Following a rough few years, the fortunes of Edcon are starting to look up and the company is now implementing a new strategy that will see new stores, new partnerships and new hope for the largest non-food retailer in South Africa.
Retailing and fashion – two industries that are hugely popular in Africa but two that are rarely fully understood and appreciated. Combining the two is an even more challenging task and it’s something that only a handful of companies have achieved on a mass scale over the years.
Manufacturing fashion items has been a declining sector over the past decade but there are South African manufacturers that have the capacity and capability to produce to international quality standards – in 2013, the Clothing, Textiles, Footwear and Leather (CTFL) industry accounted for about 14% of manufacturing employment and represented South Africa’s second largest source of tax revenue.
Of course, Africa and South Africa has had to deal with the rise of the Eastern economies in the clothing sector – places like China, India, Vietnam and Bangladesh can offer products cheaper and often quicker. This has contributed to the downfall of the industry but on the retail side, demand for branded goods has risen, up until 2011/12 when the global financial slowdown caught up with South Africa after the economy’s surge from the FIFA World Cup came to an end.
Overall, the retail sector remains a challenging environment. The economic conditions are not conducive to strong business growth, the influx of international brands (across all sectors) has led to more competition and pressure on price and margins, and many of the established players are now looking to Africa for real growth.
Around the world, many recognised brands have fallen thanks to difficult conditions made worse by an inability to stay up with trends and a lack of a digital presence. BHS in the UK, American Apparel in the US and Vroom and Dressman in the Netherlands have all faced serious financial troubles in the past 12 months.
In 2012, South Africa reported a boom in the retail environment thanks to the development of new shopping malls and retail space and a relatively stable environment and Edcon, perhaps one of the most recognised portfolios in SA, looked to take advantage. The company is the largest clothing, footwear and textiles (CFT) retailing group in South Africa and in 2012 had an estimated 31% of market share. With around 1400 stores operating in South Africa, Botswana, Zambia, Swaziland and Lesotho, Edcon has, through its acquisitions, added top stationery and houseware brands as well as general merchandise to its CFT portfolio. The company also provides credit facilities and financial service products to a robust client base of over four million card holders.
Under the Edcon stable, you’ll find household names such as Edgars, Red Square, Boardmans, Edgars Active, Jet, Legit, CNA and top international brands including Topshop Topman, Dune London, T.M. Lewin, Lipsy and MAC.
But since 2012, the group registered some results that caused concern amongst stakeholders. After losing market share following the entrance of international players to the sub-Saharan Africa markets, credit sales (traditionally Edcons strength) began to fall and the company’s debt increased. Its American owners, Bain Capital Partners, looked for a turnaround in fortunes in 2015 and installed Bernard Brookes at the helm, replacing Jurgen Schreiber, and the former CEO of Australia’s department store Myer quickly set about developing a turnaround strategy.
“We are very pleased to have Bernie joining the team. He has significant experience not only in apparel retailing in the southern hemisphere but also specifically department stores and emerging markets,” said Edcon Chairman, Dwight Poler.
FRESH STRATEGY
One of the first areas that Brookes addressed was the credit offering.
“Customers at the lower LSM level don’t have an interest in taking credit as they are worried about the state of the economy and the influence on them. Then we have customers in the higher LSM segment that are not using all the credit that is available to them. At some of our stores, up to 40% of credit that is available to them they are not using,” he told Moneyweb earlier this year.
“Future growth is going to come from cash sales, as we cannot rely on credit sales to drive top-line growth,” he added.
And his strategy was successful with Edcon growing retail cash sales by 4% and cash sales contributing 62% to total sales. The company also managed to make a R2.9 billion profit for the three months to December 26 2015.
“As we continue the journey of recalibrating our business model, management roles and reporting responsibilities have already been improved at our head office to ensure the successful delivery of our strategic objectives,” explained Brookes. “Linked to this, we have initiated a process of improving efficiencies, eliminating complexities and reflecting a simpler more agile structure that positions us for growth. The restructuring and new operating model will allow us to be more agile, with less layers and allows the various Group teams to be responsible for their overall success. We are embarking on a differentiated customer service proposition, a focus on omni-Channel, our vast loyalty membership (which exceeds 12 million loyalty customers) and a far more efficient sourcing strategy.
“Our ultimate objective is to ensure a far simpler business focus across the Group, to enable us to enhance the focus on customers.”
Brookes focus on the small details was enhanced further in June when Richard Vaughan was appointed Chief Financial Officer and a member of the Edcon Holdings and Edcon Limited boards. Having previously served as deputy group CFO for four years, Vaughan is well qualified. A Chartered Accountant and a veteran of roles in positions at Goldman Sachs and Deutsche Bank, the company sees Vaughan as the ‘logical choice’.
AGENCY APPOINTMENTS
In a customer-focused move, Edcon has made a number of significant agency appointments in the past few months as it looks to solidify its image and reputation both internally and externally while controlling costs.
Just last month, Edcon announced the appointment of Young and Rubicam (Y&R), Promise Brand Specialists (Promise) and The Publishing Partnership (TPP) as its new advertising partners for Edgars Division, Specialty Division and Edgars & Jet Club Magazine publishing, respectively. The company also announced the appointment of Joe Public as the advertising partner for Edcon’s Discount Division.
Making better use of marketing technology and data at its disposal will be a new focus for the Edcon group. “We have used customer data to build new strategies and target markets for each brand. This is a multifaceted change, repositioning most of our brands.” said Brookes.
GROWTH PLANS
Edcon’s strategy is growth through four key identified pillars: comparable store growth, new space growth, margin expansion and credit. The company is reportedly targeting 60 new store opening across SA and Africa in the next two years and is also hopes to launch new websites and partner with more local brands.
The company’s vision is to ensure that Edcon’s stores remain ‘The Places to Go’ in chosen markets and to entrench its position as southern Africa’s largest non-food retailer will come one step closer when these investments are realised.
It’s important for the excellence of this true South African success story to continue. Home to 20,000 permanent and 25,000 temporary employees, this is a business that has been around for almost 90 years. Thankfully, with the new strategy from Brooks and key appointments at both senior management level and with external agencies, it looks like Edcon can continue planning for a successful future.