Truworths CEO Michael Mark explains why GNU mood hasn’t reached Main St – yet
The Truworths share price dropped sharply after a business update disclosed sales in the fashion retailer's 802 South African stores were flat for the four months to end October. CEO Michael Mark, in the Truworths hot seat for some 36 years, shares insights on where we are in the retailing cycle, providing context on the GNU-promised recovery after a decade of intense challenges for the sector. He spoke to BizNews editor Alec Hogg.
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Edited transcript of the interview ___STEADY_PAYWALL___
Alec Hogg (00:12.632)
Well, there's a sense of sobriety settling in South Africa now after all the excitement around the government of national unity. We're seeing this reflected in the financial results of companies, particularly retailers. One of the seasoned leaders in this sector is Michael Mark, the CEO of a company called Truworths International. He's been running it for 23 years, so he's seen it all. Michael, there was a lot of excitement after the formation of the government of national unity. Your thoughts?
Michael Mark (00:22.619)
Thank you.
Michael Mark (00:37.851)
Hopefully, we'll be able to do something about it.
Alec Hogg (00:41.752)
Today's business update for the four months ending in October showed that while there may be a better mood in the country, people haven't actually started spending more yet. Your share price fell sharply today, down four and a half percent due to the latest numbers. You've seen it all—would you say this is another "Ramaphoria" false dawn?
Michael Mark (00:46.371)
Thank you, Alec.
Michael Mark (01:12.731)
Yes, you've framed that well. I've been around for a while, and there's often anticipation, either negative or positive, of immediate changes. But I've found it's always a marathon, not a sprint.
I do feel—and have felt all along—that not only the government of national unity but other circumstances as well are making our economy start to look more promising for the first time in almost a decade. This sentiment seems to be echoed by analysts and shareholders, both local and international, who feel more optimistic about the economy over the next 12 to 18 months, maybe two years.
So while we are a little disappointed with our numbers over the past few months, we're looking forward to Black Friday and Christmas. Our credit book is looking a bit better. Let's wait and see how the next year unfolds before making any concrete judgments.
Alec Hogg (02:41.986)
Last year, Truworths Group, with its 800 stores across South Africa, had sales growth of only about three and a half percent—below the inflation rate. This business update shows your sales in South Africa were flat, with no increase at all, despite an inflation rate of about four, four and a half percent. So from a purely rational perspective, you're moving backwards in real terms. That sends quite a signal about what's happening on the high street.
Michael Mark (03:14.233)
You're right, Alec. It's not just this past year or the last few months; it's been tough for a few years. The market for fashion retail hasn't significantly grown in unit terms, and competition has increased from both local and international players. Truworths is a more premium brand, so we're dealing with a static market, customers with tight budgets, and intense financial strain. And with more competition, especially in the premium segment, it's a tough environment.
But there is optimism. If South Africa's economy can grow by just two percent, our business could benefit significantly from that. Yes, it might be wishful thinking, but we feel positive about the potential.
Alec Hogg (04:38.378)
Is it because your business is well-positioned for an upturn after so many challenging years? You've had to refine processes, cut costs, and boost efficiency. It seems that if South African businesses like yours just get a little wind at their backs, they could leverage it quite well.
Michael Mark (04:56.891)
Exactly. In the fashion retail industry, including my competitors, we've had to be resilient and resourceful to survive through tough times. My own company and others in the sector have weathered challenging periods and are now well-positioned. If you don't run things efficiently, you simply can't survive. Truworths has been a well-run business, constantly working on better pricing, improving merchandise, ensuring appealing stores, and expanding our e-commerce efforts.
We don't need 10 percent economic growth—though we'd love it! But even two percent would allow many retail businesses, including ours, to gain traction.
Alec Hogg (06:30.290)
And what about the online side of the business? Nearly half of your UK sales are online, while in South Africa, you face challenges from competitors, including Chinese imports and now Amazon. Is e-commerce eating into traditional retailers like Truworths?
Michael Mark (06:59.675)
Great question. We've been debating e-commerce growth for over a decade. Our e-commerce sales have been growing by over 30 percent annually, albeit from a small base. It now represents five percent of our total sales. While it's still a small segment, it's more than triple the size of our larger stores.
However, I don't think e-commerce will dominate as much as it does in the UK. The South African consumer enjoys the shopping mall experience. Our malls are well-located and offer an entertainment factor, which I think will keep brick-and-mortar appealing here.
Alec Hogg (08:49.366)
I suppose the South African weather helps—it's more enjoyable to go out shopping. In the UK, though, you've had different challenges. Can you give us some background on why you entered the UK market and how the experience has been?
Michael Mark (09:09.339)
I've actually been at Truworths for over 30 years, not just the 23 you mentioned! We acquired our UK business, Office, about seven or eight years ago. It was a struggling business initially, and the first three years were tough.
When COVID hit, however, we found new strengths in the business. E-commerce sales, at some points, matched our previous total sales. The brand's scarcity and our unique position in the UK market created a fantastic opportunity.
Since then, we've transformed the way we operate, mirroring our South African methods—tighter stock control, better margins, and frugality. Now, it's a solid business with about £100 million in cash—a true success story we're very proud of.
Alec Hogg (11:44.800)
Australia has been tough for many South African businesses, yet South Africans seem to thrive in the UK. Why do you think that is?
Michael Mark (12:22.363)
I'll speak from our own experience. When we tried expanding to Australia in the past, we faced various issues. The Australian retail landscape is more challenging for smaller chains like ours. There are fewer malls, and landlords have significant leverage.
In contrast, the UK felt more familiar and accessible. It's a single flight away, with the same time zone, and we're very familiar with the country. We learned from our missteps in Australia, and Office, being in the sneaker business rather than high-fashion retail, seemed more manageable. So far, it's been a much more comfortable transition for us.
Alec Hogg (14:16.066)
Looking ahead, you've mentioned that it hasn't been an easy time, though the mood is improving. Do you have a sense of when that might start translating into store sales?
Michael Mark (14:39.515)
Our sales plans for 2025 are more optimistic, but my experience suggests we shouldn't expect immediate change. We're seeing some positive indicators, like a healthier credit book, but the improvement will likely be steady rather than sudden. I'm particularly optimistic about the second half of 2025, when I expect better results, partly because of internal changes we've been making, including a new distribution center launching in February.
Alec Hogg (16:10.328)
For an entrepreneur struggling through these tough times, would you say "hang in there for summer 2025"?
Michael Mark (16:38.043)
I'd say this: make sure your business is strong enough to survive regardless of the economy. You can't rely on economic growth alone to save you. Unexpected events, like COVID, can happen. If you're already struggling, you need an internal solution rather than depending on external factors. A resilient business should be able to survive tough times without relying solely on a booming economy.
Alec Hogg (18:06.880)
Truworths is a fashion business, so if you get it wrong on the fashion side, it can hurt the company. How have you managed to get it right so often?
Michael Mark (18:36.279)
It's about systemizing and running things like a well-oiled machine. You can't depend solely on creative buyers travelling around the world. Processes, methodology, technology, and a backup plan are essential because things don't always go perfectly. If things go right, great, but if 50 or 60 per cent goes wrong, we need to survive. So we plan for the worst, hoping for the best, with a clear plan B.
Alec Hogg (20:44.066)
Michael Mark, CEO of Truworths, in the saddle since 1988—far more than the 23 years I mentioned earlier. And I'm Alec Hogg from BizNews.com.
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