One makeover too many for ailing Edcon
Grand old dame of SA retail may be headed for the history books
● The lone survivor of South Africa’s apparel department stores, Edcon, the owner of Edgars, may be on its way to the retail graveyard where the corpses of John Orr’s and Stuttafords lie.
There have been many false dawns over the past decade of the debt-laden retailer’s imminent return to its glory days of the past century, when it was owned by SABMiller, now AB InBev. Its flagship store, Edgars, continues to struggle to find a place in the increasingly competitive local fashion space, which has seen the entry of some of the world’s leading global retailers, with the company earlier this month reporting a quarterly sales decline.
With Edcon readying itself for a return to the local bourse, after being taken private in a highly leveraged R25-billion move just over a decade ago, the retailer’s struggles will weigh on just when will it return.
In retail you can “let people make mistakes, but [they] can’t keep making the same mistakes — they must learn from them,” said Andrew Jennings, former president of Saks Fifth Avenue, GM of Harrods and MD of Woolworths, and author of Almost is Not Good Enough — How to Win or Lose in Retail.
Jennings said that Edcon decided a few years ago to go with more fashionable expensive assortments and they forgot about their heartland customer, which is at the very centre of the business.
“If they are not selling the merchandise they have in their stores then they have to change their strategy, and Edcon appears to have been through some major changes,” Jennings added.
Over the past decade, Edcon’s three CEOs have made some notable strategic blunders.
German Jürgen Schreiber’s background as a consumer strategist saw the group invest in new concept stores, deepening its focus in strategic investments such as the purchase of Mango stores. But by the time of his departure, the retailer’ s market share of 28% had been whittled down to a mere 16%.
By 2015, when Australian Bernard Brookes took over, there was a focus on recapitalising the business through a buyout by a consortium of investors, the biggest being US-based Franklin Templeton.
But Edcon was simultaneously making poor merchandising decisions, which saw it close its international businesses, including River Island and Mango, to bring back its trusted Kelso brand to front of store.
Earlier this year, when industry veteran Grant Pattison took over as CEO, it was believed he might press the reset button on Edcon. Pattison was the former Massmart CEO, who managed to entice US retailing giant Walmart to buy the owner of Makro and Game.
Pattison reckons he is just what the doctor ordered for the ailing retailer. “Besides the fact that I am South African, unlike previous CEOs, I am also an honest guy.”
While he admits there are similarities between Stuttafords and Edcon, he says the weakness of Stuttafords, which is Edcon’s strength, is that it does not rely on one business model. “We’ve got more levers to pull and good businesses like Edgars, CNA and Jet. Its just all the other bits that have failed.”
He also disputes that the company is on its way out of business. “It’s actually a very well-run company, but the leadership has been sh*t (with the exclusion of Brookes),” Pattison said.
Chris Braun, partner and company head of Bain & Company’s consumer and retail practice in Africa, said the problem with most struggling retailers was they had not been cutting costs where necessary.
“Cut costs, but spend money where it matters,” he said. “Staying on top of costs remains critical. Many retailers have reduced spend, but often by cutting a little bit everywhere, including where it affects customer experience, rather than cutting a lot where there is real excess spend.”
Braun said that the big-box retailers that were likely to survive were those with a very clear proposition.
“The ones who are suffering are struggling to stay relevant to customers who have Picture: Supplied
It’s actually a very well-run company, but the leadership has been sh*t (with the exclusion of Brookes) Grant Pattison CEO of Edcon
access to a wider range of propositions. They’ll always prefer stores where this proposition is clear over stores where they are not quite sure why to go there. Big-box retailers with a ‘one-size-fits-all solution’ struggle in this context,” Braun said.
In trying to find a solution to its woes and dealing with an oversupply of floor space, the company has experimented with introducing a coffee shop into its Eastgate Mall store called Made Café.
A reason for this, according to Keillen Ndlovu, the head of listed property funds at Stanlib, may be that while apparel retailers have been the traditional drivers of footfall in malls, “the trend is changing, more so globally where food, beverage and entertainment is increasingly becoming the drawcard in malls”.
As part of its recovery plan, Edcon has closed 253 stores. The closures have, however, left the retailer with too many leases in malls and no brands to fill the empty space.
Ndlovu said while long leases were good for security of income for mall owners, “. . . they can be a challenge when a landlord may need to change the tenant mix and they end up being stuck with a tenant that is not ideal when times or trends have changed, and a lease signed at a lower rent [in a strengthening rental market or a booming economy]”.
But for Jennings, who expects the South African retail industry to enter a period of radical transformation: “My advice to the local retailers is, if you are not prepared to change, then you are going to die and you are going to enter the retail graveyard.”
It is a grave threat for the 89-year-old retailer, which opened its first store in Joubert Street, Johannesburg.