Truworths CEO Michael Mark may have bitten off more than he can chew with his decision to pounce on the Primark name — which Truworths is using as its entry into SA’s low-cost fashion market.
The retailer has spent considerable effort gaining access to the Primark name ahead of its 15-store launch. It began investigating use of the brand — which registered in SA more than 40 years ago — in 2013, later going to court to ask that Primark UK’s registration of the name in SA be expunged. When it lost in the high court, it took the matter on appeal.
Mark finally registered the name Primark after the Supreme Court of Appeal (SCA) ruled in 2018 that the UK company no longer had access to the name in SA, as it didn’t intend to trade or use it.
But a Primark UK spokesperson tells the FM that "Truworths is attempting to misappropriate our brand and, in so doing, deceive the SA consumer. Primark will take whatever steps are necessary to protect our brand and its hard-earned reputation."
Exactly why Truworths wants the name so badly is not clear.
A survey it commissioned as evidence for court showed that only 18 or 19 out of 500 South Africans had ever heard of it.
And in the 2018 SCA judgment written by judge Malcolm Wallis, he noted that "a disquieting feature of this case is that Truworths has never disclosed its reasons for wishing to register the Primark mark. It was extremely coy about its knowledge of Primark’s business and the use to which it intended to put the mark, saying only that it intended to use it on clothing".
But Mark tells the FM: "Our intention all along has been to develop and use this brand. We believe its intrinsic semantic qualities will resonate well with the value segment of the SA fashion market we’re targeting."
The Primark brand of clothes will cost about 35% of Truworths prices and will have a narrower fashion range.
With Truworths owning its three large suppliers, it will rely on quick-response fashion reacting to what consumers are buying, with short lead ordering times. This beats waiting six months for clothes from abroad that may not hit the mark.
Truworths is also capitalising on the shift to casual gear with Fuel, "a young progressive, casual brand with a streetwear edge", opening 20 stores in the next while.
Clearly, though, the company is not going all in with cheaper fashion, and its 2.6-million credit customers will remain the core of its business.
Says Mark: "We don’t think we sell clothing to customers, we sell so much more — we sell them an experience.
"We sell aspiration, we sell the idea of customers being able to dress and feel successful."
Truworths has been able to do so thanks in large part to its captive credit audience, but critics feel the group has relied too much on this ability to sell overpriced merchandise.
Last year, Stephán Engelbrecht, fund manager at Anchor Capital, wrote: "Truworths is being disintermediated by the banks in supplying credit and its merchandise is too expensive to compete with other retailers on a cash basis. This has resulted in the business being unable to increase its trading density in nine years, during a period where SA experienced an average inflation rate of 5%."
But Mark says it buys loyalty when it gives a customer their first chance at accessing credit, developing a financial profile which later allows them to buy a car or house.
As for the financial health of its customers, bad debt provisions have improved from 30% in June last year to 24% in December, though Engelbrecht believes the lower provision may be a little ambitious given the state of the economy.
Truworths says, however, that healthy accounts are heading to pre-Covid levels, while account application volumes over the period were close to record highs.
Overall, the group posted an 8.9% drop in retail sales, to R9.4bn, while its operating margin declined slightly to 20.5%.
While down on 2019’s payout, Truworths declared a dividend of 232c a share, thanks in part to a healthy cash balance of R1.6bn.
The perennial question of Mark’s successor also came up last week with the introduction of Sarah Proudfoot, who has been promoted to the new position of deputy MD.
But if shareholders wanted clarity that she is next in line as CEO, or perhaps MD with an outsider CEO, Mark was vague.
"She’s on her own journey. She’s on a journey of exploration, of personal development, personal growth. And obviously, we have very high expectations of her."
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