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Cape Union Mart
March 2014

How a mom & pop store

became a major chain

Fifty years ago, when asked to identify a typical mom and pop store, Capetonians would most likely have pointed to the Cape Union Mart store, nestled between the huge OK Bazaars and Woolworths headquarters.

Here, customers would feel right at home, rummaging through the clothing and gear, from anchors to toothpicks, stacked on rustic shelves, because they were assured of personal service.

Nowadays, when asked to identify a world-class, cutting-edge, South African retail chain, consumers will most likely name Cape Union Mart. The stores, and spin-offs Poetry and Old Khaki, are now found in most shopping malls ... but still aim to create that at-home, personalised shopping experience.

How did this mom and pop store become a leading retail chain, carrying the top brands, over an 80-year period, when many other independents closed their doors?

Current chairman Philip Krawitz, the founder’s grandson and namesake, is a raconteur who explains business and personal philosophies with parables that provide fascinating answers to the question: how did they bridge the gap between a single army and navy type store to a 140-plus store empire, which employs 2,000 people, and achieves double-digit growth every year?

For the first 50 years, the Krawitz family owned one store. By 1990 it had grown to eight, and at the turn of the century they had 18 stores. Then the floodgates opened. In the past two years they’ve opened something like 20 new stores across the three brands — in the last quarter of 2013 they opened ten new stores, and another ten opened in the first quarter of 2014. And there’s more to come.

In 2011 Krawitz appointed Andre Labuschagne, a CA with extensive retail experience, as CEO, while he became chairman. “I wanted to bring in some fresh thinking, without losing the company’s sense of family. We needed an entrepreneurially-minded person who had a very strong track record in retail, who was passionate about a family-like business culture, and who was equally committed to the notion of leaving a legacy of doing good business.”

While they previously mainly opened stores in shopping centres in cities, Labuschagne saw new opportunities in smaller towns — and was proved right by the success of their new Cape Union Mart stores in Brits and Upington.

While he believes this expansion into smaller towns works well for a general outdoor store like Cape Union Mart, the population of smaller towns does not always warrant the expansion of specialist stores like Poetry and Old Khaki.

Poetry, which they aim to make the favourite store of the sophisticated lady, and the Old Khaki brand stores, were the brainchild of creative director Ken Lazarus “He is our ideas guy, delightfully nutty, a creative genius,” says Krawitz.

Launched in 1999, the Old Khaki leisure brand became so popular that it now has more than 40 stand-alone stores. The first Poetry store, launched in 2008, has grown to 20.

The beauty of the Old Khaki and Poetry stores are that they are small, and therefore in high demand by shopping centre landlords who often need to fill the space vacated by small stores that closed down, says Labuschagne.

Opening new stores in close proximity to existing ones don’t affect foot traffic, he found — but, not having a presence in a new shopping centre, will affect sales. “Retailers always overestimate the effect of cannibalisation, but underestimate the effect of a new shopping centre opening,” he says. “The shopping centre is the destination — if you’re not there, you can’t draw the shoppers.”

For a single store to become a destination requires something extraordinary, says Labuschagne … like the huge Canal Walk Adventure Centre, which became a destinational store because it offers a truly unique shopping experience, as well as family entertainment.

Trading in recession

While most South African retailers look back on 2013 as a very tough year, they are optimistic about trading conditions, especially since South Africa has a growing population whose salaries are increasing, creating a better educated middle class, with aspirational values.

Trading in a recession actually has several benefits, says Krawitz, citing their Triple-S strategy. In a recession they:

• find the very best staff because in boom times you have to compete very hard to find decent staff;

• look at stores — where a store is closing down, open a new store and negotiate good rentals;

• put the right structures in place — this is the time to fix and upgrade your systems

“So, a recession is actually a very positive time for us, because we open a lot of stores, employ some absolutely brilliant people — we have better people now than I recall having in any other time in any category — and we’ve got better systems in place than ever before.”

That is why they outperform their competitive peers, he says: even though they are a private company, they can compare their performance to the listed companies and see that they are ahead in turnover and profit growth.

“In a recession people never stop buying, but they want value,” says Krawitz. “The heart of Cape Union Mart, Poetry and Old Khaki, is Value with a capital V. The garment you buy today must look good over the next five years. Our garments are not going to self-destruct, will not lose waterproof ability, will not curl up, and the seams will not come adrift. “

Optimism in diversity

“South Africans talk ourselves into a depression,” he adds. “This country is too good to fail, no matter what government we have in power. One of the greatest strengths of South Africa is our diversity.”

The same applies to the company, where a diverse group of people are employed. “That diversity has enabled us to handle tough times pretty well by having some damn good arguments,” says Krawitz, who has a sign that proclaims: If two people around the table agree, one of them is unnecessary. He encourages constructive disagreements because the dialogues lead to better conclusions.

He cites the PAEI Method, developed by prof Ichak Adizes of California, as an example of the four archetypal types of characters needed for a business to function at its best: P = the producer, the guy that gets things done on time. “He’s the engine driver, but like the driver of a train you’ve got to point him in the right direction to get him to the right station.”

A = the accountant, who wants everything done precisely and correctly. E = the entrepreneur. “He is your dreamer, full of ideas, who lights fires all over the place.” I = the integrator, or a human resources type of person “who’ll wait for everybody else to put up their hands before they vote.”

Unless you can get those four types of people into a similar space and create conflict, your company will be dead, says Krawitz. The leader’s role is to build a team.

“After 43 years I learnt something very important: the smartest thing in business is to realise you are not the smartest guy in the realm. Rather employ people who are much smarter than you and ensure that they play nicely together.”

At Cape Union Mart it is Labuschagne’s job is to make sure that “the brilliant people we employ play nicely together”.

Local manufacturing

Another strength is that they are one of the few retailers who started manufacturing locally by opening their own factory. And despite the job losses suffered by many other local manufacturers, they are proud that they never needed to retrench an employee.

“Our factory has grown enormously and we turned out close to 450 000 garments in this financial year — high value, highly technical garments,” says Krawitz. “We are producing better garments than what you will find in any other factory in the world.”

The greater flexibility and speed to market offered by their factory gives them a competitive edge. But, raw materials are a challenge, he admits and says “it is absolutely ridiculous that at this stage South Africa still has high import tax on textiles that are not available here.“ It’s essential that any fabric not produced locally should be imported duty free.

“We have the ability to create quite a viable manufacturing market here,” adds Labuschagne — provided we get the supplies.

While the K-Way factory has already doubled in size, it is not impossible that it will double again in five years’ time, they predict. Over the years they received a number of awards — most recently,for their commitment to best practice in world-class manufacturing as part of the government’s Clothing and Textile Competitiveness Improvement Programme.

Future is online

While he strongly believes that the South African online shopping experience still makes it much more attractive for shoppers to rather visit a mall, Krawitz also believes that the shopping behaviour of South African consumers will change in the future.

For example, they will make decisions about what to purchase, and who to purchase it from, before entering a store. “They will go online and decide what they need, and where they will get the best price, without the need for a half-trained shop assistant to tell them what they should buy.”

They have already anticipated and addressed some of the other digital age challenges.

No store in a chain will ever have every style, every colour and every size in stock — but, some store in the chain is bound to have the exact item a customer is looking for. By going online, a shop assistant can find the item in another store and have it delivered.

Shopping experience

A successful retailer must create a pleasant shopping experience. “We want to have the most beautiful stores, and therefore we revamp existing stores before they are no longer the most beautiful. We want to create unequalled shopping experiences in all our stores,” says Krawitz.

They aim to have the most knowledgeable and friendly staff, who offer exceptional service. Labuschagne introduced a mystery shopper programme to ensure that the shopping experience in all their stores is as good as they expect. The stores are scored with, and without, the taped video evidence — which is also shown at the annual conference to demonstrate good and bad practices. “They must be on their toes all the time,” he says.

“Our test of exceptional service is when a customer turns around to the sales person and say: gee, you didn’t have to do that. We’ve got guys who’ve driven 100km to deliver a GPS to a customer,’ says Krawitz.

Training new employees to reach that level, is a challenge, admits Labuschagne.

“We are verskrik about training,” adds Krawitz, who still loves to serve customers. Or, as he says, engages in MBWA: Management By Walking About.

“Nothing tells you more than serving customers, because while a computer can tell you what you sold and for how much, it can’t tell you why the customer bought. “

Inspiring staff

“Andre has brought inspirational leadership to the company, he has brought an absolute passion,” enthuses Krawitz.

A bugle to announce when sales targets have been made (or exceeded), a company song sang with gusto, and quizzes on product knowledge, are just some of the examples of this passion he introduced. He also introduced a staff incentive programme and “you have to be at the annual function when we give the best sales person an award of R50 000,” says Krawitz.

Another incentive is a monthly draw into which the names of all the stores that make their targets are entered. All staff members in the lucky winner store receives R1 000.

“If you really care for your staff, you’ll give them guidance, but come up with a strap line that tells them what you want them to do,” says Labuschagne. The strap line Dare to Lead with Team IQ Tip therefore became part of the company song.

He explains it as follows: DARE = Delivery of an Awesome Retail Experience; LEAD = staff should Learn, Earn, Add value and Develop; TEAM = Team, Empower, Accountable, Measure; IQ = Incentivise and Quality. “We not only want to be the best employer, we also want people to queue to join us,” says Labuschagne. TIP = their value system: namely, Trust, Innovation and Passion.

“I believe that strapline says it all, so that every staff member understands what is required,” says Labuschagne.

The store managers are also empowered to make decisions, without having to double-check with head office every time. “Our staff members are so aware that service is everything, that they can make the right decisions on their own.”

He believes that when you place trust in people, they would do much more. “If you treat people like they ought to be, they become what they ought to be. If you treat them like they are, they stay as they are. “

That is why the manager of a Johannesburg store without a rain chamber, who demonstrated the waterproofness of a jacket by pouring a bucket of water over a customer, won a trip to Kilimanjaro. He felt empowered to use his own initiative to do what it took to show the customer what the product could do.

“Our people really live the outdoor lifestyle,” says Labuschagne. “Every week we have a staff member going off on a trail bike ride, climbing Kilimanjaro — we encourage them to live the outdoor lifestyle and to use our products while doing that.”

About 80 staff members have climbed Kilimanjaro, and several had been to Mount Everest Base Camp, all equipped with K-Way products.

Guarantee excellence

No matter how happy the staff members are — the test of a successful retailer is how happy they make their customers by providing a good shopping experience and quality products.

“Our products offer exceptional quality and extra features that you won’t get elsewhere,” says Krawitz. “We never take anything out of a product to make it cheaper — if you want to make it cheaper, find better suppliers and better ways of manufacturing. We can make better products than anybody else anywhere in the world.”

This belief is under-written by their 5-way guarantee. “This is the best guarantee any South African store can offer,” says Krawitz, who summarises it as follows:

1. We guarantee the best price on any prod- uct currently available in a brick and mortar store;

2. We guarantee every product to give fair wear and tear. You’ll never hear we’ll ask the manufacturer and hear what he says. We sold it and we take responsibility. The store manager is empowered to decide whether to repair, replace or refund on the spot;

3. Any product you buy from us you have the option to return it within 12 months and get a refund, provided you have a sales slip and the goods are still in good condition;

4. We guarantee a foreign exchange rate that is the same as FNB — we take no commission, even though we pay the bank commission;

5. If anything you buy from us goes on sale within 30 days, we’ll guarantee you the difference between the sale price and the price you paid for it.

They offer this because they want to be trusted by their customers, staff and suppliers, and they know they can deliver on promises, he concludes.

Family business with a difference

Philip Krawitz’ founded Cape Union Mart in 1933 and was succeeded by his son, Arthur, in the late 1940’s. When he died of a heart attack in 1970, his son Philip had no choice but to leave university to run the family business. Today, Cape Union Mart is still a true family business — but, with a twist.

They follow the recommendations of a Harvard Business School Programme for family businesses they attended: no family member may be appointed unless they first gained work experience elsewhere, and have the skills advertised – and they may only apply once. Therefore, when the Krawitz daughters became involved in the business, they brought the necessary experience, qualifications and skills to add value to the business.

The eldest, Martine Vogelman, has a B.Bus.Sci degree from the University of Cape Town and managed portfolios at Investec Private Bank, before joining the family business to help with strategic planning. She is also involved with range selection. “We gave her the family portfolio to administer and she got pretty good returns,” says Krawitz.

Lauren Gez, the middle daughter, studied at the Fashion Institute of Technology in New York and then went to work for top end brands like Kenneth Cole and J-Crew. After returning to South Africa she told her father “it’s a disgrace that you don’t have any clothes for women and you have three daughters”— and proceeded to style ladies garments for Cape Union Mart.

The youngest, Amanda Herson, is a high achiever: at school she was head girl, the first white junior mayor of Cape Town after democracy, got seven distinctions in matric and graduated cum laude as best student of her year in B. Sci Econ at the Wharton School, an ivy league college in Pennsylvania. After working for the Boston Consulting Group and Victoria Secret, she completed her MBA at Harvard and joined Highland Capital Partners in the US before being invited by her father to visit Cape Town during the 2010 FIFA World Cup tournament.

The Hersons — her husband Marc, who she met at Harvard, is a fellow South African — predictably became homesick and when the person who ran the new business division at Cape Union Mart left, she applied and got the job. After the birth of her two sons she took on a new challenge, and now heads up their online business.

The next generation — the grandchildren — inspired the kids’ range, which has been tremendously successful, says Krawitz.

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