SHOP TALK ZEENAT MOORAD
Ionce bumped into Truworths boss Michael Mark at the Slow Lounge at Cape Town International Airport. I was down there to interview Karl-Johan Persson, the Swedish billionaire CEO of H&M, the cheap&chic retailer that had just opened its first store in SA.
We got to talking (Mark and I) about the expansion of global retailers in SA, and the role that credit plays within the industry.
Some 101, if I may: Truworths’ operating metrics are matchless; one of their core competences is their culture of frugality. Mark’s 24-year tenure makes him the longest-serving CEO in the retail sector.
He basically took the job . . . when I had just learnt to write my name, when the iPhone was just a twinkle in Steve Jobs’s eye and almost a year before Clinton (Bill, that is) became the president of the US. He is no lightweight, then.
On that day in October, he said that most South Africans couldn’t afford to buy things like clothes using cash, that credit was still a vital part of the sector and international retailers wouldn’t do too well because they didn’t offer a store-card component.
He was right, but only to some extent because the credit model is largely deemed old-fashioned — the middle to upper market has somewhat moved on.
Also, H&M’s Cape Town store is their third-busiest outlet globally — and they’re a cash business.
The offering of credit through store cards at retailers is idiosyncratically South African. In most countries store cards are typically used as loyalty swipe cards and not charge cards.
Alec Abraham from Sasfin Securities once had this explanation for me: “It [credit] started out in the bad old days of apartheid — the mass unbanked black population couldn’t get credit through the formal banking system and effectively the likes of Edgars became the people’s bank.”
Economic and social transformation (oh, and aspiration too) gave rise to consumerism and a strong mall culture (Burger King? Tick. Prada? Tick. Starbucks? Tick), which in turn changed the dynamics of the market — we became a globalised shopping economy. And we became a nation of borrowers. Insert African Bank, unsecured lending, mashonisas (known to some as loan sharks). Growing indebtedness has led to a stream of amendments to the National Credit Act, the latest of which has been damning for Truworths — I’m talking a loss of between R200m and R250m in credit sales, already, in its full year. Essentially, the new regulations make it more difficult to get access to credit.
Truworths calls them onerous, the regulator calls them necessary.
Remember, Truworths sells more than 70% of its merchandise on in-store (credit) cards. In the past it’s worked well, obviously depending on where the credit cycle was, but it’s become risky and dated. TFG has shed its guise as a mass-market credit retailer and has moved decisively into the more affluent market segment through brands such as Fabiani and G-Star, aiming for an equitable split between credit and cash sales. The shift renders the group more defensive.
This is the problem: for the longest time, regardless of the level of competitor activity, Truworths has regarded global operators in the same manner it does local rivals. They just haven’t given much thought to addressing the growing issue of slicker international entrants — and now, smarter local rivals who have upped their game. As a result, their pricing architecture remains rather narrow.
Some (analysts) have called it complacency. If one were to go to, say, Cotton On, H&M or Woolies to buy a t-shirt, one would find hi-lo options to cater to a wide band of consumers.
What compelling reason would one have to go Truworths, or even Edgars for that matter?
Retailers have to adapt and evolve, as their customers have done. We became a globalised shopping economy and a nation of borrowers