Truworths on the Mark

This article was written by Jenni McCann for Cape Business News




THERE has been a most intriguing side-show unfolding at iconic Cape Town fashion retailer Truworths. In early December the company issued an announcement that top rated French retailing expert Jean-Christophe Garbino had “decided to resign as an executive director of the company and as chief executive officer (designate.)” So far no official explanation has been given for Garbino’s decision to walk away from a plum job – a job that, by all accounts, he was very enthusiastic to take up. In any event, long serving CEO Michael Mark – a legend in fashion retailing circles – will now extend his tenure as boss of Truworths until at least the end of 2017.

The resignation of Garbino is not entirely surprising since a number of fashion industry wags had commented cynically on the prolonged stint the Frenchman endured as CEO designate. According to reports from last year’s AGM, Garbino was briefly introduced to shareholders, but played no role in the meeting (and apparently sat with the assembled shareholders and not at the table of top executives.)

In truth, there won’t initially be too much fuss about Mark remaining in the hot seat. Mark’s long-term track record is enviable … perhaps only matched in local retailing by Shoprite’s Whitey Basson. But there have been questions around whether Garbino’s mysterious resignation effectively compromises succession planning, and robs Truworths of a fresh perspective on its enlarged global operations.

Only time will tell whether a CEO with more than two decades of executive experience at the company will reward shareholders better than having an internationally renowned CEO overseeing the global growth of the company. Most Cape Town-based retailers – including Woolies and Pick n Pay – have seen regular changes to leadership. But it would be far fetched to claim that shareholder returns could be linked to whether companies sought enduring leadership or pursued regular changes in the guard.

In the meantime Truworths’ interim results to end December 27 are the only tangible evidence that can be gleaned in determining whether all is still well at the fashion retailer.

There is also the Truworth board’s confirmation that confirms that the group’s strategy of pursuing organic growth and acquisition opportunities will continue under the leadership of Mark.

In the interim period Truworths’ sales jumped 36% to R8.5bn with encouraging cash sales growth of 85% and credit sales growth of 16%. But if the retail sales reported by the recently acquired UK-based Office Retail Group Limited (Office,) Earthchild and Naartjie were excluded, then retail sales increased by 15% to R7,2bn with cash sales growth of 16% and credit sales growth of 15%.

Looking at comparable store retail sales for the period, the increase in sales was 10% (with product inflation averaging 9%.)

The comparable store sales figure is a key consideration since a net 46 stores were opened across all brands while the retail footprint was boosted by the above mentioned acquisitions (which added 224 stores.)

Still, the sheer scale of the new look Truworths organisation is staggering with 932 stores. However, it is important to note that the company’s gross margin decreased to 54.2% (2014: 55.3%) due to the acquisition of Office, which operates at a lower gross margin.

Mark, though, reassured that the gross margin was still within the current target range of 54% to 57% (set before the acquisition of Office.) He said if Office was stripped out of the interim numbers then the gross margin was level at 55,3%. The enduring Mark’s biggest challenge ahead is that the South African trading environment is expected to remain challenging for the rest of the year with further interest rates on the cards. He contended that Truworths was well-equipped to deal with environmental challenges.

He pointed out that Truworths had extensive experience in managing the risk of its mainstream ‘better-end fashion.’ through proven merchandise design and buying processes. He added that managing credit risk through ongoing application of strategies and best of breed sophisticated systems would ensure a healthy debtors book.

Happily for Mark, he could at least report that Truworths retail sales (excluding Office) for the first six weeks of trading in the second half of the financial year increased by around 17%.