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Bernard Mostert: Why we still dream big after Steinhoff

Sep 26 2018 14:27
Bernard Mostert

I believe that the small town, independent, casual-wear retailer is a mainstay of the South African landscape. They are, in many ways, the fabric of the societies where they operate. They serve generation after generation.

In July of 1989, there were two such stores in Mossel Bay – De Villes and Monties. Today, three decades later, they are still there - in the same locations.

That July, Braam van Huyssteen opened a third independent store in Mossel Bay, called Tropika. He was 24 years old and had only R20 000 to cover all his bases.

It was at this time that competitive golf brought us together. I was only 14, but despite the ten-year age gap, our journey was on its way.  

It took Braam ten years on his shop floor to muster up the confidence to open a second store. In 2001, Tekkie Town would be born – the first branch opening in Somerset West.

Braam’s defining features then, as they are today, would be his ability to extract value and exert pressure. He is a tough boss and an entertaining negotiator.

There is no better example to illustrate this approach to business than his ritual of going into a store and inspecting the stationery. If your koki’s felt tip was pointing upwards, he would turn it downwards politely and then make you pay for your own stationery for a year.

If left unchecked, he reasoned, you would have thrown that koki away when it still had 25% capacity left.

Outside interest

By 2011, Tekkie Town had the attention of the private equity investment community. Despite its meteoric growth curve, the business was highly cash generative.

It was, by every definition, a beautiful deal. A single owner, a fast-growing business, a balance sheet with no debt, and a young management team.

Ultimately, emerging market private equity specialist Actis got over the line with a deal that valued the business at R1.65bn, based on an EBITDA (earnings before interest, taxes and amortization) multiple of 8.2.

The end result of that initial R20 000 was a compound annual return rate just north of 47%.

By November 2015, the business was running like a high-speed train. We had busted many internal myths, particularly with regards to talent development, merchandise planning, marketing and customer segmentation.

My single biggest joy from Tekkie Town, to this day, remains being witness to the success of young South Africans. There is a generation who may have been failed by our education system, but we dare not regard them as failures.

I am humbled to have been flanked by these young leaders, and to have seen the ambition and aspiration of South Africans as consumers. They are the reason we will invest R500m into the country at a stage when everyone encourages us not to do so.

The success of Tekkie Town attracted the attention of Markus Jooste. Tekkie Town’s management provided an opportunity to turn around the Speciality division.

For us the deal was attractive, because we were convinced that for the first time we would have global scale efficiencies behind us. We could expand to Europe and we could improve our cost efficiencies.

In hindsight, this belief and expectation turned out to be our biggest mistake and greatest disappointment.

The transaction was concluded by August 2016. As management, we had to commit to a five-year fixed term contract underpinned by a performance-based bonus. The sellers who received Steinhoff shares in return for their Tekkie Town shares could not trade those shares for a period of three years.  

At first things went well. We finally were given the structure of Speciality Stores to run, with Braam as the chairman of STAR’s vast property portfolio.

December 2017 

There are too many memories and too many moments to rehash the events of December 2017 when Steinhoff unravelled. As a team, we committed to putting our heads down and putting our results on the table. We had a record December at a time when our peers struggled. The financial wealth may have been lost, but the momentum was still all there.

I was now reporting to long-time Pep Stores CEO Leon Lourens. Tekkie Town was STAR’s fastest-growing, highest-margin, best-performing asset.

I used to love driving from Cape Town to George with Braam. He would want to stop at every Tekkie Town. "We don’t drive past a Tekkie Town," he used to say.

At the same time, he could brew and explode about small things gone wrong, little things being left unattended. Like a koki left upside down.

In our new world, this intense behavior was foreign to his new reports. Those of us who had been around Braam for a long time had come to accept that his bullets improved us.

The storm clouds were gathering. In the last week of January this year, Leon Lourens first notified Braam of his intention to have him removed from his portfolio. 

In the second week of February, Leon came to George for the first time. He was playing in the Dimension Data Pro-Am Golf Tournament at Fancourt. 

I was expecting that Leon would visit the Tekkie Town HQ that week – even that he would come speak to our team. During that week I heard from him once, he called to get a reference on a caddie for the event.

Post-Steinhoff

I am intrigued by the composition of claimants who have filed legal claims against Steinhoff thus far. Dr. Wiese filed suits for his evaporated R59bn, ionic GT Ferreira filed a suit. Individuals linked to PSG filed suits. We filed two suits. One against Steinhoff (to have the original transaction canceled) and one against STAR (to have the earn out agreement recognised).

To the best of my knowledge we have been the only insiders who have filed suits. By May this year, Braam left. He filed a breach of contract suit against Pepkor.

Our COO, Dawie van Niekerk, and I left on 25 June. We felt we no longer had the support of the senior leadership at STAR and no business could operate optimally without that support.

There is a saying: "An honest thinker will highlight and confront the most intimidating counterargument. A dishonest thinker will seek out the most ludicrous counterargument and pretend it is the only counterargument."

We don’t believe anything significantly positive will come from the carcass of Steinhoff. We do believe that the legal processes will restore our Tekkie Town ownership.

At the same time, we know that this process will take time. We know the exhaustion and negative drain of legal fights. Starting a new business is a beautiful counterbalance to that destructive spiral.

We are crafting Mr. Tekkie carefully, knowing that one day it will have to live side by side with Tekkie Town.

In Round One, Braam started on his own. In Round Two, he is flanked by 114 entrepreneurs molded in his way.

We know that even if all the odds are stacked against us, we share a purpose to progress South Africa, to show that Steinhoff's failure does not mean that we are failures too.

We enter Round Two to improve on that and aim to leave a generation who will extend that result and dream bigger dreams.

* This is an abridged and edited version of a speech originally intended to be presented at the South Africa Consumer Finance Conference 2018. In the interests of fair and balanced representation, Fin24 has offered STAR/ Pepkor the opportunity for comment.

** Bernard Mostert is the former CEO of Tekkie Town. In June 2018 he resigned from Steinhoff Africa Retail (renamed Pepkor), which acquired Tekkie Town in September 2016. He and Tekkie Town founder Braam van Huyssteen are setting up a new athleisure retailer called Mr Tekkie. Views expressed are his own. 

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