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Account management
– Truworths

South Africa’s credit market proved to be more robust than expected in the past year as the country emerged from the COVID-19 hard lockdown, with consumers showing their resilience and a commitment to honouring payment obligations.

Account sales comprise


of Truworths’ retail sales (2020: 70%)

Record new account applications of

3.8 million

(2020: 3.4 million)

Active account base consistent with prior year at

2.6 million

New accounts opened to applications received decreased to

15% (2020: 17%)

Gross trade receivables

2.5% lower at R5.4 billion

(2020: R5.5 million)

Net bad debt to gross trade receivables increased to

18.1% (2020: 16.2%)

Doubtful debt allowance to gross trade receivables reduced to

23.4% (2020: 30.1%)

Refer to Material issues, risks and opportunities for more detail.

The TransUnion Consumer Credit Index, which measures the credit health of consumers in South Africa, reached a high of 62 index points for the first quarter of calendar 2021 and remains at a robust 59 for the second quarter, rebounding from 46 points in the second quarter of calendar 2020.

The improving credit health of consumers is demonstrated by industry statistics which confirm fewer accounts being in early default, reduced distressed borrowing, increased household cash flow and lower debt servicing costs due mainly to the low interest rate environment and a general tightening of credit.

In line with these improvements in the credit market, the Truworths portfolio showed a stronger‑than‑expected recovery by June 2021, with certain key account metrics back to pre‑COVID‑19 levels.

However, COVID-19 continues to impact on trading and account collections, which was evident in the second and third waves of the pandemic in December 2020/January 2021 and in June/July 2021 respectively. While these waves of higher COVID-19 infection rates did not result in the closure of stores, the implementation of lockdown restrictions had an immediate effect on sales and account payments as customers chose to stay away from shopping centres to limit their exposure to the virus. It is encouraging that once lockdown limitations were relaxed, customers gradually started returning to historical shopping patterns.

Accounts enabling merchandise sales

Truworths uses credit to initiate an ongoing relationship with its customer in the mainstream middle-income consumer market. This approach differs from the traditional banking approach to financial services, where interest and transactional income are key, but rather credit at Truworths is used as a tool to facilitate sales of higher-priced, excellent quality aspirational product in line with the Business Philosophy. Many consumers have limited access to traditional bank credit, such as overdraft facilities and credit cards, and are therefore reliant on store accounts to buy better-end fashion merchandise. There is a large percentage of customers for whom their first credit exposure is with Truworths and they make use of this not only to purchase merchandise but also to build a good track record and credit profile. The Truworths account is low cost, with a low annual account service fee and there are no initiation, club or magazine fees.

Account facilities are offered to customers across all Truworths merchandise brands in South Africa, Namibia, Botswana and Eswatini.

There are a variety of payment options, including 6, 9 and 12 months to pay. Billing is performed on a monthly basis and as long as a customer pays the minimum 90% qualifying payment of the amount due, they do not age in terms of delinquency.

Account management in 2021

Truworths experienced excellent account application growth with a total of 3.8 million applications (2020: 3.4 million) where a consistent new account acquisition strategy was followed despite the challenging COVID‑19 environment.

The risk approval rate declined from 25% of applications in 2020 to 21% in 2021 due to the increased risk profile of applicants. The percentage of account applications resulting in opened accounts decreased from 17% to 15%; however, despite the lower approval rates, Truworths increased its market share of new accounts opened (source: Principa May 2021).

Gross trade receivables on the Truworths Africa segment’s debtors book, comprising the Truworths, Identity and YDE books, totalled R5.4 billion (2020: R5.5 billion).

The number of active accounts was consistent with the prior year at 2.6 million.

Account sales contributed 68% (2020: 70%) of retail sales in Truworths and active account holders able to purchase recovered to 82% (2020: 77%) at the period-end. Overdue balances to the total debtors book improved to 15% from 20% in the prior period.

The doubtful debt allowance reduced from 30.1% in 2020 to 23.4% of trade receivables at the reporting period-end. The decrease in the allowance compared to the 2020 period-end is due to the impact of the hard lockdown rolling through the portfolio as well as the improved account collections performance.

Trade receivable costs decreased by 52% to R768 million (2020: R1.6 billion) while net bad debt and related costs increased 8.1% to R1.3 billion (2020: R1.2 billion).

Decision optimisation with advanced analytics artificial intelligence is being used across all areas of portfolio management, including new account acquisition, new account decision strategy, customer engagement, credit limit management, collections, recoveries and provisioning. A champion/challenger methodology is applied and this, together with profitability-based strategies, ensures we continue to innovate in this area.

Increasing demand for lay-bys

Customers continue to respond positively to Truworths’ lay-by (set aside) payment facility, with a large number of lay-bys being processed during the period. Customers make use of this facility as it allows them to access high-quality, aspirational merchandise that they may not have been able to purchase using cash or an account. The lay-by offering allows customers to select merchandise and pay it off over three months. This gives non-account customers, who are unable to pay upfront or qualify for an account, access to Truworths merchandise.

Lay-by customers automatically become members of the loyalty programme and receive customer communication to encourage repeat purchases while also being potential future account customers.

Debt relief legislation

Debt relief legislation was announced in August 2019, aimed at relieving over-indebted South Africans who are unable to ease their debt burden. In terms of the National Credit Amendment Act, the debts owed to credit providers by customers earning less than R7 500 per month with unsecured debt of less than R50 000 and who are considered critically indebted, can be extinguished by the National Credit Regulator (NCR).

No further details have been announced on the regulations required to implement the legislation, nor have any updates been provided on the status of the legislation in the past year. Truworths continues to engage with the Department of Trade, Industry and Competition, as well as the NCR, through the National Clothing Retail Federation to propose workable alternatives to debt relief and these proposals are being reviewed by the regulators.

Growing customer loyalty

The TruRoyalty (Truworths) and iDream (Identity) customer loyalty programmes are aimed at attracting and retaining customers, while increasing both the basket size and frequency of shopping of account and cash customers. Loyalty members spend on average more than cash customers.

The combined membership of the loyalty programmes has increased by 2.8 million to 13.9 million members, including 3.6 million account customers and 10.3 million non-account customers. The loyalty programme is a valuable tool in understanding non-account customer behaviour.

Members are offered a suite of exclusive benefits, including personalised merchandise promotions, additional sale discounts, vouchers and competitions.

Account management in 2022

In 2022 Truworths will continue to apply its proven formula of testing ‘champion’ and ‘challenger’ account management strategies across the portfolio. Several areas have been identified to enhance account management performance, including new account conversions, the account opening process, customer-level data utilisation within the account management strategies, e‑commerce-based account management and the intelligent mining of credit operations interactions.

These all align with Truworths’ long-term goal of seamlessly managing customers across all channels to improve customer experience, increase sales, improve payments and extend their lifetime value.

To achieve this, several technology projects will be implemented in the 2022 financial period, including a new e-commerce platform, a customer engagement system and a point-of-sale system, all of which will enhance Truworths’ ability to deliver an enhanced omni-channel experience to customers. The first phase of the project will go live in the first quarter of the new financial year.

While the COVID-19 pandemic has created high levels of uncertainty in managing the portfolio, the account risk team has had the benefit of running several concurrent strategies which can be compared directly with historic strategies. This enables the portfolio to be adjusted with certainty that the changes are beneficial to Truworths and its customers.

Managing account risk in 2021