But wait -there’s more, says Verimark
| Home-grown telemarketing outfit shifts gear to counter punishing SA conditions, writes Chris Barron
EVERYONE he meets on his increasingly frequent overseas travels in search of new markets wants to know one thing from Michael van Straaten, CEO of direct retailer Verimark.
“What is happening in South Africa?” What does he tell them? “Well, the facts are the facts,” he says.
As someone who can convince you that the Genesis 10-in-1 Steam Mop is not just a mop but a life-changing experience, Van Straaten has long mastered the art of putting a positive spin on facts. But even he can’t put a gloss on the situation in South Africa.
That’s why he is targeting overseas markets for his products. He wants 50% of sales to come from Europe, the US and Australia, he said this week after releasing results that show why he holds his breath every time President Jacob Zuma opens his mouth.
The company his brother started with a small loan from their sheep-farming dad 39 years ago imports 98% of its products. After just about every presidential pronouncement it has to pay a few million rands more for the stuff.
When you’re only making R13.1-million profit before tax (down from R17-million last year) this is clearly not sustainable. Has he set a deadline? “The sooner the better.” It won’t be the first time the company has hedged its bets offshore. It was in about 50 countries until 10 years ago, when it decided to focus on South Africa.
“History is an exact science,” says Van Straaten wryly. “It’s easy to look back and say we should have continued overseas.”
But picking up where it left off won’t be too hard, he says. It has stayed in contact with its distributors who have kept asking over the years when it would start supplying them again.
“So it’s a no-brainer that we’re reactivating that.”
He’s not going to repeat the mistake the company made when it decided to expand into Singapore. It set up offices and opened 25 stores. It was there for three years and came a cropper.
It is quicker, cheaper and less complicated to appoint distributors in its target markets and supply them directly from China.
Verimark’s expertise in bringing new products to market will give it the edge over international competitors, he says.
His team is “continuously” visiting international exhibitions and trade fairs, and big retailers such as Tesco, Sainsbury’s and Walmart.
When it comes to product innovation and logistics — making sure that what you advertise on TV is available in a store nearby — he backs Verimark against most comers.
He cites recent figures showing that of all the new TV products going on air in the US today, only 5% succeed. Verimark’s success rate has been around 60%, he says.
Verimark was started by Van Straaten’s brother Willie. Michael joined him four years later and bought him out 22 years ago to became a 100% shareholder. “We started from extremely humble beginnings,” he says. “We had nothing. My dad lent us R5 000.”
They pioneered direct-response marketing in South Africa. They wrote the ads, directed the commercials and sat by the phone while the ads were flighted, taking orders.
“We spent R2 000 on our first TV commercial on Good Morning South Africa on a Saturday, and had R200 000 sales from that one ad. We didn’t think it was sustainable, it was too good to be true.”
He approached Dions to sell Verimark’s Shogun knife sets. It was very sceptical but Van Straaten, who can talk the hind leg off a donkey, promised to pick up the stock if it didn’t work.
Within three days of the ad appearing on TV with the “dial now” number, the MD phoned and said he’d never seen knife sets selling so quickly before.
“That was the start of taking TV products into retail. We were the first people in the world to take that step.”
Van Straaten was recognised as one of South Africa’s leading entrepreneurs. He was a finalist twice in the Ernst & Young best entrepreneur in South Africa awards along with Raymond Ackerman, Brian Joffe and Mark Lamberti, and Verimark was twice chosen as a Top 20 company.
It has 81 of its own stores in South Africa, franchise and company-owned, and in the past three years has opened dedicated areas in big retail outlets.
He believes Verimark is ahead of the curve internationally.
“The industry is 10 or 15 years behind where we are.”
He accepts that there will be retailers who “knock you off and copy you and don’t buy from you”, but believes they will see the benefits of a Verimark bringing innovations to market much faster than anyone else.
His company’s record of sustainability and brand-building will give it the edge, he says.
It has brands it has built over years, which it advertises in its TV commercials.
“When you go into Tesco and Walmart, what you see this year in their telemarketing sections you don’t see next year. They are absolutely gimmick-driven, really low-end stuff.”
Isn’t this what Verimark has been accused of? “I totally disagree.” Verimark has been selling the same brands for 25 years that are still top 10 sellers, he says.
His products, most of them made in China under Verimark’s direction, are “unique and innovative”.
How unique can a mop, vacuum cleaner, food processor, nonstick frying pan and knife set be?
Twenty-two of his products are patented, he says. That’s how unique.
“People trust the brand, they trust the quality.”
Van Straaten’s other plan to beat devaluation has been to source more products locally, but this is not working so well.
Major constraints are South Africa’s high labour costs and low productivity, he says. The rand will still have to fall a long way before local production can be competitive with China on either front.
Meanwhile, Verimark, which employs 800 people, mostly in sales, rising to about 1 300 over Christmas, is “very committed to growing our business locally”, and has no intention of moving offshore.
Van Straaten, 62, was brought up on a sheep farm in the Little Karoo. He attended a “very basic, simple little school” before going to Grey College in Bloemfontein, where he played first-team rugby as No 8 alongside future Springbok captain Theuns Stofberg.
He did a BCom (Hons) at the University of Stellenbosch and became a chartered accountant, has a black belt in karate and is a former South African pole-vaulting champion.
He listed Verimark in 2005 at R2.50 a share. It rose to R4.20 and then plunged to 10c.
It went from after-tax profits of R39-million in the first year after listing to R13-million in the second, R4.5-million in the third and a loss of R3.7-million in the fourth. At which point he decided to delist.
“I didn’t know how much longer I could handle that situation. I was on my knees,” he says.
But when Van Straaten, a 52% shareholder, tried to buy out his minority shareholders at 50c, there was an uproar. A judge decided that he had no right to overrule his minority shareholders in this way and his attempted delisting was blocked.
In spite of surviving two armed attacks in his home in the past three years — during which he and his family were beaten and tied up — he remains upbeat.
He is comforted by statistics that, according to him, show that direct sales is one of three industries (the others being insurance and alcohol) “less impacted” by economic cycles.
“Because it’s such a hard sell,” he says.
His “passion” for it is undimmed and he still works a 12-hour day five days a week and five hours on Saturday.
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He holds his breath every time President Jacob Zuma opens his mouth The [global telemarketing] industry is 10 or 15 years behind where we are