Making of a Mark at Truworths
bdlive.co.za - Aug 27th 2014, 11:09
It will be the end of an era at Truworths when Michael Mark, one of the longest-standing and most successful CEOs of a JSE-listed company, steps down at the end of next June.
Mark has spent 23 years at Truworths, building it up to a point where it now has some of the most revered metrics in the business: an operating profit margin of 34.5% and a return on assets of 46% are among the best in the world.
This will make it tricky for his successor to improve on the R30-billion group’s successes.
This week, Truworths posted results that were greeted by the biggest rise in share price in five years. The price rose 8.14% to close at R71.05 on Thursday, more than halving its drop for the year to 7.4%, and contrasting sharply with the woes of the food retailers (see story above). The stock rose a further 4.4% on Friday.
The cold numbers showed that for the 52 weeks to June 29, Truworths retail sales climbed 6.8% to R10.8-billion. Net income was little changed at R2.41-billion, which was better than analysts had expected.
Little wonder the board wanted him to stay for three more years, but Mark (62) said no thanks. He said it was not about his desire to retire and play golf; rather, it would be good for the business for someone new to take the helm.
This is likely to revive the debate about how long a CEO should stay on. In the US, five to seven years is seen as a good length of time, but Mark said it depended on circumstances.
“I’ve never felt I wasn’t able to contribute, or lacked the drive, vision, imagination, or enthusiasm to experiment with new ideas to move the company forward and face the future. I would like to believe the board and shareholders feel the same way.”
A strict rule, he said, would not work.
“I don’t think there’s a norm — look at Whitey Basson [of Shoprite]. He is a superb retailer in his field. But others could stay and hold a business back.”
What makes Mark something of a guru, said independent retail analyst Syd Vianello, is that for two decades he read the fashion right, delivered superior performance, “and managed his cost base far better than anyone else in the industry”.
While others might have been kicking back at beach houses, insiders say Mark, who lives in Cape Town, could often be found trawling Truworths stores at weekends. He is known as a workaholic who runs a tight ship but shies away from the media spotlight.
Unlike many other top brass, Mark holds no other directorships, preferring to focus on the Truworths DNA.
In recent years, however, it seemed Truworths was flagging. Its profit growth slowed to just 8% last year, and just over 1% this year. Rivals like Mr Price and Foschini appear to be flying higher.
For years, analysts have raised concern about Truworths being particularly vulnerable to the growing number of international companies in a brand-hungry and aspirational consumer environment.
Mark, predictably, does not agree. “Whoever says that doesn’t understand the customer. I agree that South Africans are avid consumers and love brands, but our market research says they love our brands and see them as international,” he said.
“I don’t agree that overseas brands will damage ours if we stick to our DNA. We run an aspirational business offering high quality yet commercially priced fashion and ensuring our brands are accessible to the mass middle class South African through the provision of credit.”
Nevertheless, Shane Watkins of All Weather Capital said, “To be price competitive in SA it is going to be increasingly important to be a player on a global scale in terms of sourcing merchandise. Woolworths have recognised this, hence their Australian acquisition.
“Mr Price is already there in terms of sourcing. In this regard, I think Truworths is strategically disadvantaged.”
Mark conceded that foreign retailers had upped their game, but said this had not eaten much into Truworths’s market.
“Our DNA is hard to copy because of our unique well-known brands, our prime anchor positioning in the malls and the amazing knowledge we have of our customers’ behaviour through our database and sophisticated technology.”
There is also the fact that more than 70% of Truworths sales are on credit, leaving it exposed to the fragile consumer, juggling loans and store accounts. However, Mark said offering credit was an advantage, making for a closer customer relationship and enabling people who could not otherwise pay for goods.
As long as Truworths keeps a lid on bad debt, shareholders will be placated by this.
As for who will fill his shoes, Mark said, “He has to be different from me. I inherited a business making R60-million profits and it now makes in excess of R3-billion. I see Truworths going to new heights -within southern Africa and much further afield.”From DFM Publishers (Pty) Ltd
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