ASPIRATIONAL FASHION
TARGETS
TARGET
FOR 2022
FOR 2022
Gross margin
54% – 57%
54% – 57%
PERFORMANCE AGAINST TARGET
Gross margin 56.7%
(2021: 54.1%)
(2021: 54.1%)
MEDIUM-TERM
TARGET
TARGET
Gross margin
54% – 57%
54% – 57%
2022
Performance against plans
PLANS FOR 2022
Continue to grow and develop new brands launched in 2021 and in the early part of the 2022 financial period.
PERFORMANCE AGAINST PLANS
- The Fuel menswear brand and Sync value chain are still in an experimental phase, with ranges, fashionability and pricing being adapted based on customer response.
- Five new Sync stores opened (total stores: 16).
- Loads for Kids launched early in the financial year, offering a kids' homeware range with the focus on bedding and soft toys.
CHALLENGES ENCOUNTERED
- The civil unrest and violence in KwaZulu-Natal in July 2021 resulted in 57 of the Group's stores being damaged, including six which were located in fire-damaged shopping centres. Many more stores were closed temporarily as a precautionary measure. The protest action and violence resulted in significant supply chain disruptions and impacted trading in the region for several months. As a result, the first half of the year traded with inventory below optimal levels. Retail trading and the supply chain were further impacted by the widespread flooding in the region in April 2022.
- Demand for clothing was weaker in the early part of the financial year before COVID-19 restrictions were lifted, with limitations on entertainment and gatherings, and many South Africans working from home, adversely impacting demand, particularly in the smart, formal and glamourwear categories.
- Managing the impact of currency volatility and increasing input costs on product pricing.
Ensure that all products available in Truworths, Identity and Loads of Living stores are available online.
- All Truworths merchandise and brands are now available on the Truworths e-commerce site.
- Identity online store launched and has performed ahead of expectations.
- Loads of Living online was launched as a component of the Truworths e-commerce multi-site.
- Customers are now able to shop with a single basket across the Truworths, Office London and Loads of Living sites.
Improve customer experience in the post-checkout phase of online shopping, with faster delivery times and lower costs.
- Ongoing enhancements to order fulfilment processes have improved the customer experience, reduced delivery lead times and lowered costs.
- Increased the number of online fulfilment picking stores to improve online product availability and shorten delivery lead times.
Offer customers a true
omni-channel shopping experience through the investment in new systems and technology.
- The new cloud-based e-commerce platform introduced in the first half of the financial year created the foundation for an integrated omni-channel shopping experience.
Plans for the year ahead
- Continue to drive sales growth in areas where we are confident of growing market share, including key underrepresented categories.
- Showcase merchandise with improved visual merchandising in the Truworths Emporium 'store of the future'.
- Enhance focus on kids' business across brands and expand presence, including in the baby category.
- Ongoing focus on expanding the Context store concept.
- Fuel to be incorporated in an additional 14 emporium stores and one stand-alone store to be opened in the first half of the 2023 financial period.
- Continue to experiment with and grow the Sync product offering in the value segment of the market.
- Ongoing upgrading of websites to enhance customer shopping experience and order fulfilment.
Plans for the year ahead
- Grow the Fuel and Sync businesses to become meaningful brands in the Truworths portfolio.
- Continue to introduce and grow new experimental brand concepts.
- Further growth in under-represented key categories.
- Accelerate growth in Identity by opening larger format stores.
- Grow the kids' business substantially by opening larger format stores with greater product offering and capitalise on the existing kids' categories.
- Capitalise on the functionality of the e-commerce platform to drive traffic to the site and improve the sales conversion ratio.
KEY RISKS AND MITIGATION STRATEGIES
1
Contending with the volatile exchange rate in managing retail selling prices of imported merchandise.
- Forward exchange contracts (FECs) are used to cover merchandise imports to lessen the impact of exchange rate volatility. FECs are reviewed and adjusted during the course of normal business processes.
- Continued to seek opportunities to increase local merchandise procurement to reduce reliance on imports.
- Acquisition of Barrie Cline ladies design centre enabled Truworths to create a vertically integrated design centre for ladies', men's and kidswear.
- Improved fabric and product procurement processes, including capitalising on economies of scale through the internal design centre to contain price increases.
- Careful adjustment of product ranges to ensure that customers' quality expectations are met while ensuring excellent perceived value and containing product inflation.
2
Failing to provide quality fashion to customers each season at appropriate margins. This covers buying processes, fashion monitoring, supplier relationships and ensuring Truworths has skilled buying and planning resources.
- Apply proven forecasting, design, and assortment planning processes and key executive interventions throughout the merchandise life cycle aimed at managing and mitigating the risk of fashion.
- Weekly monitoring of merchandise performance by executives and senior management to manage inventory within acceptable levels, thereby limiting markdowns and maintaining the gross margin within the target range.
- Manage suppliers' contributions of the overall buy to ensure risk is spread across the supply chain.
- Balance local and international supply base to take advantage of both quick response and fast fashion.
- Focus on multiple countries of origin to ensure an optimal product mix with best value and authenticity.
- Achieve better prices to offer better value by consolidating fabric sourcing across brands, while maintaining product quality and increasing the contribution of planned promotions and excellent value items within the ranges.
SUPPLY CHAIN
TARGETS
TARGET
FOR 2022
FOR 2022
Inventory turn 4.5 – 5.5 times
PERFORMANCE AGAINST TARGET
Inventory turn
4.4 times
(2021: 4.9 times)
MEDIUM-TERM
TARGET
TARGET
Inventory turn 4.0 – 5.0 times
2022
Performance against plans
PLANS FOR 2022
Continue to develop the
in-house manufacturing capabilities by fully integrating Barrie Cline design department with the existing Truworths men's and kids' design department, creating the
single-largest supplier to Truworths.
PERFORMANCE AGAINST PLANS
- Integration of Barrie Cline completed, creating a combined ladies', men's and kids' internal design division with a robust fashion design capability.
CHALLENGES ENCOUNTERED
- The global logistics supply chain has remained under pressure, with the continued shortage of containers in East Asia resulting in shipping delays as well as significantly increased freight costs. These shipping delays have impacted sales in some areas due to late deliveries, particularly in the first half of the financial period.
- International supply chain challenges have been compounded by COVID-19 lockdown restrictions imposed on several provinces in China between March and June 2022.
- The civil unrest and flooding in KwaZulu-Natal impacted fabric and garment manufacturers due to reduced mobility of workers leading to reduced capacity, and contributed to significant delays in road transportation.
- Ongoing electricity load shedding resulted in downtime in cut-make-trim (CMT) facilities, impacting their sustainability.
- Congestion at the Cape Town harbour has led to delayed deliveries to distribution centres. Capacity constraints due to COVID-19 hampered output and efficiencies in local and international factories while lower consumer demand locally has negatively impacted CMT suppliers, with some factories being forced to close.
Enhance systems to support the integrated
in-house manufacturing capability.
- Ongoing focus on systems integration and process enhancements to improve efficiencies within the combined
in-house design division.
Agree the preferred strategy for the development of the new distribution centre (DC) and engage professional service providers to enable development to commence in the 2023 financial year, subject to board approval.
- Approval granted by the board to proceed with the development of the new DC.
- Contracts signed with property developer and site development plan submitted to local authority for approval.
- Design of the materials handling solution for the new DC is at an advanced stage.
- Commenced engagement with funding provider to fund the cost of the building, which is to be green-certified upon completion.
Introduce geographic
e-commerce fulfilment model to shorten the customer lead time from order placement to delivery.
- Geographic fulfilment model implemented.
- Fulfilment network expanded which has resulted in shortened customer delivery lead times.
Plans for the year ahead
- Grow Truworths-owned local design division and key CMTs, and invest in systems and processes to improve efficiencies in both.
- Investment in strategically important fabrics to enable improved local production.
- Finalise the design of the building and the materials handling solutions for the new DC.
- Commence construction of the new DC in the second half of the financial year.
Opportunities
- Create an operationally efficient, vertically integrated local design division comprising a large ladies', men's and kids' design centre which is aligned with and supported by partner CMTs to enable consistent supply and rapid response.
- Commission the new DC to accommodate growth in the business and enable improved merchandise allocation processes to stores.
KEY RISKS AND MITIGATION STRATEGIES
1
The sustainability of the local and international supplier base is critical to meet Truworths’ product demand.
- Develop closer working relationships with local design houses and CMT factories and provide support where possible to ensure their sustainability.
- Build an integrated supply chain model by merging the existing Truworths men’s and kids’ design department with the expanded ladies’ design department (previously Barrie Cline Clothing).
- Review international supplier base to ensure the Group has a well-balanced and sustainable range of suppliers across the wide range of product types, and identify alternative sources of supply and countries of origin where necessary.
- Improve knowledge of local production capacity and plan to maximise output throughout the year and minimise downtime.
- Increase availability of key fabric bases to enable trade.
2
Suppliers not operating to contracted standards of ethical behaviour could result in reputational damage and interruption of supply.
- Truworths’ code of conduct included in all supplier agreements and compliance therewith monitored through internal audit process.
- Manufacturers are required to comply with ethical standards, labour, health and safety, and environmental legislation.
- Legislative compliance audits are carried out as part of the new supplier take-on process.
3
Loss of, or inability to access, distribution facilities
- All distribution centre assets are adequately insured.
- Fire and flood protection installed at all distribution facilities.
- Disaster recovery plans in place.
4
Organic and acquisitive growth in the business is placing increased pressure on distribution and warehousing capacity.
- A new DC is in the design phase and construction is expected to commence in the second half of the 2023 financial year.
- Third-party warehousing facilities are used to store imported merchandise during peak periods.
5
Civil unrest could disrupt the supply chain.
- Continue assessing supplier planned contributions at a strategic seasonal level and within the monthly review process to ensure a spread across facilities, provinces and countries of origin.
- Review product categories that may present alternate sources of supply.
- Work with a geographically diversified local supply base.
ACCOUNT MANAGEMENT
TARGETS
TARGET
FOR 2022
FOR 2022
Continue to grow
the customer
loyalty base.
Further enhance
the new accounts
application
process.
Reactivate
customers who
have not returned
to stores since
the outbreak of
the COVID-19
pandemic.
Grow the
e-commerce
registered
user base.
PERFORMANCE AGAINST TARGETS
Active account base
grew by approximately
2%. Loyalty
membership base
increased by
2.5 million to exceed
16 million.
Enhancements made
to the application,
data capturing,
opening and
activation processes
for new accounts.
Reactivation strategies
have shown good
success with the
reactivation of many
previously dormant
customers evident.
36% growth in
e-commerce
transactions and 75%
growth in unique
e-commerce
shoppers.
TARGETS
FOR 2023
FOR 2023
Continued growth
in both the active
account base
and loyalty
programme
membership.
Enable digital
onboarding
process for new
accounts, with
customers
no longer required
to go into stores.
Continue to focus
on reactivation
using additional
data elements
to build more
powerful response
and activation
models.
Ongoing analysis and construction of strategies to meaningfully increase the e-commerce user base.
2022
Performance against plans
PLANS FOR 2022
Implement upgraded account management software.
PERFORMANCE AGAINST PLANS
- Core account management system upgraded allowing a wider range of data, features and predictive models to be used in the account customer decision strategy.
CHALLENGES ENCOUNTERED
- The major challenge related to the civil unrest in KwaZulu-Natal and parts of Gauteng, which affected customers' access to stores to pay or activate accounts. The response from affected customers was encouraging as many travelled further afield to other Group stores that were still trading to make payments to ensure that their accounts remained in good standing.
Implement omni-channel customer engagement solutions.
- New e-commerce platform implemented that is integrated with a central customer engagement solution.
- Point-of-sale system upgrade in progress that will be integrated with the central customer engagement tool.
- Significant work undertaken on the analysis of multichannel customer data and how these channels react with one another for a desired outcome.
Implement a suite of cross-channel customer communication strategies.
- Currently in progress, with the focus on digital media where most of the engagement with customers is via mobile devices.
Test new promotions and offers enabled by the new omni-channel solutions.
- Planned to be undertaken in the 2023 financial period.
Plans for the year ahead
- Invest in new account acquisition data and analytics, with new sources of data and improved integration of internal data and acquisition channels to optimise strategies.
- Implement point-of-sale system and e-commerce to omni-channel system.
- Enhance account collections analytics and strategy development.
- Continue testing the newly introduced 'buy now, pay later' product and increase the percentage of customers offered this product, based on payment performance.
- Expand range of customer payment channels and increase the number of customers making account payments using non-store channels.
- Test new promotions and offers enabled by the new
omni-channel solutions.
Opportunities
- Customer-centric analysis across companies to optimise credit allocation between Group account customers.
- Invest in new technology to enhance customer experience throughout the account life cycle from acquisition to maturity.
- Continued expansion of the customer loyalty base.
- Reduce account management and communication costs.
KEY RISKS AND MITIGATION STRATEGIES
1
Ineffective management of account risk could result in increased bad debt, lower and slower collections, limited new account growth and a reduction in the number of customers able to buy on account.
- Apply account risk criteria and processes consistently using advanced analytics, scorecards and models.
- Review account management, as well as collections and acquisition strategies regularly, and refine to leverage new data and predictive models.
- Implement and maintain best-of-breed account management tools that accurately execute policies, processes and strategies.
2
Debt relief legislation approved by Parliament will enable the National Credit Regulator (NCR) to extinguish the debts owed to credit providers by low-income consumers with unsecured debt of less than R50 000 who are critically indebted.
- Engaged in prior years with the NCR through the National Clothing Retail Federation and other industry bodies to have legislation amended or withdrawn.
- Aligned with other credit providers to propose workable alternatives so that debt review and debt counselling is affordable for low-income consumers.
- Contingency plans developed across the account operations and account risk management areas should the legislation be implemented.
- The expected credit loss allowance under IFRS 9 includes a provision relating to the potential impact of debt relief legislation.
Shareholders should note that while there have been no material developments on this legislation or proposed regulations during the reporting period, the annual reports of industry bodies indicate that they are preparing to implement the legislation.
3
Proposed amendments to the schedules to the Financial Intelligence Centre Act (FICA) could dampen new account openings as a result of documentation requirements.
- Truworths is engaging various government entities including the Select Committee on Finance and the National Council of Provinces via the National Clothing Retail Federation.
RETAIL PRESENCE
TARGETS
TARGET
FOR 2022
FOR 2022
Trading density
per m2 of
R34 500 – R35 500
Store electricity
carbon emissions
of 18.00 Wh
per m2
(South Africa only)
PERFORMANCE AGAINST TARGETS
Trading density of
R36 276 per m2
(2021: R34 649 per m2).
Carbon emissions of
15.88 Wh per m2
(2021 revised to
16.69 Wh per 2)
TARGETS
FOR 2023
FOR 2023
Trading density
per m2 of
R35 500 – R36 500
Store electricity
carbon emissions
of 17.00 Wh
per m2
(South Africa only)
2022
Performance against plans
PLANS FOR 2022
Trading space to remain unchanged.
PERFORMANCE AGAINST PLANS
- Trading space reduced by 0.2%.
- 15 stores opened across all brands, 23 stores closed.
- 23 stores expanded, consolidated or converted.
- 785 stores at period-end (2021: 793).
CHALLENGES ENCOUNTERED
- The civil unrest and violence in KwaZulu-Natal in July 2021 resulted in a material number of stores being damaged or destroyed. The protest action and violence resulted in supply chain disruptions and impacted trading in the region for several months. Unfavourable trading conditions in KwaZulu-Natal were exacerbated by the widespread flooding in April 2022.
- Ongoing electricity load shedding negatively affected trade.
- Local authorities not paying monies owed to Eskom, which results in electricity being disconnected in certain towns during trading hours, accompanied by deteriorating infrastructure and poor water quality in certain areas.
R240 million committed to store development.
- R222 million (2021: R201 million) invested in store development.
- Expenditure below budget owing to delays in certain developments.
Continued rationalisation and consolidation of space to improve trading densities, and close under-performing stores.
- 23 stores closed, including seven which were incorporated into Truworths Emporium stores.
- Trading space reduced in seven stores.
- Trading space reduction exceeded expansion.
Launch Identity larger format store concept.
- Identity larger format stores launched in the first half of the 2022 financial period.
- Five Identity larger format stores trading by period end.
Expand store formats.
- New Truworths Kids multi-brand concept expanded.
- Fuel and Sync brands expanded.
- New Context concept introduced.
Launch Identity
website and migrate
existing Truworths
websites to new cloud-based
e-commerce
platform.
- Identity e-commerce website launched in first half of 2022 financial period.
- Truworths websites migrated to new cloud-based platform.
Plans for the year ahead
- Trading space to be expanded by approximately 2%.
- R236 million committed to store development.
- Continued rationalisation and consolidation of space to improve trading densities, and close under-performing stores.
- Launch Truworths Emporium 'store of the future' concept.
Opportunities
- Ongoing expansion of trading space.
- Continued expansion of new store concepts and formats, specifically the Truworths Kids multi-brand concept, Identity larger format store, Context and Sync.
- Expand Truworths Emporium 'store of the future' concept to further large format stores.
KEY RISKS AND MITIGATION STRATEGIES
1
High demand for well-located retail premises in established malls, impacting availability of retail space and expansion opportunities.
- New malls present opportunities in prime positions.
- Renovating key stores and optimising existing space to introduce new brands.
- Opening stand-alone stores for key brands to create space in existing high trading density emporium stores.
- Reconfiguring existing space to enable introduction of new brands with changes in fixturing without renovating.
- Securing expansion options in new and renewed leases.
2
Fixed annual rental escalations, high utility costs and rates increases impacting store profitability.
- Engaging with landlords to secure prime space at competitive rentals and escalation rates, and securing rental reversions where possible.
- Securing rental agreements that reflect the constrained economic conditions and over-supply of retail space in certain areas.
- Consolidating and rationalising trading space where trading densities are low.
- Reducing electricity consumption through smart metering, energy-efficient lighting and enforcing operating discipline.
- Rigorous review of rates increases.
3
Electricity load shedding in South Africa remains a risk to trading.
- Ongoing engagement with shopping centre owners to connect malls to central generators.
- Evaluating alternative forms of electricity supply, with inverters installed in 11 smaller stores by year end to enable these stores to trade during load shedding.
- Equipping stores without alternative electricity supply to continue trading during load shedding, where possible, without undue risk.
4
Civil unrest could disrupt trading and result in damage to stores and losses.
- Critically review insurance cover annually.
- Business continuity plans to ensure contingency measures are implemented where possible in the event of disruptions to store trading and the supply chain.
ASPIRATIONAL
FASHION
TARGETS
TARGET
FOR 2022
FOR 2022
Gross margin 38% – 42%
PERFORMANCE AGAINST TARGET
Gross margin 44.2% (2021: 41.5%)
MEDIUM-TERM
TARGET
TARGET
Gross margin 42% – 46%
2022
Performance against plans
PLANS FOR 2022
Further develop the range of unique made-to-order (MTO) product.
PERFORMANCE AGAINST PLANS
- New MTO buying and design team appointed, who are developing a revitalised MTO product offering.
- New suppliers introduced to ensure improved styling, fit, quality and perceived value.
- Internal processes improved to ensure on-time delivery and seasonally appropriate offering.
- MTO range expanded to introduce wide-fit styles, new menswear product, and luxury shoe range, with increased focus on sustainability.
CHALLENGES ENCOUNTERED
- Lack of availability of branded and MTO stock as a result of supply chain challenges due to the continued shortage of containers in East Asia, resulting in delays in goods leaving their port of origin as well as tight COVID-19 lockdown restrictions imposed on several provinces in China.
- Absence of credit insurance for suppliers impacted stock availability, but this situation improved as the year progressed.
- COVID-19-related logistics challenges resulted in seasonal stock delays and product arriving in stores too late, which reduced the selling period and resulted in higher markdowns in the first half of the financial period.
- Owing to COVID-19 restrictions, the buying teams were not able to travel as frequently as required which resulted in delays in the development of MTO product.
Deliver effective planning and stock management to meet demand and increase margins.
- Applying the Truworths buying principles and philosophies, Office has continued to improve inventory turn which has reduced markdown stock and in turn increased full-price sales mix, contributing to higher margins.
- Substituting slower branded lines has resulted in a higher sell-off rate.
- Inventory turn improved to 4.8 times (2021: 3.8 times).
- Gross margin increased to 44.2% (2021: 41.5%).
Continue to grow brand relationships.
- Office has strengthened brand partner relationships through its positioning as a full-price retailer and connecting with key consumer groups targeted by the brands.
- Supporting brands in delivering their strategic goals has enabled Office to improve its offering of ’in demand’ styles, contributing to sales growth and margin gains.
- Reopening of stores post lockdown has been instrumental in strengthening relationships with brand partners to cater for customers who choose high street over online shopping.
Focus on adopting an insight-driven approach to ensure that the product offering is in line with customer requirements.
- Office constantly analyses market trends through multiple mediums to ensure the product offering is relevant to customers.
- Customer and sales data, together with trend forecasting, informs decisions regarding range mix, style attributes and selling prices.
Commence with the project to replace the ageing merchandise system.
- Implementation partner engaged and contract concluded for the legacy merchandise system replacement project.
- Project temporarily placed on hold to finalise planning system requirements.
Plans for the year ahead
- Maintain mutually beneficial relationships with brand partners through relevant initiatives that are strategically aligned with the partners’ plans.
- Improve stock availability to drive sales growth.
- Work to ensure credit insurance is restored for suppliers to improve brand and supplier relationships and payment terms
- Increase MTO contribution and introduce new MTO ranges.
- Grow and introduce emerging brands into the market.
- Progress the project to replace legacy merchandise management system.
Opportunities
- Ongoing modernisation of stores which should contribute to increased allocations of best-selling product as Office will be an increasingly attractive partner for brands.
- Grow ladies’ and men’s MTO ranges and launch kids’ MTO range.
- Introduce additional product lines and categories to expand the customer offering and increase margins.
- Complete implementation of new merchandise management system.
KEY RISKS AND MITIGATION STRATEGIES
1
Suitability and sustainability of Office’s ageing merchandise management system, having become acutely dependent on highly skilled scarce internal and external resources.
- Implementation partner engaged and contract concluded for the legacy merchandise system replacement project.
- While the project was initiated, it was temporarily placed on hold to finalise planning systems requirements, and is expected to recommence in the first half of the 2023 financial period.
2
Reliance on third-party brands.
- Continued engagement with partner brands to maintain and enhance brand relationships.
- Continued focus on Office’s core customer to strengthen point of differentiation and secure brand support.
- Increase MTO as a percentage of the total sales mix.
- Identify and introduce new and emerging brands.
3
Impact on gross margin of changing product mix within sports and MTO ranges.
- New MTO buying and design team appointed, who are developing a revitalised MTO product offering.
- Continued focus on expanding MTO product range, including collaboration with Truworths’ trend forecasting and buying teams
- Improve systems and processes to increase inventory turn.
4
Ineffective management of merchandise and buying decisions over stock ranges and volumes.
- Apply proven merchandise processes and key executive interventions throughout the merchandise life cycle aimed at managing and mitigating the risk of fashion.
- Utilise the merchandise management system to control stock levels and ensure the ideal level of stockholding.
- Continue to work with Truworths management to implement effective processes and controls.
SUPPLY
CHAIN
TARGETS
TARGET
FOR 2022
FOR 2022
Inventory turn 3.0 – 4.0 times
PERFORMANCE AGAINST TARGET
Inventory turn 4.8 times in Sterling (2021: 3.8 times in Sterling)
MEDIUM-TERM
TARGET
TARGET
Inventory turn 4.0 – 5.0 times
2022
Performance against plans
PLANS FOR 2022
Initiate a tender process for key carrier contracts.
PERFORMANCE AGAINST PLANS
- Carrier contracts for store delivery and online customer delivery were renewed at highly favourable rates.
- Tender process currently being undertaken for the international delivery carrier service.
CHALLENGES ENCOUNTERED
- Continued disruption to the global supply chain due to COVID‑19 and the war in Ukraine has impacted stock availability.
- Closure of ports in China due to sporadic outbreaks of COVID‑19, most notably in Shanghai, has disrupted shipping patterns and compounded port congestion.
- Sea freight prices have continued to be extremely high and are unlikely to decrease as businesses are shipping early from East Asia for the Christmas season to mitigate extended transit times.
- Service providers continued to struggle with the lack of heavy goods vehicle and other commercial drivers, which resulted in delayed stock deliveries and placed pressure on the e‑commerce delivery network.
- Sharp rise in the cost of fuel as supply was reduced due to the war in Ukraine.
Implement a new returns platform.
- Project was no longer considered a priority and will be reassessed in the 2023 financial year.
Improve omni-channel services through the full roll-out of same-day delivery and express ‘click & collect’.
- Same-day delivery service trialled and not continued due to lack of customer interest.
- Express ‘click & collect’ service currently being developed and will be rolled out in the second half of the 2023 financial year.
Initiate project to design the distribution model of the future.
- Project to develop the long-term distribution strategy has been initiated and the consultant evaluation is currently in progress.
- Office’s warehouse in Greenford, London, was surplus to requirements and was closed, resulting in substantial cost savings.
Commence replacement of merchandise planning, warehouse and distribution systems to position the business for growth.
- Legacy merchandise system replacement project initiated and implementation partner appointed.
- Project temporarily placed on hold to finalise planning systems requirements.
Plans for the year ahead
- Finalise carrier contract for international deliveries.
- Review freight forwarder operations to ensure maximum value and efficiency.
- Roll out express ‘click & collect’ service.
- Implement a new merchandise returns platform.
Opportunities
- Implement new enterprise resource planning (ERP) and warehouse management system to enhance operational processes and realise efficiencies.
- Evaluate new courier management software to ensure lowest cost deliveries while meeting service expectations of customers.
- Improve warehouse infrastructure and security.
KEY RISKS AND MITIGATION STRATEGIES
1
Reliance on third-party brands to secure reliable product.
- Diversify the range and styles across and within the different brands.
- Increase Office made-to-order (MTO) contribution and introduce new MTO ranges such as kids’ shoes, socks, fragrances and accessories, including handbags.
- Office is considered a strategic partner by all major international brands due to its national coverage and access to certain target markets.
2
Unethical behaviour within the supply chain.
- Apply and monitor adherence to anti-corruption and bribery policy.
- MTO suppliers required to provide written confirmation that they accept the working practices in Office’s Code of Ethics and Good Business Practice.
- Ensure adherence by suppliers to Modern Slavery Act statement available on the Office website.
- Communicate the Office Code of Ethics to new suppliers, and obtain acknowledgement and signature.
- Implemented documentation controls to safeguard against tax avoidance in the supply chain in line with legislation.
RETAIL
PRESENCE
TARGETS
TARGET
FOR 2022
FOR 2022
Reduce trading space by 12%
PERFORMANCE AGAINST TARGET
Trading space decreased by 4.4% (2021: 22.0%)
TARGET
FOR 2023
FOR 2023
Open two new stores in key locations
2022
Performance against plans
PLANS FOR 2022
Plan to close up to 22 marginal or loss-making stores through lease expiries and break clauses.
PERFORMANCE AGAINST PLANS
- Favourable negotiations with landlords and strong post-COVID-19 recovery resulted in fewer stores than planned being closed.
- Majority of lease renewals were for short-term tenancy, which favoured Office in the current uncertain retail trading environment.
- Six stores closed in the period due to under-performance or poor location.
- Trading space reduced by 4.4%.
- 92 stores (2021: 98), including 11 concessions (2021: 13) at period-end.
CHALLENGES ENCOUNTERED
- Ongoing uncertainty relating to COVID-19 created a challenging environment to secure new store rentals and lease renewals.
- Managing costs in a high-inflationary environment as store-related expenses normalise in the post-COVID-19 environment.
Implement the new store concept in a London‑based store.
- New store design concept developed and will be implemented in the existing Carnaby Street store and the new Battersea Park store in London.
Improve digital user experience, including site search optimisation, product launch improvements and image optimisation.
- Digital user experience enhanced through launch of new homepage, site search optimisation and image optimisation.
Launch ‘buy now, pay later’ payment option.
- ‘Buy now, pay later’ payment system launched on the Office website in November 2021, and by year-end, accounted for approximately 20% of all online payments.
- The payment arrangement is between the payment provider and the customer, and Office carries no payment risk.
Further enhance the customer experience through full roll-out of same-day delivery and express ‘click & collect’, and an improved returns process.
- Express ‘click & collect’ to be implemented in second half of 2023 financial year.
- Returns process to be evaluated while same-day delivery will not be implemented following a pilot project.
Remodelling of important high-profile stores.
- Modernised store concept developed and to be implemented in all new and refurbished stores.
Plans for the year ahead
- Invest in the store portfolio with the planned opening of two new stores and modernising of four strategically important stores.
- Renew leases based on the strategic importance and profitability of stores, while closing non-profitable or poorly located stores.
- Implement new store design concept in all new and refurbished stores.
- Improve omni-channel services through the development of express ‘click & collect’.
- Introduce in-store ‘buy now, pay later’ payment option.
- Introduce digital gift cards to support physical gift cards.
Opportunities
- Open stores in the few key locations where Office currently does not have a store presence.
- Secure leases of stores in key strategic locations while the property rental market is weak in the post-COVID-19 environment.
KEY RISKS AND MITIGATION STRATEGIES
1
Risk of online sales substituting store sales in a fast-changing UK retail landscape.
- Ongoing review of store portfolio to exit marginal and loss-making stores.
- Invest in new store space and refurbishment of strategically important stores, mainly in London.
- Drive customer footfall into stores through improvements in the omni-channel offering, including ‘click & collect’ and online returns in store to increase convenience for customers.
2
Non-compliance with the General Data Protection Regulation (GDPR) which governs laws relating to the collection, storage and usage of customer data.
- Compulsory GDPR training provided to all employees.
- Adherence to GDPR in line with legislation, including all store-based information being paperless.
- Data transfer agreement signed between Office and Truworths.
- Amended contracts with third-party suppliers who process data on behalf of Office.
3
Payment Card Industry Data Security Standard (PCIDSS) non-compliance.
- Implementation of PCI-compliant omni-channel payment processor.
- PCIDSS training provided to all key employees.
- Adherence to PCIDSS in line with legislation.