behaviour which prevailed during the last quarter of the 2020 financial year have largely persisted, with store footfall, particularly in large shopping centres, CBD and airport locations, at significantly lower levels than the prior period. Recovery in Australia was hampered by the imposition of the stage 4 lockdown in the State of Victoria from 6 August to 28 October, resulting in unplanned store closures. Inventory levels remain well managed, assisted by the ongoing shift to online across all businesses, however the pandemic continues to disrupt supply chains both locally and globally, which we are monitoring and managing carefully. Group cash flow remains positive and net debt levels have continued to decline in both South Africa and Australia. Additionally, the various initiatives underway to ensure a more sustainable funding structure of our Australian entities are progressing well.

Southern Africa
In South Africa, the Covid-19 restrictions were eased to level 2 from 17 August and to level 1 from 21 September, which effectively removed most remaining restrictions on trade. However, whilst the National State of Disaster remains in place, economic recovery is slow and consumer confidence remains low. Woolworths Food remained resilient throughout this period, continuing its positive momentum with volume growth and market share gains despite trade restrictions and disruptions from temporary Covid-19 related store closures. Sales grew by 10.6% and by 9.0% in comparable stores, with net space growth of 1.4%. Price movement of 7.1% was impacted by mix, with reduced demand for lunchtime and snacking products and customers opting for larger pack sizes. Underlying product inflation averaged 4.7% over the period. The recently announced price investment across key product lines will temper price movement going forward.

Woolworths Fashion, Beauty and Home (‘FBH’) continued to be affected by the constrained environment. The winter clearance sale was much smaller than that of the prior period and, together with a significant drop in demand for formalwear, negatively impacted sales growth for the period, which declined by 14.6%. Comparable store sales were also 14.6% lower on a 1.9% price movement, while net space reduced by 0.5%. The launch of summer ranges, together with the earlier commencement of our Black Friday promotions, has resulted in positive sales growth in the last three weeks of the period. Woolworths Financial Services (‘WFS’) continues to be negatively impacted by lower non-essential spend and lower prevailing interest rates, all of which placed further pressure on book and revenue growth. The WFS book reflected year-on-year contraction of 1.6% at the end of October 2020 (year-on-year growth of 2.0% at 30 June 2020), while the annualised impairment rate for the four months ended 31 October 2020 was 3.6% (four months ended 31 October 2019: 3.7%). The focus on customer collections and payment relief initiatives and the timing thereof, reflects in the shape of the book and the impairment rate for the period.

Australia and New Zealand (‘ANZ’)
As mentioned above, the 12-week lockdown in the State of Victoria negatively impacted sales growth for the current period. This was partially offset by the ongoing shift to online, which continued its growth momentum. David Jones (‘DJ’) sales were also impacted by lower demand in formalwear, with other categories such as Beauty, Homeware and Appliances performing relatively better. Sales declined by 11.7% and by 14.6% in comparable stores. Excluding the Victorian stores which traded 76.0% down on the prior period on a total sales basis, the balance of the DJ business grew by 6.7%, assisted by the shift to online which grew by 65.0% and contributed 19.6% to total sales over the period. The Elizabeth Street store, which continued to see lower footfall and tourist activity, grew sales by 5.3%, noting that the prior period was disrupted by the refurbishment.

While Country Road Group (‘CRG’) was similarly impacted by the State of Victoria lockdown, this was mitigated by the shift to casualwear and online, particularly for the Country Road brand, which grew sales on the prior period. Sales declined by 10.9% and by 7.7% in comparable stores. Excluding CRG’s Victorian stores which traded 76.7% down on the prior period on a total sales basis, the balance of the CRG business grew by 6.5%, aided by online sales growth of 55.7%. Online contributed 34.7% of total sales over the 20-week period.

Constant currency information
The constant currency information contained in this announcement has been presented to illustrate the impact of changes in the Group’s major foreign currency, the Australian dollar. In determining the constant currency turnover and concession sales growth rate, turnover and concession sales denominated in Australian dollars for the current period have been adjusted by application of the aggregated monthly average Australian dollar exchange rate for the prior period. The aggregated monthly average Australian dollar exchange rate is R11.79 for the current period and R10.10 for the prior period. The foreign currency fluctuations of WHL’s rest of Africa operations are not considered material, and have therefore not been applied in determining the constant currency turnover and concession sales growth rate.

The constant currency information, which is the responsibility of the Group’s directors, has been prepared for illustrative purposes only and may not fairly present the Group’s financial position, changes in equity, cash flows or results of operations. The information contained in this announcement, including estimated financial information and constant currency information, has not been reviewed or reported on by the Group’s external auditors.
        Did you know……..

“93% of brands surveyed by the Fashion Checker aren’t paying garment workers a living wage” (Fashion Checker, 2020)

It is commonly known that fast fashion production facilities are located in countries that are referred to as emerging or developing markets. Fast fashion retailers employ thousands of people from Bangladesh, India, China, Indonesia, and other developing nations as a cheap workforce. Not only do these people have to work exhausting hours, but the payment they get is far from fair.

The 2020 Fashion Transparency Index found that only 5 of the 250 large brands surveyed (2%) “publish a time-bound, measurable roadmap or strategy for how they will achieve a living wage for all workers across their supply chains”.

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