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South African consumers carry Truworths through UK storm

By Xolisa Phillip, in Johannesburg
Posted on Wednesday, 4 March 2020 07:47

A Truworths store in Sandton, Johannesburg. REUTERS/Siphiwe Sibeko

Sales of clothing retailer Truworths were hit by Brexit jitters and weak consumer confidence in South Africa.

The parent company Truworths International operates Truworths in South Africa and the Office brand in the UK.

  • In South Africa, the group also operates the YDE, Identity, Uzzi, Naartjie, and Earthaddict brands.

Its rest of Africa operations are in Namibia, Botswana, Eswatini, Lesotho, Mauritius, Zambia, and Kenya.

Home is best

In the six weeks ended on 29 December 2019:

  • Group sales rose 1.2% to R10.6bn ($68m) from R10.5bn in the previous comparable period;
  • Truworths Africa, comprising mostly the South Africa operations, generated sales of R7.8bn ($48m), representing a 2.7% increase;
  • Active accounts grew to 2.8 million; and,
  • Sales in the UK dropped 3.3%.

In 2018, Truworths operated 814 stores. In 2019, it closed 31 outlets and opened 21 new ones.

In the period under review, Truworths operated 804 chains. In terms of sales, Namibia, Botswana, and Eswatini are its three-biggest markets outside of South Africa.

A burdensome deal

In 2015, Truworths acquired a majority and controlling stake of 88.9% in the Office for £256m ($328m). Soon thereafter, the Office encountered difficulties because of its exposure to House of Fraser.

In 2019, the woes being experienced by its UK business dragged down group performance. In September 2019, Truworths responded by initiating a turnaround strategy.

But the performance of the UK unit remains lacklustre. Its trading space has shrunk 7%. Store sales are down 5%. Online sales generated 34% of retail sales.

Truworths says the turnaround “is progressing according to plan”. However, the company only expects tangible outcomes in the next two years. The Office has 151 stores spread across the UK, Germany, and the Republic of Ireland.

The problem with the Office is that it is weighed down by a debt burden. The business was also confronting meagre “top-line growth”, a dwindling gross profit margin and “high stock levels”. In addition, consumers’ move away from in-store shopping to online buying was proving difficult to balance in a European context.

This is because the company is “bound by long-term leases”.

“Office is evaluating its real estate portfolio, with a view to closing loss-making stores as leases expire. However, the chain has several long-term legacy leases, making it difficult and expensive to exit these underperforming stores.

“No new stores are planned … in the 2020 period and trading space is planned to reduce by 3.0%,” said Truworths CEO Michael Mark in the company’s 2019 integrated report.

Coronavirus supply worries

Truworths sources most its fabric from China, which has been struck by the coronavirus (COVID-19) outbreak. Although some source factories are open, production is low because of labour shortages or lack of material supplies, the company said.

It added that it was worried most about the transition to summer between July and August.

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