INTEGRATED REPORT 2023

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Global logistics and shipping patterns normalised in the reporting period and as a result, delivery lead times improved.

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OFFICE SUPPLY CHAIN

OPERATIONAL REVIEW: TRUWORTHS

TRUWORTHS

SUPPLY CHAIN

TRUWORTHS STRIVES TO DELIVER THE BEST PRODUCT TO MEET CUSTOMER DEMAND WITH THE SHORTEST POSSIBLE LEAD TIMES BY USING LOCAL, REGIONAL AND INTERNATIONAL SOURCES. A LARGE CONTRIBUTION OF LOCAL APPAREL MANUFACTURE (APPROXIMATELY 45%) MAXIMISES SPEED TO MARKET OPPORTUNITIES AND CONTRIBUTES POSITIVELY TO THE SUSTAINABILITY OF THE LOCAL APPAREL MANUFACTURING SECTOR.

The global supply chain challenges experienced over the past three years, which included shipping delays, container shortages, increased freight costs and port congestion, eased significantly during the year. Reduced port congestion and fewer delays at ports of origin resulted in improved shipping times, allowing the merchandise teams to reduce delivery lead times. While lower shipping freight rates are favourable for reducing the cost of imported merchandise, this was negated by the material depreciation of the Rand over the past year.

ADVANTAGES OF LOCAL MANUFACTURE

Truworths continues to use local manufacture where it makes commercial sense to do so, with approximately 45% of apparel units being manufactured in South Africa. Local manufacturing is a critical component of the supply chain owing to its flexibility and speed to market advantage.

Speed to market is critical for a fashion retailer and local supply offers shorter lead times than imported product as suppliers can respond quickly to replenishing popular selling styles during a season.

Quick response and fast fashion models have been successfully developed with key suppliers and have been effectively utilised over many years. This enables Truworths to respond more rapidly to customer buying patterns. Merchandise buyers can also make styling changes as late as four weeks prior to delivery, ensuring that the ranges reflect the latest fashion trends.

Truworths uses several factories and cut-make-trim manufacturers (CMTs) across the country. Many of these are either exclusive to Truworths or have Truworths as their largest customer, with financial and other support being provided to protect the local supply base. The selected CMTs produce a wide range of product, including highly specialised garments that ensure that there is speed and flexibility across most product types. Truworths also owns a factory in Darling, Western Cape, which produces ladies' formal product.

TRUWORTHS AFRICA DESIGN DIVISION

The development of an integrated vertical supply chain gained momentum with Truworths' acquisition of Bonwit, a ladieswear apparel design centre and long-standing exclusive supplier to Truworths, early in the financial year. The Bonwit business has been integrated into the Truworths Africa Design Division alongside the Barrie Cline design department which was acquired in 2021, further enhancing Truworths' ladieswear design capacity and capability.

Truworths' in-house design capability previously focused on men's and kidswear. These two acquisitions have created a combined ladies', men's and kids' internal design division, enabling Truworths to control a major portion of its local procurement and drive the quick response and fast fashion models internally. The design division which includes design, pattern making and sample manufacturing, works together in the same building as the merchandise buyers, enabling creative development and faster communication of product requirements to drive speed to market.

Systems are currently being integrated to standardise processes across the three previously separate design centres, while raw materials and finished goods stores are also being consolidated.

The in-house design capability enhances Truworths' ability to design and create unique ranges for customers while generating economies of scale in fabric purchasing, production planning and logistics.

SUSTAINING THE LOCAL SUPPLIER BASE

The sustainability of the local apparel manufacturing sector remains under threat as suppliers face mounting financial pressures, compounded by load shedding. During periods of electricity load shedding many CMTs are forced to close their factories as they cannot afford to invest in generators or absorb the prohibitive running costs. Staff therefore work reduced hours when the factories are closed due to power outages, which has further adverse financial and social impacts. Truworths has supported certain of the strategically important CMTs with generator capability and also encouraged additional working hours to ensure product is not delayed and their employees continue to be remunerated. Truworths' factory in Darling is equipped with a generator.

Load shedding also affects other participants in the production chain, including garment wash and dye houses and printers, who are also generally not able to afford the cost of generators.

As a signatory to the Department of Trade, Industry and Competition's Masterplan for the Retail, Clothing, Textile, Footwear and Leather value chain, Truworths is committed to ensuring the sustainability of its local supply base. The executives and merchandise teams have continued to work closely with suppliers, particularly the exclusive design centres and CMT partners to identify opportunities to develop a broader range of product locally in order to drive more consistent volumes and improve efficiencies.

The support from Truworths has ensured the sustainability of many of these key partners, limited attrition in the supplier base and preserved employment, while capitalising on the quick response capability of the local industry to react to consumer demands.

ADVANTAGES OF IMPORTED PRODUCT

Currently imported apparel accounts for approximately 55% of Truworths' total apparel units. Categories with a high import component include shoes, fashion accessories, lingerie, fine gauge knitwear, winter outdoor jackets and denim.

Merchandise is typically imported in categories where local suppliers are not as price competitive as their offshore counterparts or do not have the manufacturing capabilities to meet the required production and quality standards.

China is the major source of international supply. However, Truworths has reduced its dependency on China in recent years to manage supply chain risk, diversifying its countries of origin to include Bangladesh, Pakistan and India, and from SADC countries Lesotho, Eswatini, Mauritius and Madagascar. The merchandise teams evaluate new countries of origin on an ongoing basis to capitalise on product opportunities.

MANAGING SUPPLIER RELATIONSHIPS

Truworths aims to build long-term, sustainable relationships with both local and international suppliers and this has resulted in a well-diversified and often exclusive supplier base across a wide range of product types.

A supplier scorecard measures the performance of key suppliers with the intention of driving high standards of quality and delivery. The scorecard informs the decisions of the merchandise buying teams in their choice of supplier with volume growth being prioritised with better-performing suppliers. The scorecard also identifies areas for improvement in under-performing suppliers and these development areas can then be addressed through collaboration and targeted support. The scorecard encourages suppliers to improve their performance and this ultimately contributes to a more efficient supply chain.

The Truworths Supplier Code of Conduct and Good Business Practice is incorporated into all supplier agreements and commits local and international manufacturers to comply with ethical business standards, labour legislation (particularly relating to child labour and minimum wage levels), international health and safety standards, and environmental legislation and treaties to which South Africa is a signatory. Legislative compliance audits are conducted by Truworths during the new supplier enrolment process.

CONSTRUCTION OF NEW DISTRIBUTION CENTRE

Construction of Truworths' new 52 000 m² distribution centre (DC) near the Cape Town International Airport is expected to be completed by November 2023 after which the installation of the materials handling equipment and technology will commence. The DC is scheduled to be commissioned by October 2024 and be fully operational by early 2025.

The new facility, which will be completed at a cost of around R1 billion, will allow the four existing DCs to be consolidated into a single facility and accommodate growth in the business for at least the next 15 years.

Highly sophisticated and automated retrieval and storage solutions as well as enhanced picking technology will enable improved distribution and allocation of merchandise to stores. Part allocation of merchandise, with the remainder being pushed to stores based on sales rates, is a key capability of the new DC and is expected to improve the accuracy of product allocation to stores.

Central to the design and construction of the DC is the focus on sustainability. Truworths is building to the EDGE (Excellence in Design for Greater Efficiencies) Advanced green building rating for the new facility. EDGE certification is aimed at increasing energy, water and materials efficiency and is managed by the Green Building Council of South Africa, which partners with the International Finance Corporation to facilitate certification in Africa.

The DC will include a water harvesting and purification system, and energy efficient light-emitting diode (LED) lighting throughout the facility. A further environmental benefit of the centralised DC is that outbound volumes will be consolidated through better utilisation of cartons and more merchandise transported per load through more efficient packaging, which will reduce carbon emissions.

INTEGRATED REPORT 2023