Truworths and Edgars Don't Sell Clothes
Originally published on Twitter/X on 4 December 2023.
Truworths And Edgars Were Never Clothing Retailers
They were more like banks with a side business of selling clothes.
Understanding how to identify this can help you save your business from sudden failure and find your biggest opportunities!
Let’s unpack!
People tend to describe companies based on the products they sell. E.g. If I sell paint, I am a paint manufacturer. The problem is sometimes the visible product or service is not actually what drives the economics of the business.
For example, Meta (Facebook) is described as a social media company but in reality, it is an advertising business that owns a social network.
If Facebook was popular but couldn’t run ads it would be in trouble since 97.5% of its revenue is from advertising.
To truly understand the business you are in, it is essential to analyze why customers choose to purchase your goods and services.
In other words, what problem are you solving for your customers?
To analyse Edgars and Truworths' business let's go back to 2013 when both companies were doing well.
In 2013, Edgars' revenue was $68m, of which 72% was on credit while Truworths had revenue of $25m of which 75% was on credit. Those are very high ratios of credit sales.
Compare that with the clothing retailer Mr Price in South Africa whose credit sales are only 12.7% of revenue.
Those numbers make you wonder if Edgards and Truworths were selling clothes on credit or selling credit for clothes i.e. a bank with a clothing division.
Combined Truworths and Edgars receivable balance, which represent credit/loans extended to customers was $30.7m ($22.8 +$7.9m).
In comparison Barclays, which was one of the biggest banks in the country had a personal lending balance (loans to individuals) of $19.8m.
Even if we just took Edgars alone, they were extending more credit to individuals than one of the top banks in the country 🤯.
Edgars also had more credit accounts (198k) than the entire microfinance industry (150K) & would be the equivalent of 20 Microfinance institutions.
I understand why Edgards and Truworths facilities were so popular.
Access to credit from banks is incredibly low in Zimbabwe.
In fact, let's run a poll to check.
Have you ever gotten a personal loan from a Zimbabwean bank e.g. car loan, credit card, mortgage etc?
So considering how hard it is to get credit no wonder 198k people had accounts at Edgars and 75k at Truworths.
This means the real problem these companies were addressing was not so much clothing but lending.
What are the implications of this?
Well, the clothes needed to be decent but to some extent, if you had average clothes and average pricing it didn’t matter as long as you had a great credit facility.
Now imagine you have average clothes and average pricing but NO CREDIT FACILITY.
Well, no need to imagine, that's what happened when Truworths suspended credit.
The result.
Sales volumes dropped 45%.
For Truworths customers, when credit was suspended it must felt like going to the bank for a loan and the loan officer says
"Sorry I can't give you a loan but I can sell you this really cool t-shirt for $15."
Disappointing.
This is why I think if the environment remains the same where Truworths and Edgars struggle to extend credit they are going to have a tough time.
No business model focused on selling clothes without credit can compete with informal traders' selling $20 suits.
So what is the lesson in your own business?
Have a very good understanding of what value you are adding that is attracting your customers and fight to keep improving on that.
If your customers love your low pricing. Don’t waste too much time on fancy customer service just focus on being cheap. Mohammed Mussa comes to mind.
It may not be the best shopping experience but people keep going back because of the low prices.
Globally the best example may be the airline Ryanair.
They are known to have really bad customer care.
Despite this, they are one of the most successful and profitable airlines because their tickets are so cheap.
I am not advocating for bad customer service but I am saying know what drives your business and focus on that.
E.g. big spending on new designs, store formats or brands is not going to save Edgars & Truworths in the short term but credit could (environment permitting).
Of the two companies I think Edgars seems to be better placed to turn things around.
They still offer some credit & are backed by Sub Sahara Capital Group which seems to have 💰 to spend judging by how quickly they swooped on Metro Peech & Browne. (see thread👇for more)
https://twitter.com/tmukogo/status/1724445575662489630?s=20
On the other hand, Truworths' biggest shareholders are Truworths International and Mega Market. Truworths Int. won't be of much help and so it will probably depend on how much Mega Market is willing to back Truworths. (see thread👇for more)
https://twitter.com/tmukogo/status/1728794327751794841?s=20
Let's see what happens next but for now, without the ability to give significant credit the $20 Suit Mafia will win the day.
As always I could be missing something in my analysis so please leave a comment & let me know what you think?
Opposing views are encouraged!
If you found the above interesting you definitely should read the previous thread as well.
See below. Thanks!