Home link Downloads link To Top Link Search Link

Material Issues, risks and opportunities

Truworths International Logo

Office turnaround strategy

Refer to Chief Executive Officer’s Report for more detail.

The COVID-19 lockdown has materially affected the Group’s United Kingdom-based Office footwear business. As a result of the consequential impact on the profitability and liquidity of Office, the Truworths International board considered all possibilities for Office, including various restructuring options.

During July 2020 the board decided to continue funding the Office business and committed to additional facilities of £6.5 million over the next 15 months. The turnaround efforts implemented early in the 2020 financial period were unfortunately severely disrupted by the COVID-19 pandemic. These and other turnaround plans will be intensified in the months ahead with a view to returning Office to a profitable position to ensure the long-term sustainability of the business.

2020 Performance against plans and objectives

OBJECTIVES AND PLANS

PERFORMANCE AGAINST OBJECTIVES

Securing long-term viability of Office.

  • Restructuring plan initiated, including sourcing alternative external funding, undertaking a staff redundancy programme and conducting a store lease review.

  • Truworths International providing £6.5 million funding facility to Office over 15-month period.

Streamline the real estate portfolio.

  • Detailed review of real estate portfolio undertaken by management.

  • Loss-making stores closed as leases expired.

  • Trading space reduced by 4.8%.

  • Rent-free periods and rental reductions negotiated during COVID-19 crisis.

Enhance e-commerce offering.

  • New Office website launched in October 2019.

  • Shortly after launch the website managed the largest-ever trading day on Black Friday in November 2019.

  • Online sales continued for 12 weeks of lockdown while stores were closed.

  • Planning for new Offspring website completed, with launch scheduled for October 2020.

Drive profitable growth by focusing on basics to improve staff morale, and invest in customer and brand relationships.

  • Projects aimed at improving staff morale impacted by COVID-19 and will be resumed in the 2021 financial period.

  • Investment in customers curtailed during COVID-19 lockdown.

  • Relationships with key brand partners strengthened during COVID-19 lockdown through proactive and constructive engagement.

Review current warehousing and distribution model to improve efficiencies and reduce costs.

  • Project to re-engineer distribution centres was put on hold due to COVID-19.

Challenges affecting Office performance and turnaround strategy

  • Turnaround programme was interrupted for several months owing to impact of COVID-19 and the related lockdown trading restrictions and cash flow constraints.
  • Continued difficult trading conditions are putting pressure on the operating company, Office Holdings Ltd, to meet covenant requirements in relation to its funding.
  • Continuing decline in high street footfall with customer preference for online shopping which was accelerated during the COVID-19 lockdown.
  • Increasing COVID-19 infection rates in the UK have resulted in the government imposing new restrictions, including a renewed call for citizens to work from home, which will further impact on retail foot traffic and could negatively impact revenue and profitability.
  • Office leases have historically been concluded for an average of 10 years with upwards adjustments only, making it difficult and expensive to exit leases in loss-making stores.

2021 Objectives and plans

  • Implement staff redundancy programme.
  • Rationalise the store and concession footprint by exiting non-profitable stores as leases expire.
  • Store leases will in future be agreed by Office for periods of five years or less.
  • Accelerate development of omni-channel capabilities.
  • Ongoing management of turnaround strategy through three workstreams:
    • Trading: focus on merchandise performance and stock to reduce markdowns by managing stock position.
    • Short-term essentials: aimed at prioritising Office’s operational and capital expenditure.
    • Marketing and brand: focus on marketing and communications strategies, branding and brand relationships.

Key risks and mitigation strategies

DESCRIPTION OF RISK

RISK MITIGATION

Risk of online sales substituting store sales in a fast-changing UK retail landscape.

  • Store portfolio under review and opportunity to exit poor-performing stores.

  • Redefine Office ‘store of the future’ concept and the omni-channel future proposition.

  • Develop Offspring ‘store of the future’ concept.

  • Drive customer footfall into stores through improvements in the omni-channel offering including ‘click & collect’ and online returns in store.

  • New Office website launched and new Offspring website planned for launch in October 2020.

Footfall in London substantially reduced from previous years due to the COVID-19 pandemic.

  • Management focus and monitoring of the London stores with new initiatives to encourage footfall.

  • Reassessment of the contributions from London stores based on lower footfall.

  • Compensate for reduction in sales through higher e-commerce sales in London.

Uncertainty over the likely impact of Brexit on the business.

  • Dedicated project team focusing on issues including customs duties, supply chain, staffing and recruitment, and foreign exchange.

  • Obtained HMRC Authorised Economic Operator status to assist in the process of imports and exports in a post-Brexit operating environment.

  • Encouraging employees who are non-UK residents to apply for residency as new immigration system being implemented in January 2021.