2024

INTEGRATED REPORT

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Material issues, risks and opportunities

MATERIAL ISSUES

Material issues are the factors that are likely to have the most material impact on the Group's revenue, profitability and sustainability, and therefore influence its ability to create and sustain value, or limit value erosion, for stakeholders.

MANAGING MATERIAL ISSUES

The material issues are reviewed annually by executive management by applying the following process:

IDENTIFY

factors that could have a material impact on the Group

DETERMINE

material issues

  • Based on the outcome of the identification process, determine the issues that are likely to have the most material impact on performance in the year ahead, as well as in the longer term
  • Strategic and tactical plans to address these issues are developed by executive management, and presented to and endorsed by the board
  • The material issues are aligned with the Group's Business Philosophy, strategic objectives, plans and projects
  • Measurable deliverables from the implementation of strategic plans and projects are incorporated into the performance targets for executives

INTEGRATE

material issues

  • Short and medium-term operational plans are developed annually for managing each material issue
  • Key performance indicators are determined to monitor the progress in managing the material issues
  • Risks and mitigation plans are outlined for each material issue
  • Medium-term opportunities are identified that highlight the potential to create value over a two to four-year time horizon

REPORT

on material issues

  • Report to shareholders and other stakeholders on the material issues in the Integrated Report, at bi-annual results presentations and in the Environmental, Social and Sustainability Governance report
  • Report to the board and board committees on material issues at quarterly meetings
  • Outline progress in delivering on the operational plans, performance against targets, and challenges impacting the material issues

MATERIAL ISSUES FOR 2025

Following the review of the material issues in applying the process outlined alongside, the material issues for Truworths and Office are unchanged for the 2025 financial year.

The material issues are as follows:

TRUWORTHS

Aspirational fashion

Supply chain

Account management

Retail presence

Human capital

OFFICE

Aspirational fashion

Supply chain

Retail presence

Human capital

MATERIAL THEMES

Material themes have been included in the Integrated Report to give shareholders insight into the major factors currently influencing management's decision making. While the five material issues detailed in this report are aligned with the Group's business and operating model, the material themes are more dynamic and reflect current retail trends and major macroeconomic factors impacting the business and strategic focus areas internally.

The material themes have been determined with reference to the main risks on the Truworths and Office risk registers, along with a detailed analysis of the macroeconomic environment and the main topics frequently addressed by investors with the Group's investor relations panel.

Ultimately, the material themes are management's view of the most pertinent factors affecting the Group in the reporting period, and are expected to be the most relevant themes in managing the business in the 2025 period.

1

Trading in the challenging macroeconomic environment

6

Managing disruption in the supply chain

2

Growing revenue, profit and shareholder returns

7

Attracting and retaining critical skills and managing succession

3

Managing the risk of fashion

8

Optimising retail presence

4

Managing inventory levels

9

Seeking and developing opportunities in a highly competitive retail landscape

5

Managing in-house credit risk

10

Managing data privacy and cybersecurity

1

Trading in the challenging macroeconomic environment

2

Growing revenue, profit and shareholder returns

3

Managing the risk of fashion

4

Managing inventory levels

5

Managing in-house credit risk

6

Managing disruption in the supply chain

7

Attracting and retaining critical skills and managing succession

8

Optimising retail presence

9

Seeking and developing opportunities in a highly competitive retail landscape

10

Managing data privacy and cybersecurity

MAJOR GROUP RISKS

The risk heat map is based on residual risk and focuses on 'moderate' to 'high' risks impacting the Group's operations. Accordingly, identified risks with a residual risk rating of 'low' are not included in the heat map.

RESIDUAL RISK REPORT REFERENCE       RESIDUAL RISK REPORT REFERENCE
Competition from global Asian online value-clothing retailers selling directly to consumers in South Africa Retail trading environment; Chief Executive Officer's report; Chief Financial Officer's report
1
 
7
Breach of cybersecurity could result in the loss of sensitive information and compromise customer privacy

Truworths Material Issue:
Account management;

Office Material Issue:
Retail presence

Managing the impact of the volatile Rand/US dollar exchange rate on retail selling prices of imported merchandise Truworths Material Issue:
Aspirational fashion
2
 
8
Electricity load shedding in South Africa impacting the ability to trade Truworths Material Issue:
Retail presence
Scarcity of specialist skills Truworths and Office Material Issue:
Human capital
3
 
9
Disruption in the local and international supply chain

Truworths Material Issue:
Supply chain

Office Material Issue:
Supply chain

Succession for key executives and senior employees Truworths and Office Material Issue:
Human capital
4
 
10
Increasing competition from online and traditional retailers could impact the sustainability of margins

Truworths Material Issue:
Aspirational fashion

Office Material Issue:
Aspirational fashion

Business interruption due to natural disaster resulting in loss of or damage to main business sites for an extended period

Truworths Material Issue:
Supply chain

Office Material Issue:
Supply chain

5
 
11
Suppliers not operating to contracted standards of ethical behaviour could result in interruption of supply and reputational damage

Truworths Material Issue:
Supply chain

Office Material Issue:
Supply chain

Management of credit risk in Truworths Truworths Material Issue:
Account management
6
 
12
Non-compliance with legislation and regulation could result in financial penalties, trading sanctions and reputational damage Governance creating value

Truworths

TRUWORTHS

ASPIRATIONAL FASHION

TRUWORTHS

SUPPLY CHAIN

TRUWORTHS

ACCOUNT MANAGEMENT

TRUWORTHS

RETAIL PRESENCE

TRUWORTHS: ASPIRATIONAL FASHION

MATERIAL THEMES

  • Trading in the challenging macroeconomic environment
  • Growing revenue, profit and shareholder returns
  • Managing the risk of fashion
  • Managing inventory levels
  • Seeking and developing opportunities in a highly competitive retail landscape

PERFORMANCE AGAINST PLANS

PLANS FOR 2024 PERFORMANCE IN 2024
Continue to drive sales growth in product areas where we are confident of growing market share, including in key under-represented categories
  • Good progress in certain key opportunity categories.
  • Growth initiatives were constrained by supply chain challenges and challenging macroeconomic conditions.
  • Growing product sales in categories where we are under-represented or below market share targets is an ongoing focus area of the merchandise teams.
Renew focus on creating differentiated and elevated product across all brands, with their own DNA
  • Ongoing review of DNA of each brand to ensure lifestyle differentiation and identify opportunities to further innovate and elevate product where necessary.
  • The wide range of unique brands continues to be a key differentiator of the business model and the buying teams utilise appealing external branding to increase the perceived value of the product.
Expand the presence of Fuel and continue testing Sync
  • Both Fuel and Sync performed ahead of management's expectations.
  • Product offering of both brands extended to include shoes, bags and accessories.
  • Continued expansion of store presence:
    • Sync store count 26 (2023: 19)
    • Fuel total store and department count 52 (2023: 49)
Add product extensions to ensure all appropriate fashion lifestyles are covered
  • Introduced products that complement existing ranges, such as lifestyle products aligned with the brands.
  • Product extensions introduced in new brands.
Continuous website and e‑commerce improvement in the areas of user experience, personalisation, product offering, payments, account management and order fulfilment
  • E-commerce user experience improved with continuous enhancements to the websites.
  • Communication enhanced to ensure customers are regularly updated on order delivery status.
  • Improved efficiencies have resulted in shorter delivery times for customers.
  • All product lines are now available on the website.
CHALLENGES ENCOUNTERED IN 2024
  • Global supply chain challenges resulted in the late delivery of imported merchandise which particularly impacted seasonal products, from November 2023 through to the early months of the winter 2024 season. The delayed delivery of imported fabrics and trims impacted the efficiency and viability of local manufacturers, creating further challenges in delivering optimal stock volumes and merchandise mix to stores.
  • Unseasonably warm weather stretching into late May and the late onset of the winter season negatively impacted sales of warm winter products such as coats, boots and knitwear.
  • Managing the impact of the volatility of the Rand on product pricing in the uncertain social and political environment ahead of the general elections in May.

2025

Plans for the year ahead

  • Continue to expand the presence of Sync and Fuel and introduce Fuel product into additional Truworths Man stores to further expand the reach of the brand.
  • Grow accessories and other brand-enhancing lifestyle products.
  • Implement changes to the buying process to focus on creativity and unique product development by brand.
  • Leverage the close working relationship between the buying teams and the internal design centre that has been enabled by housing the Truworths Africa Design Division in the head office.
  • Experiment with artificial intelligence (AI) applications across the merchandise development process.
  • Ongoing improvements on the e‑commerce platform, covering on-site functionality and customer delivery experience.

MEDIUM-TERM

Opportunities

  • Maximise replenishments and volume product opportunities to utilise the benefit of the integrated supply chain and new distribution centre.
  • Enhance quick response reactivity to rapidly increase volumes of fast-selling product lines and replace slower-selling lines.
  • Improve product mix and the level of 'fashion right' product through process, selection and system changes.
  • Integrate AI into the merchandise process, both in creative product development and enhancing analytical merchandise planning capabilities.

RISKS AND MITIGATION STRATEGIES

1

Managing the impact of the volatile Rand/US dollar exchange rate on 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.
  • Continue to seek opportunities to increase the local supply base and diversify the source of supply internationally.
  • Improved fabric and product procurement processes, including capitalising on economies of scale through the in-house design centre.
2

Competition from global Asian online value clothing retailers selling directly to consumers in South Africa and increasing competition from online and traditional retailers could impact the sustainability of margins.

  • Continue to invest in fashion intelligence capability through the in-house fashion studio to identify relevant fashion trends.
  • Continue to differentiate and elevate product.
  • Ensure high levels of customer experience through excellent, high-quality standards and consistent fits and sizing.
  • Continue to invest in own brands.
  • Leverage credit to facilitate sales to the target market.
  • Utilise local design capability and local supply base to manufacture quick response fashion.
  • Manage inventory levels to achieve terminal stockholding at the change of each season.
  • Balance local and international supply base to achieve optimal product mix.
  • Launch new retail store concepts and continue to enhance the online offering to create a seamless omni-channel experience.
  • Focus on merchandise categories where Truworths is under-represented to grow market share.

TRUWORTHS: SUPPLY CHAIN

MATERIAL THEMES

  • Growing revenue, profit and shareholder returns
  • Managing inventory levels
  • Managing disruption in the supply chain
  • Seeking and developing opportunities in a highly competitive retail landscape

PERFORMANCE AGAINST PLANS

PLANS FOR 2024 PERFORMANCE IN 2024
Continue to integrate design departments and standardise systems and processes to extract synergies and efficiencies across the Truworths Africa Design Division to increase speed to market
  • Integration and restructure of the Bonwit and Barrie Cline design houses completed and operates as an integrated ladieswear design and manufacturing capability for local production.
  • Initial efficiency benefits have been achieved and these will be further leveraged in the new financial period.
  • Speed to market improvements were hampered by delays in the delivery of imported fabric and resourcing challenges.
  • Training programme introduced for scarce, in-demand skills in the design and manufacturing area.
Complete the construction of the new distribution centre (DC) by November 2023
  • Building construction completed on time and within budget, with occupancy on 1 December 2023.
Commence the installation of the materials handling equipment in the new DC for completion by October 2024
  • Equipment currently being installed and testing will commence in the first quarter of the 2025 financial period with progressive operational implementation from November 2024.
  • DC planned to be fully operational by March 2025.
Continue to support selected strategic cut-make-trim (CMT) partners
  • Support for strategic CMT partners continued. In addition to financial support, plant and machinery and generators were also provided.
  • Backup power has resulted in reduced downtime during load shedding and improved efficiencies. However, efficiency gains were partially offset by delays in fabric imports that constrained production volumes.
CHALLENGES ENCOUNTERED IN 2024
  • The global shipping crisis impacted the Group's supply chain. This resulted in container shortages in China as vessels faced extended shipping times and routings around Africa to European and US markets, with a significant increase in shipping freight rates.
  • Supply chain challenges were compounded by the disruption at local ports due to infrastructure failure and operational inefficiency. These factors resulted in delays in the berthing and unloading of container vessels which were already experiencing extended delays.

2025

Plans for the year ahead

  • Complete the new DC to enable greater volumes of replenishment and part allocation of merchandise to stores, with testing commencing in November 2024 and the facility to be fully operational by March 2025.
  • Review merchandise volume opportunities to leverage the efficiencies of the new DC and optimise allocation of stock to best-performing stores.
  • Implement improved allocation techniques to best utilise the capabilities of the new DC.
  • Leverage internal design capability to improve ability to respond quickly to trading patterns through local manufacture.

MEDIUM-TERM

Opportunities

  • Increase efficiency of the combined warehousing and distribution operations.
  • Reduce distribution costs through road freight network optimisation.
  • Refine the part-allocation approach by product category.
  • Increase sales through the accurate and speedy replenishment by store.
  • Maximise the flexibility of the new DC to achieve the optimal balance of allocation types and picking methods available.
  • Relocate the raw materials from the separate warehouse to the larger and more efficient facility currently occupied by the main finished goods distribution operation in Epping.
  • Realise cost savings from the integration of the current separate DCs into a consolidated facility.
  • Enhance the disaster recovery capability of the DC.

RISKS AND MITIGATION STRATEGIES

1

Business interruption due to natural disaster resulting in loss of or damage to main business sites for an extended period.

  • All DC assets are adequately insured.
  • Fire and flood protection installed at all DCs.
  • Disaster recovery plans in place, with the current main distribution facility being retained as a backup to the new DC.
2

Disruption in the local and international supply chain.

  • Review supplier base to ensure the business has a well-balanced and sustainable range of suppliers across the wide range of product types.
  • Identify alternative sources of supply and diversify countries of origin where necessary to manage supply chain risk.
  • Continue to seek opportunities to increase local merchandise procurement to reduce reliance on imports.
3

Suppliers not operating to contracted standards of ethical behaviour could result in interruption of supply and reputational damage.

  • Truworths' code of conduct included in all supplier agreements and compliance with the code is monitored through an internal audit process.
  • Manufacturers are required to comply with ethical standards, labour, health and safety, and environmental legislation.
  • Legislative compliance audits are conducted as part of the new supplier enrolment process in South Africa.

 

TRUWORTHS: ACCOUNT MANAGEMENT

MATERIAL THEMES

  • Trading in the challenging macroeconomic environment
  • Growing revenue, profit and shareholder returns
  • Managing in-house credit risk
  • Seeking and developing opportunities in a highly competitive retail landscape
  • Managing data privacy and cybersecurity

PERFORMANCE AGAINST PLANS

PLANS FOR 2024 PERFORMANCE IN 2024
Improve the predictive power of credit scorecards through the use of additional data sources and new model-building techniques
  • Several credit scorecards were developed or refined to improve the predictive power in account management, including scorecards for new charged-off books.
  • Investment in new analytics technology has improved the scorecard development time.
  • Additional data used to improve scorecard accuracy.
  • New model-building techniques being evaluated.
Optimise customer acquisition process across channels
  • 8% growth in new accounts opened was achieved with a reduction in acquisition spend.
  • Improved targeting of prospective customers to reach those most likely to qualify to open an account.
Refine credit limit management decision service to balance short-term customer needs with customer life-time value potential
  • Further credit limit management strategies developed targeting growth in long-term account balances.
  • New strategies being monitored to assess impact on sales, revenue, bad debt and profitability.
Implement further strategies to improve customer payments, including new payment channels, timing of communication, and updated collections performance criteria
  • Project undertaken to improve customer payments, including review of customer communications, collections performance and targets.
  • Enhanced auto-dialer strategies to improve customer contact rates.
Refine alternative new account product
  • Alternative new account product adjusted and allocated to an increased portion of the account portfolio.
CHALLENGES ENCOUNTERED IN 2024
  • High interest rates and other cost-of-living pressures impacted the ability of customers to service their debt and pay accounts. Credit management strategies were adjusted to reduce exposure to higher-risk customer groups while maintaining strategies for customers where the payment performance has been more consistent.

2025

Plans for the year ahead

  • Enhance new account acquisition by focusing on the cost per opened account, leverage the loyalty base and extend the use of the alternative new account product.
  • Ensure consistent collections communications to customers in the appropriate channels.
  • Focus on customer value management to balance short-term sales with the long-term profitability of account customers.

MEDIUM-TERM

Opportunities

  • Optimise the customer acquisition process across channels to increase conversion rate and customer life-time value.
  • Significantly reduce the cost to service customers by integrating artificial intelligence (AI) assistants into all channels across customer and account engagement.
  • Manage the credit risk of the account portfolio to historical norms by balancing the trade-off between sales on the one hand, and bad debt and provisioning on the other, to increase profitability.
  • Focus on account rehabilitation for those customers in arrears but with a higher probability of payment.

RISKS AND MITIGATION STRATEGIES

1

Management of credit risk in Truworths.

  • Apply account risk criteria and processes consistently using advanced analytics, AI, machine learning, scorecards and models.
  • Review account management, collections and acquisition strategies regularly and refine these to leverage new data and predictive models.
  • Implement and maintain best-of-breed account management tools that accurately execute policies, processes and strategies.
2

Breach of cybersecurity could result in the loss of sensitive information and compromise customer privacy.

  • Ongoing improvement and delivery of cybersecurity prevention technologies and strategies.
  • Data privacy and cybersecurity training is mandatory for all employees and is supported by regular awareness campaigns.
  • Policy introduced to ensure information and data security through responsible use of AI to protect against business risks.
  • Cyber insurance cover arranged.

TRUWORTHS: RETAIL PRESENCE

MATERIAL THEMES

  • Trading in the challenging macroeconomic environment
  • Growing revenue, profit and shareholder returns
  • Optimising retail presence
  • Seeking and developing opportunities in a highly competitive retail landscape

PERFORMANCE AGAINST PLANS

PLANS FOR 2024 PERFORMANCE IN 2024
Trading space to be expanded by approximately 2%
  • Trading space increased by 0.9% (1.8% added due to new stores and expansions and 0.9% decrease due to closed stores and reductions).
  • 20 stores opened across all brands, 13 stores closed.
  • 18 stores expanded, consolidated, converted or relocated.
  • 802 stores at period-end (2023: 795).
R286 million committed to storedevelopment, including furtherbackup power solutions
  • R236 million (2023: R300 million) invested in store development.
  • R28 million spent on backup power solutions during the year, with 92% of South African sales protected by period-end.
Ongoing rationalisation and consolidation of space to improve trading densities, and close underperforming stores
  • 13 stores closed, including nine where the brand is now incorporated into the Truworths store.
  • Trading space reduced in five stores.
Implement the Emporium Re-imagined store concept to large-format Truworths stores in selected locations
  • First Emporium Re-imagined store launched in August 2023 with the opening of the remodelled V&A Waterfront store.
  • Concept implemented in a further three high-profile shopping malls during the period; Constantia Village, Canal Walk and Clearwater Mall. Cavendish Square opened shortly after period‑end.
  • Encouraging uplift in sales in stores following implementation of the Emporium Re-imagined concept.
  • Five large-format Emporium Re-imagined stores are planned for the 2025 financial period.
Continue to grow online sales contribution while enhancing fulfilment processes to reduce cost and delivery lead times
  • E-commerce sales increased by 34% and accounted for 4.9% of total retail sales (2023: 3.5%).
  • Enhanced fulfilment processes resulted in shorter delivery lead times, lower costs and improved profitability of the e‑commerce channel.
Improve the functionality of the online offering to match the services received in-store
  • Online functionality enhanced to align with in-store services, including opening a Truworths account and completing the affordability assessment online; account payment options as well as promotions and offers consistent with those available in-store.
CHALLENGES ENCOUNTERED IN 2024
  • Lower foot traffic in malls due to a combination of macroeconomic factors, including inflationary cost pressures adversely affecting consumer spending, higher fuel prices and the resultant increased cost of public transport, and high levels of unemployment which were particularly evident in the closure and downsizing of mining operations in the Free State and North West provinces.
  • Ongoing electricity load shedding negatively affected trade, although the situation improved significantly in the second half of the period with no power outages in the fourth quarter. However, several stores in smaller towns were affected by electricity being disconnected during trading hours due to local authorities not paying monies owed to Eskom.
  • Escalating service delivery protests resulted in the temporary closure of stores in affected areas for several hours, and in serious cases for a number of days, to ensure the safety of employees, customers and company assets.
  • Increasing incidence of damage to electricity substations resulted in certain areas being without power for extended periods, impacting trade in the nearby stores.

2025

Plans for the year ahead

  • Trading space projected to be expanded by approximately 1%.
  • R243 million committed to store development.
  • Implement the Emporium Re-imagined store concept in further large-format Truworths stores.
  • Ongoing rationalisation and consolidation of space to improve trading densities, and close underperforming stores.
  • Continue to grow online sales contribution while further reducing fulfilment costs and shortening delivery lead times.

MEDIUM-TERM

Opportunities

  • Ongoing expansion and remodelling of trading space.
  • Further roll-out of the Emporium Re-imagined concept.
  • Continued expansion of new store concepts and formats such as the Identity Megastore, Kids Emporium, Context, Sync and Fuel as opportunities arise.
  • Grow online presence to complement the physical store network and enhance the omni-channel experience.

RISKS AND MITIGATION STRATEGIES

1

Electricity load shedding in South Africa remains a risk to trading.

  • At period-end, 92% of South African store sales were covered by alternative power sources either installed by the business or provided by landlords; remaining stores are either not impacted by load shedding or have adequate lighting to continue trading offline.
  • R28 million spent in current period on backup power solutions.
  • Distribution centres equipped with generators.
  • Ongoing engagement with shopping centre owners to connect malls to central generators or solar installations.
  • Invested in generators for some local suppliers and manufacturers.

Office

OFFICE

ASPIRATIONAL FASHION

OFFICE

SUPPLY CHAIN

OFFICE

RETAIL PRESENCE

OFFICE: ASPIRATIONAL FASHION

MATERIAL THEMES

  • Trading in the challenging macroeconomic environment
  • Growing revenue, profit and shareholder returns
  • Managing the risk of fashion
  • Managing inventory levels
  • Seeking and developing opportunities in a highly competitive retail landscape

PERFORMANCE AGAINST PLANS

PLANS FOR 2024 PERFORMANCE IN 2024
Continue to diversify the brand mix
  • Expanded the brand portfolio with the inclusion of new branded footwear partners.
  • Continued to align buying patterns with the shift in the brand mix due to changing trends and customer brand preferences.
Ensure Office is at the forefront of fashion trends and is efficiently stocked to meet customer demand
  • Leveraged strong brand relationships which ensures better product access on best sellers, larger stock allocations and broader ranges to capitalise on trends and offer must-have footwear.
Grow the made-to-order (MTO) offering across ladies', men's and kids' ranges
  • MTO ranges had improved product handwriting and quality, with lower markdowns. Provided this continues, MTO sales contribution will increase in future years.
  • Close relationships with key suppliers and increased flexibility in the supply base to respond to customer demand.
  • Expanded the Earthaddict range within the ladies' MTO business
Focus on casual footwear and seasonality in the MTO offering
  • Improved sales of casual and seasonal footwear, particularly ladies' sandals.
Substantial progress in the design and development of a new merchandise management system for implementation in 2025
  • Project commenced and significant progress achieved in developing the design phase of the solution.
  • Implementation planned for the 2026 financial period.
CHALLENGES ENCOUNTERED IN 2024
  • Import delays caused by the shipping crisis impacted the availability of MTO ranges.
  • Shortages of supply of branded footwear ranges to meet high customer demand for key brands, particularly in the first half of the financial period.

2025

Plans for the year ahead

  • Continue to adapt the brand mix to align with the fashion cycle of the consumer.
  • Grow MTO sales and margin by continuing to improve product, quality and sourcing.
  • Further expand new brands and Earthaddict range across ladies and men's MTO ranges.
  • Continue development of the new merchandise management system for implementation in the 2026 financial period.

MEDIUM-TERM

Opportunities

  • Introduce new MTO product categories.
  • Grow men's sports and branded ranges.
  • Continue to source new footwear partners to expand the range on offer.

RISKS AND MITIGATION STRATEGIES

1

Increasing competition from online and traditional retailers could impact the sustainability of margins.

  • Continued engagement with brand partners to maintain and enhance brand relationships.
  • Continued focus on Office's core customer to strengthen point of differentiation and secure brand support and product allocation.
  • Continued focus on expanding MTO product ranges, including collaboration with Truworths' trend forecasting and buying teams.
  • Grow the store footprint in strategically important locations, supplemented by a best-in-class online offering to deliver a seamless omni-channel customer experience.
  • Implement improved online functionality and marketing communication.

OFFICE: SUPPLY CHAIN

MATERIAL THEMES

  • Growing revenue, profit and shareholder returns
  • Managing inventory levels
  • Managing disruption in the supply chain
  • Seeking and developing opportunities in a highly competitive retail landscape

PERFORMANCE AGAINST PLANS

PLANS FOR 2024 PERFORMANCE IN 2024
Extend lease on Kilmarnock warehouse and remodel facility to improve distribution efficiencies and lower costs
  • Lease on Kilmarnock warehouse extended by 10 years.
  • Warehouse remodelling project commenced, with storage and returns components of the project completed.
Implement express 'click & collect' service
  • Express 'click & collect' facility launched on Office and Offspring websites in October 2023.
  • Facility now available in all UK stand-alone stores.
Tender process to be undertaken for UK e‑commerce courier contract
  • Contract for e-commerce courier service completed on favourable terms.
Tender process to be undertaken for UK store distribution contract
  • Contract for store distribution service completed on favourable terms.
CHALLENGES ENCOUNTERED IN 2024
  • The instability in shipping resulted in delays in the delivery of the MTO product and the use of alternative shipping routes increased lead times and shipping costs, and impacted the reliability of service. This was partially mitigated by temporarily building additional shipping lead times into the buying process and moving a portion of the MTO production to European manufacturers.

2025

Plans for the year ahead

  • Continue with remodelling of the Kilmarnock facility to increase capacity and improve efficiencies.
  • Restructure operational processes to align with planned implementation of the new merchandise management and warehouse management systems.

MEDIUM-TERM

Opportunities

  • Initiate a project to implement a new order management solution to decrease costs and increase ability to offer alternative payment and delivery options to e‑commerce customers.
  • Implement outbound automation to reduce costs and increase capacity for handling e‑commerce customer orders.
  • Evaluate new courier management software integration to expand e‑commerce customer delivery choices to ensure lowest cost deliveries while meeting service expectations of customers.
  • Reinitiate the merchandise returns platform project.

RISKS AND MITIGATION STRATEGIES

1

Business interruption due to natural disaster resulting in loss of or damage to main business sites for an extended period.

  • Warehouse assets are adequately insured.
  • Fire and flood protection installed at warehouse.
  • Disaster recovery plans in place.
  • Improve systems and processes to increase inventory turn.
2

Disruption in the local and international supply chain.

  • Regularly review the supplier base to ensure Office has a well-balanced and sustainable range of suppliers across the MTO range.
  • Identify alternative sources of supply to manage supply chain risk.
3

Suppliers not operating to contracted standards of ethical behaviour could result in interruption of supply and reputational damage.

  • Apply and monitor adherence to anti-corruption and bribery policy.
  • Suppliers required to accept working practices in the Office Code of Ethics and Good Business Practice.
  • Ensure adherence by suppliers to Modern Slavery Act statement (available on Office website).
  • Implemented controls to attempt to safeguard against tax avoidance in the supply chain in line with legislation.

 

OFFICE: RETAIL PRESENCE

MATERIAL THEMES

  • Trading in the challenging macroeconomic environment
  • Growing revenue, profit and shareholder returns
  • Optimising retail presence
  • Seeking and developing opportunities in a highly competitive retail landscape
  • Managing data privacy and cybersecurity

PERFORMANCE AGAINST PLANS

PLANS FOR 2024 PERFORMANCE IN 2024
Maximise the store portfolio by securing tenure in the best locations at affordable occupancy costs
  • Continued to reinvest in modernising and selectively upgrading and expanding the store estate.
  • Secured longer rental tenure in most strategic locations.
  • Lease renewals generally five years or 10 years, with a break clause after year five.
Trading space planned to increase by approximately 10% and capital expenditure of £3.8 million committed to store development
  • Trading space increased by 11.4% over prior period-end.
  • Opened eight and closed three stores.
  • £6.5 million capital expenditure on store development.
  • 86 stores (2023: 81), including 11 concessions (2023: 11) at period-end.
Capitalise on new store opportunities, with the planned opening of three new stores (including a new flagship Offspring store in King's Cross, London) and three store relocations
  • Six new Office stores opened.
  • One 'pop-up' Office store temporarily opened in Nottingham prior to the opening of the Nottingham store in the 2025 financial period.
  • Flagship Offspring store opened in King's Cross, London.
Apply the new store design in modernising up to 10 stores
  • Three Office flagship stores modernised.
  • New store design concept applied to all new and modernised stores.
  • New and modernised stores trading ahead of expectations.
Identify opportunities to increase trading space in existing stores
  • Trading space increased in modernised stores by regaining space from larger-than-required stock rooms and converting this into retail space
Complete the implementation of the new customer relationship management (CRM) system
  • Implementation of CRM application completed early in the reporting period.
  • Enhanced communication and segmentation driven by the application has significantly improved customer retention rates.
  • Introduced chatbot as first line of customer contact.
CHALLENGES ENCOUNTERED IN 2024
  • The rental market has become more competitive and securing sites in key locations is more challenging due to increased competition for space and higher rates. While rental agreements are not as favourable as the post-COVID years, there are still attractive opportunities available. Lease negotiations in certain prime locations have become more challenging. However, the brand strength and strong financial position have contributed to Office being in higher demand as a tenant.
  • The national minimum wage increases for the past two years have created cost pressure on store payroll costs.

2025

Plans for the year ahead

  • Maximise the store portfolio by securing tenure in the best locations at affordable occupancy costs.
  • Trading space planned to increase by approximately 11% (new stores and optimising existing store space).
  • Capital expenditure of £7.3 million committed to store development.
  • Capitalise on new store opportunities with the planned opening of four new stores, relocation of three stores and the closure of one store.
  • Apply the new store design in modernising up to 12 stores.
  • Upgrade existing Office mobile app to enable personalised communication with targeted customers.
  • Develop a new mobile app for Offspring with similar functionality to the Office mobile app.
  • Develop next phase of chatbot and integrate with digital carrier.

MEDIUM-TERM

Opportunities

  • Maintain the profitability of the store portfolio through efficient lease management and taking advantage of new opportunities for additional stores and the redevelopment of existing space.
  • Improve customer retention through personalised and relevant communication and offer key customers priority notifications of new products and promotions.
  • Implement an optimisation champion-challenger framework to improve marketing efficiencies and profitability.

RISKS AND MITIGATION STRATEGIES

1

Breach of cybersecurity could result in the loss of sensitive information and compromise customer privacy.

  • Ongoing improvement in delivery of cybersecurity strategies.
  • Compulsory General Data Protection Regulation (GDPR) and Payment Card Industry Data Security Standard (PCIDSS) training provided to all employees.
  • Adherence to GDPR and PCIDSS in line with legislation.
  • Amended contracts with third-party suppliers who process data on behalf of Office to incorporate GDPR adherence.
  • Data privacy and cybersecurity training is mandatory for all employees and is supported by regular awareness campaigns.
  • Policy introduced to ensure information and data security through responsible use of AI to protect against business risks.
  • Regular penetration testing to identify and rectify vulnerabilities.

 

HUMAN CAPITAL

HUMAN CAPITAL

MATERIAL THEMES

  • Growing revenue, profit and shareholder returns
  • Attracting and retaining critical skills and managing succession
  • Seeking and developing opportunities in a highly competitive retail landscape

PERFORMANCE AGAINST PLANS

PLANS FOR 2024 PERFORMANCE IN 2024
Progress the phased succession plan for top management and senior executives
  • Phased succession planning continued with leadership interventions aimed at preparing designated key individuals for top and senior leadership roles.
  • Recruitment for key leadership positions remained a priority, with the implementation of an employment equity strategy linked to succession.
Monitor reward structures and retention mechanisms for scarce and critical skills in Truworths and Office
  • Owing to the ongoing challenge of attracting critical skills in key areas of the business, a focus has been placed on recruiting trainees and upskilling and fast-tracking them into areas where critical skills are lacking and difficult to find.
  • Reward structures were reviewed and benchmarked for Truworths and Office, and adjustments made where necessary. However, pressure on salaries remains a challenge as employers in South Africa compete for talent.
Extend performance reward strategies for top talent in Office and extend training programmes for critical skills in Office
  • Short-term and long-term performance-based incentives were extended to more senior staff.
  • Introduced the CEO Citations recognition programme and an incentive programme for store staff.
  • Further reward and talent interventions included the extended use of performance-based tools, leadership development, conducting an employee climate survey and introducing a people project to improve the culture in Office.
Increase focus on diversity, equity and inclusion, aligned with the Value of 'embracing the power of inclusive teams'
  • Diversity, equity and inclusion project initiated to create a culture where all employees feel a sense of belonging and feel included.
  • Introduced diversity training to identify unconscious bias, starting with top management and extending into the rest of the business.
Focus on transformation and create opportunities for black and female employees to feel empowered to succeed, and for females to feel supported by the business
  • Women empowerment project introduced to develop female leaders. This has contributed to an increase in female representation at top management to 30.0% (2023: 27.3%).
  • Initiated a drive to develop and fast-track top talent from designated groups to prepare them for career progression.
  • Black top management representivity has improved to 20.0% (2023: 18.2%).
  • B-BBEE rating level 4 (2023: level 5), with improvement on B-BBEE scorecard to 82.64 points (2023: 75.56).
Ongoing focus on aligning the human resources processes of Office with those of Truworths
  • Migrated Office employees onto the same human resource and payroll system as Truworths.
  • This change has necessitated the alignment of people management processes in Office with those of Truworths, including recruitment and on-boarding of new appointments.
CHALLENGES ENCOUNTERED IN 2024

Truworths

  • Attracting and retaining scarce and critical skills remained a challenge. The pressure on remuneration remained a concern in the constrained macroeconomic environment.
  • Access to skills for the Truworths Africa Design Division remained a concern and a key focus was on in-house training to develop skills.

Office

  • Retaining critical skills was an ongoing challenge, with pressure on employers to pay higher salaries despite the easing of inflation in the UK. Flexibility in the UK remains a challenge.

2025

Plans for the year ahead

  • Phased progression of succession plan for top management and senior executives.
  • Continued focus on diversity, equity and inclusion.
  • Continued focus on transformation and create opportunities for black and female employees to feel empowered to succeed, and for females to feel supported by the business.
  • Ongoing focus on aligning the human resources processes of Office with those of Truworths.
  • Implementation of a cloud-based workforce management system in Office.

MEDIUM-TERM

Opportunities

  • Implementation of a cloud-based workforce management system in Truworths.

RISKS AND MITIGATION STRATEGIES

1

Scarcity of specialist skills and succession for key executives and senior employees.

  • The Group executive leadership team is supported by seven directors and 10 divisional directors in Truworths and one director and four divisional directors in Office, with an average length of service of 20.6 years.

 

2024

INTEGRATED REPORT