MAC370
2 EXAM
PACK
2023
, Stuvia.com - The study-notes marketplace
MAC3702
May/June 2022
Question 1 [100 Marks (180 minutes)]
MAC Stores (Pty) Ltd (“MAC”) operates a chain of retail department stores. It retails
cosmetics, ladies' and men's fashion apparel, housewares and small appliances, and
ladies' accessories. MAC is a high-end retailer which offers in-house developed
brands as well as external brands through large-format department stores, within
premium shopping malls in South Africa and Botswana.
The company was founded in 1968 and currently occupies over 40 000m² of retail
space spread over 12 department stores. MAC features a carefully selected range of
local and international brands (sourced mainly from the United States and Europe
markets) catering to the middle- and upper-class consumer market.
In recent years, nearly all retailers in South Africa have struggled as consumer
demand has hit multi-year lows as a result of high unemployment and inflation lowering
disposable income. The main profit squeeze to high-end stores such as MAC came
from less expensive retailers such as South Africa’s Woolworths, Sweden’s H&M and
Spain’s Zara, which cut into MAC’ customer base, and which frequently also managed
to offer more fashionable apparel choices.
The consumer slowdown has also been exacerbated by the weakening of the Rand
currency, which means higher prices for consumers, especially in imported branded
goods. As a result, consumers buy less products, less often. According to the Chief
Executive Officer (CEO) of MAC, consumers who used to buy three or four units a
month and who regularly spent R5 000 to R10 000 per month, started spending
between a quarter and half of those amounts. She also said that in fashion it is key to
have a flexible supply chain to react to changes in the market demand.
Business model
The business model of MAC has always been to stock well-known luxury brands in
elegant stores which occupy the most prestigious retail space in South Africa and its
neighbouring countries. Over decades and through many peaks and troughs of the
retail cycle, MAC continued to grow, largely due to the accumulated experience of an
excellent well rounded management team who had an ethos of “overdeliver always”.
That same ethos still exists in the business today. MAC believes in enriching the retail
experience for its customers and prides itself on maintaining meticulous stores,
appealing merchandise and employing well-trained staff. MAC is supported by its
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MAC3702
May/June 2022
professional financial managers and its equally experienced pool of shareholders
representing private equity houses and pension funds focused on retail investments.
MAC competes with clothing retailers, homeware stores and multi-product groups for
its share of the broader retail sector and therefore the company’s strategic approach
has evolved to concentrate on the upper end of the market. Equally strategic, MAC
has deliberately shifted their mix of turnover from credit to cash (at present this ratio
is now credit:cash = 30:70) over the past three years, building in a measure of
protection from interest rate increases and changes in consumer demands.
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MAC3702
May/June 2022
Financial reports
Extracts from the most recent annual reports of MAC are presented below:
MAC Stores (Pty) Ltd
Statement of financial position as at 31 May 2022
Notes 2022 2021
R'000 R'000
EQUITY AND LIABILITIES
ASSETS
Non-current assets
Property, plant and equipment 1 403 056 453 300
Goodwill 2 54 286 81 206
Investment 3 45 714 45 714
503 056 580 220
Current assets
Inventories 4 646 321 445 238
Trade Receivables 5 118 432 121 098
764 753 566 336
Total assets 1 267 809 1 146 556
EQUITY AND LIABILITIES
Equity
Share Capital 6 100 000 100 000
Retained income/(loss) -13 586,00 42 310
Total equity 86 414 142 310
Non-current liabilities
Shareholders' loans 7 300 000 300 000
Interest bearing borrowings 8 147 000 147 000
447 000 447 000
Current liabilities
Trade and other payables 289 880 167 434
Bank overdraft 116 079 54 392
Short-term loan 9 300 000 300 000
Income tax payable 12 28 436 35 420
734 395 557 246
Total equity and liabilities 1 267 809 1 146 556
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2 EXAM
PACK
2023
, Stuvia.com - The study-notes marketplace
MAC3702
May/June 2022
Question 1 [100 Marks (180 minutes)]
MAC Stores (Pty) Ltd (“MAC”) operates a chain of retail department stores. It retails
cosmetics, ladies' and men's fashion apparel, housewares and small appliances, and
ladies' accessories. MAC is a high-end retailer which offers in-house developed
brands as well as external brands through large-format department stores, within
premium shopping malls in South Africa and Botswana.
The company was founded in 1968 and currently occupies over 40 000m² of retail
space spread over 12 department stores. MAC features a carefully selected range of
local and international brands (sourced mainly from the United States and Europe
markets) catering to the middle- and upper-class consumer market.
In recent years, nearly all retailers in South Africa have struggled as consumer
demand has hit multi-year lows as a result of high unemployment and inflation lowering
disposable income. The main profit squeeze to high-end stores such as MAC came
from less expensive retailers such as South Africa’s Woolworths, Sweden’s H&M and
Spain’s Zara, which cut into MAC’ customer base, and which frequently also managed
to offer more fashionable apparel choices.
The consumer slowdown has also been exacerbated by the weakening of the Rand
currency, which means higher prices for consumers, especially in imported branded
goods. As a result, consumers buy less products, less often. According to the Chief
Executive Officer (CEO) of MAC, consumers who used to buy three or four units a
month and who regularly spent R5 000 to R10 000 per month, started spending
between a quarter and half of those amounts. She also said that in fashion it is key to
have a flexible supply chain to react to changes in the market demand.
Business model
The business model of MAC has always been to stock well-known luxury brands in
elegant stores which occupy the most prestigious retail space in South Africa and its
neighbouring countries. Over decades and through many peaks and troughs of the
retail cycle, MAC continued to grow, largely due to the accumulated experience of an
excellent well rounded management team who had an ethos of “overdeliver always”.
That same ethos still exists in the business today. MAC believes in enriching the retail
experience for its customers and prides itself on maintaining meticulous stores,
appealing merchandise and employing well-trained staff. MAC is supported by its
Page 5 of 14
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MAC3702
May/June 2022
professional financial managers and its equally experienced pool of shareholders
representing private equity houses and pension funds focused on retail investments.
MAC competes with clothing retailers, homeware stores and multi-product groups for
its share of the broader retail sector and therefore the company’s strategic approach
has evolved to concentrate on the upper end of the market. Equally strategic, MAC
has deliberately shifted their mix of turnover from credit to cash (at present this ratio
is now credit:cash = 30:70) over the past three years, building in a measure of
protection from interest rate increases and changes in consumer demands.
Page 6 of 14
CONFIDENTIAL
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Distribution of this document is illegal R13,625 per year?
, Stuvia.com - The study-notes marketplace
MAC3702
May/June 2022
Financial reports
Extracts from the most recent annual reports of MAC are presented below:
MAC Stores (Pty) Ltd
Statement of financial position as at 31 May 2022
Notes 2022 2021
R'000 R'000
EQUITY AND LIABILITIES
ASSETS
Non-current assets
Property, plant and equipment 1 403 056 453 300
Goodwill 2 54 286 81 206
Investment 3 45 714 45 714
503 056 580 220
Current assets
Inventories 4 646 321 445 238
Trade Receivables 5 118 432 121 098
764 753 566 336
Total assets 1 267 809 1 146 556
EQUITY AND LIABILITIES
Equity
Share Capital 6 100 000 100 000
Retained income/(loss) -13 586,00 42 310
Total equity 86 414 142 310
Non-current liabilities
Shareholders' loans 7 300 000 300 000
Interest bearing borrowings 8 147 000 147 000
447 000 447 000
Current liabilities
Trade and other payables 289 880 167 434
Bank overdraft 116 079 54 392
Short-term loan 9 300 000 300 000
Income tax payable 12 28 436 35 420
734 395 557 246
Total equity and liabilities 1 267 809 1 146 556
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