Fashion retailer Edcon’s strategy for a return to its former glory includes better cost control and launching more product lines. “It may take some time, but we will get there,” says CEO Bernard Brookes.
Ten months after Bernard Brookes took control of Edcon’s faltering reins, South Africa’s largest clothing retailer is reporting a sighting of a long lost acquaintance – light over the horizon.
Until 2007, Edcon was the Cullinan Diamond of the retail sector; a prosperous South African icon with a vast, loyal following and a strong presence in eight other African countries.
But that year the US-based private equity giant Bain, founded by one-time US Republican presidential nominee Mitt Romney, moved in and bought the company for R25 billion in South Africa’s largest private equity buyout. And almost at once the global financial crisis broke, and Edcon took a direct hit.
From 2012 Southern Africa’s largest non-food retailer sustained a run of losses that continued well into last year. But in the final quarter of 2015, Edcon returned a R2.9 billion profit.
“Over the last 12 months, we have been able to reduce debt by R4.5 billion and cash-pay interest burden by R1.0 billion as a result of a refinancing of existing indebtedness.” Says Brookes, who joined last September, four months after stepping down as chief executive of Australia’s largest department store chain, Myer.
ROBUST BALANCE SHEET
Extensions of the maturities of outstanding debt instruments until December 2017 have also been secured, with the balance sheet “more robust and manageable.”
The Edcon group trades under three divisions; Edgars, serving the middle-and upper-income markets, Jet and Jet Mart, middle-to lower-income markets, and the speciality division made up of brands such as Topshop, Calvin Klein, River Island, Doc Martens, Jo Malone, Red Square, Boardmans, and Legit.
And despite its long haul of troubles, Edcon’s market share of the Southern African clothing and footwear market is still twice the size of its nearest listed competitor, with over 1500 stores and 12 million regular customers.
Aside from South Africa, Edcon also operates 212 stores in Ghana, Zambia, Mozambique, Swaziland, Botswana, Namibia, Lesotho and Zimbabwe. Together they contribute some 10.5% of retail sales, and growth from these external operations remain an important part of the future of the group.
“Edcon has many iconic brands that still, after all these years, find a lot of favour with millions of customers, and we remain market leaders in key categories,” says Brookes.
“We may have lost some market share over the last few years, but we have plans in place to ensure that we recover some of this lost ground.”
Edcon has simplified its management and operational structures, eliminated complexities, total store costs are well managed, and a new credit solution is performing well.
Changes on the shop floor include an increased focus on customer needs and a realigned plan to drive meaningful customer change in the near term and create long-term value.
“When I arrived at Edcon, I discovered we have over 12 million ‘Thank U’ cardholders and nearly four million account holders. To talk to and assist customers with the challenges of the current economic climate, we have now initiated a process where we are using these platforms, together with our traditional marketing and advertising, in a better and more focused manner.”
A key component is to get closer to the customer and enhance his or her experience with the Edcon offerings, says Brookes. “Of course, other channels of communication such as advertising, marketing, in-store, and the media will also be used to ensure the customer is kept fully informed of Edcon’s progress, new product offerings, price and other promotions etc.”
Excellent stakeholder relationships are critical. “Without our suppliers and landlords for example, our ability to trade would be greatly impacted. This is why it is important to keep communication lines open.
“Edcon is in regular contact with all our stakeholders, keeping them informed of developments within the business. However, our customers remain our most important partners: without them we don’t really have anything.”
Communication to all other stakeholders, such as employees, suppliers, regulators, industry bodies and investors has been “significantly improved over the last year and I am happy to say we are seeing good progress and pleasing reactions to our efforts.”
Edcon’s operational change process has accelerated and advanced, while other plans “progressing well” include a new ’look and feel’, and better service levels and cost management. There is also a new focus on Edgars’ high-margin, fast-fashion private labels and a greater selectivity of international brands offered.
BRAND ENHANCEMENT
“These are all starting to resonate well with customers. And despite the constrained environment, the overall shopping experience is being improved across all our brands with a better and more competitive offering through improved service, pricing and products that are more sought-after by customers.”
Like all retailers, Edcon is experiencing a tough trading environment as consumers tighten their belts due to the weakening of the rand, interest rate anxieties and numerous day-to-day cost hikes.
“We understand the declining use of credit and we are pushing better value for our customers to drive cash sales. We are also managing sales prices better, and minimising price increases. Our marketing and promotional campaigns are more simplified and focused squarely on our customers.”
Edcon employs over40,000, the great majority full time. “Our staff are focused every day on serving many millions of customers, andI can assure you that with every strategic business decision we make, we always take into account the people that make-up Edcon, and how and if, this may affect them.
“We fully understand the predicament we are operating in and the state of the global and local economies. Indeed, the overall trading environment remains challenging due to rising unemployment, rising interest rates and the sharp depreciation of the rand. We are certainly managing through this and making difficult decisions as we move along,” Brookes explains.
77 years after it opened its first Edgars store in Joubert Street, Johannesburg, Edcon is embarking on what Brookes calls “a much needed journey on enhancing our in customer store service.
“We are still planning on spending over R600 million in capital expenditure over the next three years, and we intend opening 62 new stores across the group.”
But in a highly competitive market, the CEO who once said “I was a trolley boy, I was a buyer, I was a store manager, I was a general manager, I worked in such a multitude of tasks that now I understand all of the roles” is not minimising the scale of the challenge.
TURNAROUND IN SIGHT
“We fully understand the predicament we are operating in and the state of the global and local economies. We know that this will not be an overnight change: in fact, we anticipate that we will start to see a meaningful turnaround over the next 12-18 months.
“I have been in this industry for over 30 years. Retail is part of me, and there is nothing I enjoy more than walking through a store that is providing top-quality product, at competitive prices, while at the same time offering world-class customer service.
“I have seen and implemented this in parts of the world, and that is what we are all striving to achieve within the Edcon stores. It may take some time, but we will get there.”