Mr Price Group Limited is an omni-channel, fashion value retailer.
Mr Price Group's corporate history began in 1885 with the opening of the first John Orrs stores. The history most relevant to the group's current operations began in 1986 with the Founders, Laurie Chiappini and Stewart Cohen.
The Group retails apparel, homeware and sportswear through owned and franchised stores and online channels in Africa and Australia. Merchandise is predominantly own-branded and targeted at younger customers in the mid to upper LSM categories.
Our business model is synonymous with offering fashionable merchandise at "everyday low prices".
How do we satisfy our customers’ need for fashion?
Specialist trend teams, frequent international travel and thorough research
Active dialogues through social and digital media
Responding to customers’ changing fashion needs
Product testing before making significant merchandise commitments
Slow moving merchandise cleared to make way for fresh, new merchandise
The value model is at the very core of the group’s existence. Being a value retailer means lower markups and selling higher volumes in order to offer "excellent value".
Increasing sales + low overhead structure = acceptable operating margins
Quality and fashion offered at the best price
Lower mark-ups in order to offer “everyday low prices”
Maintain balance by incurring costs for future growth, often ahead of revenue generation
Large order quantities and higher sales volumes to keep input prices low
Retail predominantly own-branded merchandise
Remaining a cash-driven retailer with cash sales > 80% of total sales
A high cash sales component means:
Less impacted by the cyclical nature of retail
Not dependent on credit to drive sales, particularly during poor economic times
Less exposed to bad debt
Able to fund future growth without incurring debt
Strong cash flows will support future growth and maintain an appropriate dividend payout ratio.
The group is focused on maintaining and entrenching its fashion value position in the markets in which it operates. Its goal to remain a cash-driven retailer is borne out by its seven year strategic plan.
The group’s next growth phase will be driven by:
• the continued search for well positioned trading locations;
• expanding high trading density stores and extraction from unprofitable space;
• internationalisation of the business, initially via Africa; and
• engaging customers via alternative communication channels.
These initiatives will require us to increase our investment in information technology systems, supply chain processes and people development, which will all produce significant efficiency gains and added value.
The sustainability journey
Sustainability is important to the group’s long-term prosperity. It has arisen from the need to ensure it continues to prosper within an increasingly pressurised and volatile external environment, by developing appropriate competencies and capacities. The sustainability journey has helped the group gain a deeper understanding of the environment in which it operates, clarifying the specific internal and external issues most critical to long-term sustainability.
The board has acknowledged the alignment between the group investing its resources in a manner that south will set the foundation for long-term sustainable growth and financial return for shareholders. In so doing, the retail industry, the broader community and the environment will all benefit, while the group will aid in achieving certain South African national priorities. Although the sustainability journey, with its broader and more formal framework, has brought about fresh thinking, it has confirmed the belief that a long-term focus is well entrenched in the business. This is mainly due to the group’s strategic planning process and the identification of key imperatives – factors that must be successfully addressed for the group to achieve its goals. The next step in the process will be to report targets and measurement indicators for key sustainability issues.
This past year was disappointing. We had anticipated it was going to be very difficult and it certainly was, with multiple headwinds in a stagnant environment as detailed in the CFO’s report. This was exacerbated by us not adequately executing our formula of great fashion and quality at excellent prices in the mrpApparel division and this had the greatest impact on our group’s performance.
The difficult environmental made the Miladys turnaround substantially harder, particularly affecting the division’s first-half performance. The other four divisions – mrpHome and Sport, Sheet Street and mrp Money – all delivered satisfactory results, with good margin and overhead control offsetting muted sales growths. In mrpApparel, a lot of work has been done to re-establish the fundamental success factors of delivering on our business formula. I am pleased with the progress made and look forward to significantly improved results despite the outlook for the retail landscape remaining unfavourable.
Re-focusing Miladys back on its core customer is now well underway and positive momentum is building. mrpHome, Sheet Street and mrpSport are anticipating muted demand as their market segments are more discretionary. Nonetheless, with continued sound execution, they are expected to deliver positive performances. The financial services division mrpMoney will find some of its growth curtailed by the unnecessarily punitive credit regulations affecting the opening of new accounts. Despite this, we anticipate maintaining our industry-leading performance.
BUILDING FOR THE FUTURE
Whilst we have had a disappointing year, we are confident of re-establishing our previous market positions. We continue to invest in our people, systems, infrastructure and supply chain and do not see these as isolated interventions, but ongoing necessary investment to achieve our vision of being a top-performing international retailer. We have made good progress on all of the above this past year. We are also committed to growing our business in new markets. External factors have set us back in many of the African countries we have entered, but we are taking a long-term view and are determined to find solutions to enable the opportunities that exist. The mrpApparel test stores in Australia have performed below expectations. Whilst the Australian retail sector has been very soft, our own product execution issues certainly played a large role in not meeting expectations. With a better offer and more appropriately sized stores, we hope to see improved results.mrpHome’s test store in Australia gave us good insight on what appeals to those customers and the assortment is being rebalanced accordingly.
We strongly believe in real transformation beyond just scorecards; sharing the success of the business with all associates and not just with a select few. Our work with the youth has continued to achieve outstanding success. It has uplifted schools; prepared young people to enter the job market and enabled young people to directly secure retail jobs in both our group and other retailers, as well as in our supply chain. Our involvement in the Sustainable Cotton Cluster had a setback last year, because of the drought’s severity across South Africa. Consequently, we were unable to meet our targeted cotton uptake. However, we are pleased this is now back on track and our goals are even more ambitious, expecting to create over 2 600 jobs through the cotton value chain.
We believe conditions in South Africa will remain difficult and, depending on certain political
outcomes could even deteriorate.It is unfortunate the emerging positive feelings evident at the beginning of the year were quashed overnight. However, there are opportunities for us to perform better and both regain market share and continue our previous growth path. In closing, I express my ongoing admiration for the amazing people we have in our business. These setbacks and difficult times have not dampened their spirit; instead, I have seen an even greater resolve to excel.
The Mr Price Group culture has always been to retain a long-term view, to resist complacency and to strive to be better tomorrow than we were yesterday. We are thus bitterly disappointed to have broken our16 year
history of uninterrupted profit growth. We signalled last year that we anticipated tough trading conditions as the worst drought in a century contributed to a slowing South African economy, and our other African markets faced their own challenges.
All of this at a time when the retail environment globally is undergoing significant change, to which we are not immune, and for which we are actively positioning ourselves via significant capital investment into our people, our stores and customer experience, our brand, information systems, supply chain and distribution centre. What we did not anticipate was the South African economy tipping into recession, the triggering of ratings downgrades and much greater currency volatility. South Africa desperately needs political leadership and the implementation of economic policies that will provide the certainty required to attract investment, grow the economy and create jobs, to the benefit of all. In response to our performance, the board has re-evaluated the foundations of the group and has found them to be firm. We have recommitted ourselves to our vision, our dreams and our beliefs. The strategic, operational and financial reporting by CEO Stuart Bird and CFO Mark Blair confirm that our business model remains appropriate and has produced record cash flows, enabling us to invest for the future whilst maintaining our 31-year record of maintaining or growing our dividend.
Our resilience has allowed us to ride through several tough business cycles in the past and will do so again. Management has implemented improvements in the two business units that underperformed, the early results of which are encouraging. Whilst extremely painful at the moment, we believe that the future will assess this year as a pause for breath, after a period of rapid growth, in the long-term journey to which we remain committed. We like to win, and we know how to, as evidenced by our world-class return on equity. We remain focused on providing great value to our customers, indeed we exist to add value to their lives.
The board believes that the group’s remuneration structures, as detailed in the remuneration report, remain appropriate and that they have been fairly applied during the past year. We are pleased that the vast majority of our management and staff have a beneficial stake in the company. Our partnership model has proved itself over a number of years to add value not only to our people but also to the company and its shareholders, the epitome of inclusive economic growth. Gains of approximately R1.5bn over the past five years by associates who participated in our General Scheme may be used to fund education, purchase a home or boost their
The MRP Foundation continues to make a meaningful impact, as evidenced by the 350 000 scholars and 22 000 job trainees who have been impacted by our programmes, which are increasingly being delivered in partnership with other companies and foundations. Education, job creation and sustainable businesses are the foundations of a successful society.
We are fortunate to have a very experienced, diversely skilled board of directors passionately
engaged in the business, whose wisdom and insights will help the group not only to achieve our short-term performance objectives but also to realise our vision to become a top performing international retailer.
I am profoundly grateful to my colleagues on the board for their commitment and for the sound judgement they bring to our deliberations. We welcomed Mark Bowman during the year, and have already been enriched by his contributions. We regret the departure of some of our American shareholders this year, but understand that our performance and the weak rand to US$ drove their decisions. We are excited to welcome a number of new shareholders, specifically South African value investors, and will work hard to justify your confidence in our prospects.
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