Glimmers of hope at Edcon

DEBT-BURDENED Edcon continues to post losses, but a silver lining is now evident in cash sales.

This is good news for the once high-flying Edcon, which has struggled to regain its former glory after it was bought by Bain Capital in 2007 for R25-billion in the largest private equity deal yet in this country.

Then the market crashed, debt costs rocketed and the new owners initially provided scant new capital to invest in the stores.

Space openings lagged those of rivals — at least until last year — as customers lost interest.

Edcon also did not get to enjoy the sweet taste of the skyrocketing share prices of other retailers, for years among the bourse’s stellar performers.

The group underperformed rivals and lost market share, failing to tap into the rise in spending in Africa’s largest economy.

In the middle of this year, the Financial Mail reported that Edcon’s debt was R19.5-billion while collective sales over three years topped R75-billion. Over the past three years, it reported, finance costs amounted to over R8-billion.

Fast forward to this week, and it appears secondquarter sales are rising while losses are narrowing. Though it may be too soon to declare Edcon firmly on a turnaround trajectory, these are positive signs.

The group reported a loss of R724-million in the three months to September 28, compared with a restated R2.7-billion loss the previous year. Retail sales rose 5.9% to R6-billion as the group continued to bring in new international brands including Topshop and Mango and revitalise stores. Net financing costs decreased 26.7% to R654-million.

Jürgen Schreiber, who took over as CEO last year, has introduced 25 new brands in the past 12 months. He said the group was operating on a two-prong strategy: one was to bring in well-known brands and the other was to resuscitate the private label brand.

Ladieswear was about 15% brands, and is set to be 35% with the rest remaining private label.

On the shoe side, about 40% was brands in the past, and this is set to move to about 60%.

“Every category is different and customers react differently. Sportswear is all about brands, and about 80% of our business is brands,” said Schreiber.

With the rapid roll-out of stores within stores, some question whether this has not gone too far.

“At the moment most of the brands we have put in place are working exceptionally well and giving a greater density than private label … the roll-out will be around a two-year process.”