Truworths’s struggling UK footwear chain is worth saving, CEO Michael Mark said on Thursday, after the SA clothing company outlined plans to advance a total of £6.5m (R144m) over the next 15 months to keep the business it has already written down by more than R4bn afloat.
Truworths, owner of local brands Identity and Naartjie, bought the British footwear retailer for R5.5bn, but low consumer confidence due to Brexit and the coronavirus pandemic has slowed trading in its UK, Ireland and Germany stores.
“Did we buy the right business at the right time? No, our timing was awful. No-one had heard of Brexit,” Mark told Business Day shortly after the company issued its annual earnings report.
Truworths, which also announced the retirement of Mark within the next two years, warned in July that staff cuts, rental negotiations and long-term funding would be needed to secure the “long-term viability” of Office.
This year, the company said it had impaired about R2.9bn of its investment in Office, adding to the R1.9bn impairment announced in 2019 and bringing total writedowns to R5bn.
Mark said his company investigated selling the business and there was surprising interest by top brands, suggesting that Office was an appealing business. He also received feedback from restructuring experts.
“It didn’t make market sense to sell now,” said Mark, who has spent nearly three decades as CEO at the Cape Town-based retailer that vies with Foschini owner TFG and Mr Price.
“We formed a view as follows: if you can see Office, without the worst 30 and 40 stores that have onerous leases and are loss-making, it is a very good business. It could take four years to close the unprofitable stores — most in Germany — with long leases, but the remaining 60 are great businesses,” he said.
Succession plan
The company said a two-year succession plan was being put in place in preparation for Mark’s departure. In 2015, Mark was to retire, but CEO-elect Jean-Christophe Garbino, who had come to take over as boss, returned to France after 10 months and Mark stayed on.
Mark, who is highly respected, has been at the business so long one analyst said “he is Truworths”.
Truworths is not alone in struggling in ventures abroad as companies are under pressure to diversify from the weak local economy. SA investment arm Brait lost its entire R14.5bn purchase of UK fashion chain New Look.
Truworths’s decision to support its Office brand is in stark contrast to Famous Brands, owner of Mugg & Bean and Wimpy, which said earlier in 2020 it would no longer send any more cash abroad to support Gourmet Burger Kitchen, its struggling UK chain.
In SA, Truworths has seen unpaid accounts increase from 13% to almost 20%, or one in five, but has made provisions for up to 30.1% to be unpaid due to the effect of Covid-19.
It said the number of active accounts across Truworths, Identity and YDE declined by 2.3% to 2.6-million.
Group retail sales fell 9.2% to R16.9bn in the year-end to June 28. Truworths Africa, which is mostly focused on SA, saw retail sales drop by 8.7% to R12.3bn for the year. Retail sales for the second half of the year to June were 23.5% lower, revealing the effect of lockdowns.
The company declared a net cash dividend per share of 24.8c.
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