The environment we operate in

The general context in which we operate impacts on our ability to achieve our strategic goal to create sustainable value for all stakeholders.

The table below illustrates the emerging and existing trends which prevail in our industry and market, the effect they have on our business, and our strategic response – which is aimed at mitigating or managing any negative impact and, wherever possible, capitalising on opportunities presented.

Market and/or industry trend	Impact on our business	Our strategic response
Impact of Covid-19	Volatility, uncertainty and disruption are features of the new normal that need to be managed to ensure business sustainability. Unscheduled store closures and temporary staff shortages caused by positive Covid-19 cases tested our resilience and agility. Consumers have changed their shopping behaviour: they are more risk averse, favouring online transactions and/or a preference for large household brand names. Stay-at-home orders fuelled a home improvement boom, resulting in significant pent-up demand, while lockdowns and port delays caused severe interruption to import supply.	Our clear-cut strategies, responsive systems, hands-on management team, robust business model and strong cash reserves enabled the Group to respond nimbly and timeously to the challenges faced. Our high-profile brands are trusted and our stores are perceived by safety-conscious consumers as safe shopping environments. Our omnichannel offering affords customers the opportunity to interact with us on the platform of their choice (growing online activity reflects changing consumer behaviour and a responsiveness by new customers to non-traditional platforms). We continue to monitor how customers are balancing their old pre-pandemic routines and the new behaviours they display in the current unprecedented situation. By appealing to their new context and designing relevant cues, we will encourage the way customers think of our products and services. Our pre-retailing initiatives exemplify this. Our integrated manufacturing capability served to offset volatility in the supply and pricing of imported product and the elevated demand for local stock.
Curating the home	The constraints that Covid -19 placed on mobility caused homeowners to make their personal spaces as comfortable as possible to accommodate a range of at-home activities. In South Africa the home is viewed as an individual's primary asset and the pandemic has encouraged consumers to invest in their properties and be prepared for a future that might include ongoing enforced stay-at-home orders.	Our teams capitalised on the opportunity to assist customers to adapt their homes to accommodate multifunctional spaces through our diverse product range and bespoke décor and design guidance available in forums such as our online Create magazine. CTM and Italtile Retail have launched a multi-surface tile visualiser – one of the first in the world – which enables customers to digitally view our tiles in their own rooms and match wall and floor tile offerings in lifelike reality.
Marketing challenges in a unique environment	The pandemic has constrained people's ability to establish and maintain relationships in the real world. The challenge for marketers is to create connections with consumers, recognising and empathising with their situation, and building new bonds.	Our goal is to market with purpose and cultivate connections with our customers. Under the challenging conditions we face as a country, our Proudly South African positioning, demonstrated across our business and in our campaigns, continued to find favour with customers. Our ethos of 'make local and buy local' to create jobs and grow the economy is key to our business model and is communicated in our Proudly South African messaging. CTM's Sithi Wena and TopT's Woza eKhaya marketing campaigns exemplify this positioning. Refer to the CEO's report.
The weak economy and country-specific risks constrain consumer income and impact on investment confidence	Consumers demand more for their money, with customer experience being a key determinant of spend.	Our goal is to deliver an unparalleled shopping experience. We strive to ensure our brands are aspirational and offer customers consistent year-round value. Our price offering is supported by strong brand equity, product quality and customer-centric service.
Upper-LSM consumers re-entered the marketplace with vigour	The premium-end market space has been subdued for several years, attributable to a shrinking, negatively disposed customer base. Enforced stay-at-home orders and restrictions on international travel and other luxury pursuits resulted in upper LSM consumers reallocating funds to substantial home improvements to accommodate at-home activities such as home offices, gyms, playrooms and spa facilities.	Italtile Retail is a unique offering in the premium-end marketplace. The brand has icon status as a fashion trend setter with an international-standard range. Italtile Retail's high-end import-substitute positioning was particularly valuable in the period which featured import supply chain disruptions.
Growing consumer demand for convenient, accessible shopping experiences	Access to omnichannel shopping options and seamless transition between online and physical stores is key to consumers. Time-pressed shoppers demand faster, more efficient in-store service.	We invest in a combined bricks-and-clicks trading format and in technology, which improves the customer shopping experience both in-store and online. We continue to roll out stores to under-serviced markets – with good success. We also continue to explore flexible store-size formats relevant to specific markets for all our brands. Our online offering is centred on providing consumers with a seamless, personal digital experience. We recognise that improved access to technology creates opportunities for new customers to access our offering on new platforms. All of our retail brands are supported by interactive webstores. We are building the momentum of our pre-retailing offering, which empowers customers to research and inform themselves prior to engaging with a sales person.
Technology and fashion are increasingly interlinked	Access to the internet, largely due to smartphones, continues to gain momentum locally. The omnipresence of social media and growing sophistication of local consumers is driving an international fashion bias, rapid design evolution and quicker fashion changes, while the demand for instant gratification dictates shorter lead times.	Our Gryphon factory is the leading manufacturer of import replacement-quality large format tiles, while all of the Group's factories utilise state-of-the-art printing technology. This technology enables timeous manufacture of up-to-the-minute designs, giving the Group a key strategic advantage in the market. Our CTM and Italtile Retail brands' multi-surface tile visualisers have improved the shopping experience significantly, enabling customers to digitally view our tiles in their own rooms in lifelike reality. We invested in improving social media content; recognising that better engagement with customers translate into sales growth.
Innovative shopping experiences across all platforms are increasingly important	Online access has educated consumers and influenced shopping expectations. Customers are increasingly more discerning and demanding and quick to use social media to share their experiences.	We recognise that successful retailers are defined by consistently memorable shopping experiences. We continue to focus on up-weighting the 'delight and disrupt' factors in our stores and online through innovative layouts, lifestyles, products and use of technology.
The traditional customer profile is evolving	Increasingly, women are making the major decisions in home-finishing purchases in our stores.	Our business is well-positioned to capitalise on this trend, since we are viewed as a fashion retailer rather than a building materials supplier. Unrelenting effort is directed at ensuring the shopping experience is aesthetically pleasing, with our keen focus being on fashionable product, stylish presentation and aspirational lifestyle displays. We continue to align our personnel profile with the demographics of our customer base.
Industry-wide shortage of skilled retail-specialist and ceramic-manufacturing personnel	Competent, ambitious, fit-for-purpose employees and franchise partners are key to the Group's success.	Our training and development spend is significant and aimed at building a deep resource pool of appropriately skilled personnel. To ensure we recruit and retain the right calibre of individuals, we drive the culture and activities of the business through our core values and beliefs. We continue to review and upgrade our learnership programmes and recruitment methodologies to ensure our people are aligned to our growth strategy. Our partnership and reward initiatives are designed to incentivise our people and position the Group as an employer of choice. Refer to the Human Resources report.
Intensified shareholder and consumer focus on ESG issues	Increasingly, shareholders identify ESG credentials as having an impact on their decision to invest in companies. ESG awareness continues to grow among consumers who prefer to associate with brands that have admirable reputations and align their words with actions. Customers are increasingly expecting brands to actively contribute toward the betterment of society as a whole.	Our actions around this trend will become an increasingly important driver of consumer choice and loyalty. We continue to advance our journey to improve the Group's current ESG credentials, as well as the disclosure of developments in this regard. Environment The Group employs a dedicated Citizenship Manager who is tasked with reviewing and reducing the Group's carbon footprint on an ongoing basis. Across our operations, we strive to reduce consumption of non-renewable resources and, where possible, increase generation of renewable resources. Our factories at Ceramic Industries use the latest technology to ensure efficient production, and rank among the most energy efficient in the world. Rehabilitation of raw material quarries is conducted concurrently during use and once end-of-productive-life is reached. We continue to expand our environmentally friendly product ranges across both our locally manufactured and imported merchandise. An expansive renewable energy (solar) programme is in the process of being rolled out to our stores, factories and other Group sites. Refer to the Environmental report. Social impact We continue to strive to ensure that our community social initiatives are meaningful and sustainable and we will measure their impact on an ongoing basis. Our Proudly South African campaign in our stores prioritises selling local products manufactured by local people. We will strive to maintain our BBBEE level 2 status through ongoing initiatives to transform the demographic profile of the business. Our widespread profit share programmes across the Group are designed to incentivise and reward our team for its contribution. R290 million was paid out to our people in profit share for the year under review. Refer to the Transformation report. Governance Our priority is to continue to entrench the implementation of good corporate governance principles across all of the Group's business units.

The environment we operate in

Environment

Social impact

Governance