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Having spent more than a quarter of Truworths’ 100-year history at its helm, Michael Mark has seen it through good and bad times.
These are definitely not the good times. In the six months to end December, Truworths reported a 3% decline in diluted headline earnings per share on a 1% increase in retail sales to R10.3bn as product prices deflated by 2% – not a good result, but more or less in line with the industry.
But is the group showing its age? It has been besieged by a hoard of agile, risk-tolerant young upstarts grabbing market share and is finding its fortunes to be inextricably linked to those of the economy.
Whether this is because it is moving slowly in its old age or because it is just impossible to do any better under the circumstances is debatable.
Mark agrees that Truworths is “significantly influenced by GDP growth, so if the growth is very low, as it currently is, then it is difficult for us to produce top-line growth.
“When the economy grows at 2% to 3%, then we believe we would see much improved top-line growth in Truworths.”
Nevertheless, he says Truworths does produce “world-class metrics”. It maintained gross margins at a hefty 52.4%, kept the increase in trading expenses to just 1%, generated cash of R1.8bn, had debt to equity of 8% and improved the quality of its debtors’ book.
In South Africa, the group has 800 stores, including Truworths, Identity, Daniel Hechter, Earthchild, Naartjie, YDE and Loads of Living and Office – targeted at the “youthful mass middle-to upper- income SA customer”.
It has 150 Office shoe stores in the UK and about 45 stores in the rest of Africa. During the six months to end December, despite the economy, it added a net 25 stores and concluded the acquisition of Loads of Living.
Competition
Its spread of brands has not necessarily been enough to fight the proliferation of the likes of Cotton On, H&M and Zara and a host of local and international online retailers.
Mark says online sales in SA have evolved slower than in the UK, Europe and the US, “but this is rapidly changing”.
He responds to criticism of the group’s strategy – that it is not flexible and has not responded adequately to new competitors – by saying management thinks long term and is “very aware of trends and changes in the market”.
“Whilst our strategies evolve, we nevertheless avoid over reacting by continually changing direction, which we believe has led to the downfall of so many other retailers in the past. Cycles change and we know good times follow bad and the reverse, so we remain focused.”
Mark says that in good times, the group grows the top line, and in bad times, focuses on “improving our business, maintaining low-cost growth and ensuring that we always have state-of-the-art, world-class systems and processes”.
Various initiatives that illustrate its flexibility and foresight include the consolidation and expansion of kidswear through the acquisition of Earthchild and Naartjie, the acquisition of Office Footwear in the UK.
It also introduced Office London to SA, the acquisition of Loads of Living, the launch of loyalty programmes, and a new e-commerce platform.
“We are very excited about it and look forward to significant growth in all brands on our e-commerce platform, including our Office, Loads of Living and kids’ brands. Office UK is a significant and well-established online retailer with almost 30% of its sales now generated online.”
Offshore operations
Like other South African retailers, Truworths’ experience offshore has been hit and miss.
It got out of its disastrous investment in Sportsgirl in Australia in 1999, but remains committed to Office, which reported muted results in the six months.
Truworths’ strategy with international expansion “is to take incremental steps so we do not put our business at undue risk”.
“What we learnt from our bad experience with Sportsgirl in Australia in the late 1990s was that one has to strike a suitable balance between excessive autonomy for the foreign operations on the one hand, and allocating too much of SA management resources to the foreign operation on the other,” Mark explains.
Office, which it bought for R5.5bn in November 2015, has been more successful.
Mark says it was a strategic diversification into footwear “and we believed when we bought it, and we still feel, that when the UK economy improves, Office UK will be successful and will lead to other incremental bolt-on opportunities over time in the UK and in Europe.
“We do put effort into Office UK, but we limit involvement to sensible interventions at logical times so that top management do not get distracted from running Truworths.”
In hindsight, however, he admits that the “timing was ‘unfortunate’ as the rand was particularly weak at the time and Brexit only happened after we bought the business”.
It has, however, already generated about £65m cash, “so the cash-flow return on investment has been significant”. Truworths plans to grow Office internationally and has opened 10 Office London stores in SA.
Mark would be keen to make another investment internationally, perhaps in clothing.
“Ideally we would like to find an apparel retailer in the UK that has a similar customer base to that of Office, but we’re in no hurry and we have to prove that we can make a success of Office before we expand by acquisition,” he says.
Succession
Whether Mark will be around to see the next big acquisition is unclear. He is 65 and has been at Truworths since 1991.
“As far as my succession goes, the board prefers me to remain on as CEO for the time being to see the business through these difficult times,” he says.
“Right now I am particularly enthused and challenged and so I am enjoying the CEO role. At some stage within the next few years, the board will implement the CEO succession plan which it already has in place.”
Mark has provided a steady hand in good and bad times. Whether investors would prefer more flair and risk is difficult to say. He tries to ensure his experience “does not limit or restrict but rather encourages and supports” new ideas and initiatives.
“I like to think that I am sufficiently open-minded and adaptable to take on board new developments and ensure the business remains agile to take on changing technology, innovative merchandising, the internationalisation of retail and evolving customer preferences and modes of shopping.
“I sometimes feel that I have been training all these years to assist and guide the business through these current difficult times, and when this is over, which I anticipate will not be too long in the future, the time will be right for me to step aside for a younger team to take over.”
The group has “a trusted and tested, very efficient operating model”, he says, but to survive the 100 years, “we have had to continually reinvent ourselves”.
GETTING TO KNOW MICHAEL MARK
What is your management style?
I think I’ve become more relaxed as I’ve aged. I think I’m firm and direct, yet I try hard to be fair and empowering. I do set and expect high standards of performance.
I am a great believer in personal development and dedication, and I encourage staff to strive for greater things for them and their families.
In all your years at Truworths, what was the most exciting event, deal or milestone?
The creation of our business philosophy in the early 90s, evolving the philosophy and seeing how it sustained us over all these years.
And the worst and how did you ?respond to it?
The Australian venture Sportsgirl in the 1990s. We deployed good executives and employed professional advisers. Cut our losses and moved on.
What are the three things you ?look for in an employee?
Passion, innovation and humility.
Do you have a motto or catchphrase?
- “It’s a marathon, not a sprint.”
- “Contribute more than you consume.”
- “Great retailers need to be hands-on, but they also need to know when to let go.”
What was the biggest strategic mistake you made?
We turned down the opportunity to acquire a well-known shoe chain for a reasonable price in the early 2000s. This, together with the Sportsgirl disappointment in the early 90s, paved the way for more adventurous but hopefully sensible acquisitions.
This is a shortened version of an article that originally appeared in the 29 March edition of finweek. Buy and download the magazine here, or sign up for our weekly newsletter here.
