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Managing stakeholder relationships – Office®

Shareholder

Rationale for engaging: Truworths International is the controlling shareholder of the Office business and the board of Office Holdings Ltd is responsible to the board of Truworths International. Engagement is managed between the executive directors of the two businesses.

Key engagement
issues

Response to
engagement issues

The sustainable turnaround in the performance of the business and ensuring its long-term viability in the face of COVID-19, the slowdown in the UK retail industry, declining revenue from physical stores as consumers move to online shopping, and the continued uncertainty of trading in a post-Brexit environment.

Group management undertook a review of the business and considered several options for the Office business, including disposal, closure and refinancing. Following this process, the board committed to maximising the value of its investment in Office. This included initiating a partial restructure of the business and providing funding to Office through a £6.5 million 15-month secured revolving credit facility.

Customers

Five point internal rating scale

Rationale for engaging: Customers are the buyers of merchandise and the primary source of revenue for Office. Engagement focuses on customers in the UK, Germany and the Republic of Ireland, and both national and international online customers. Engagement occurs informally in stores and via the e-commerce sites, as well as through social media platforms such as Facebook and Instagram.

Key engagement
issues

Response to
engagement issues

Availability of products to meet the significant increase in online demand during lockdown.

At the start of the lockdown the number of products available on the Office.co.uk website decreased due to the closure of all UK stores and the resultant inability of these stores to fulfil online orders. In response, all unsold stock from over 70 stores was recalled to the warehouse to meet online customer demand.

Health and safety in stores a key concern for customers.

All stores were adapted to be COVID-19 secure, with in-store layout being modified to create additional floor space to enable employees and customers to social distance. Entry to stores is restricted to enable social distancing. Specific guidelines are followed when footwear is tried on by a customer to ensure safety.

Employees

Five point internal rating scale

Rationale for engaging: Employees provide their talent and skills to ensure the business operates in an efficient and sustainable manner. Engagement includes all full-time and flexi-time employees, with line management being the key point of engagement, supported by the Human Resources Division. Employee engagement occurs through formal communication and surveys issued by the business, formal and informal training, personal interaction with line management and through CEO talks.

Key engagement
issues

Response to
engagement issues

Impact on employees who were not able or required to work from home during lockdown.

Head office employees in key roles were required to work from home on reduced hours and salaries, and those who were not required to work were furloughed. All store and field-based staff were furloughed.

Financial impact on employees who were not required to work during lockdown.

Office applied for government aid funding for all qualifying furloughed employees.

Office initiated a head office redundancy process to reduce overhead costs and accommodate the amended operational needs of the business in the current environment.

The redundancy process is in progress.

Suppliers

Five point internal rating scale

Rationale for engaging: Suppliers are the providers of merchandise and other goods and services and include international suppliers of branded and own-brand merchandise, and landlords. The primary sources of contact are executives, merchandise buyers and management. Engagement occurs formally and informally through merchandise design and order negotiations and account management interaction.

Key engagement
issues

Response to
engagement issues

Merchandise suppliers:
Ahead of the start of the lockdown Office began negotiating with suppliers to delay orders and in extreme cases cancel orders to manage stock levels, as well as negotiating payment terms to manage liquidity.

Inventory intake was significantly reduced from the start of lockdown to preserve cash and mitigate the risk of the business holding excess inventory due to reduced sales. Inventory levels at the end of the reporting period were 26.0% lower than the prior period. Payment terms were negotiated with merchandise suppliers individually and all accounts were paid up. Through proactive regular and constructive engagement management is satisfied that supplier relationships emerged stronger from this process, enhancing Office’s status as a key strategic partner.

Property landlords:
The negotiation on the payment of rentals during lockdown when stores were restricted from trading, and once lockdown restrictions were relaxed, was a major challenge for both Office and landlords.

While lease negotiations have been challenging in the current weak trading environment, the onset of the COVID-19 lockdown resulted in Office being granted rental holidays, rent reductions and more favourable terms on some leases. UK landlords are under significant pressure owing to the number of company voluntary arrangements (CVAs) and liquidations as a result of the COVID-19 pandemic, which frustrated landlord discussions and negotiations.

Regulators

Five point internal rating scale

Rationale for engaging: Regulators are the custodians of legislative and regulatory compliance and providers of licences to trade. This includes government departments, regulatory bodies and local authorities, with the engagement being managed by the executive directors, finance and legal. Engagement occurs through regulatory filings and submissions, and formal and informal discussions regarding key issues.

Key engagement
issues

Response to
engagement issues

Application for Authorised Economic Operator status ahead of Brexit.

Office was awarded Authorised Economic Operator status in October 2019 following a comprehensive engagement process with HMRC, including a process compliance audit and distribution centre inspections.