New team wants to save Edcon from debt rack
Aussie CEO defends mainly foreign executive
SPORTING a grey suit with a pink shirt and a black Gucci belt, Edcon Group’s new CEO introduced a restructured executive management committee this week.
With five foreigners, and devoid of any black Africans, this is the team that Australian Bernie Brookes hopes will help him turn around South Africa’s largest fashion retailer and find favour with its largely black clientele.
When pressed on the composition of the management team, Brookes, who arrived in South Africa two months ago, said: “There is probably more experience and there’s a lot more locals in the levels just below this executive level.”
He also said the team, which includes Urin Ferndale, the chief operating officer who has worked for the retailer for 16 years and is the longest-serving member, had “a wealth of experience”.
Makwe Masilela, a portfolio manager at BP Bernstein, said there had not been any real attempt at transforming executive management in the retail sector. “They [retailers] are still paying lip service and are ticking the boxes just to meet the requirements.”
Masilela said that because retailers did not rely on government business, they had no real obligation to adhere to transformation policies. “Nothing is pushing them.”
But, he added, consumers’ real concern was not lack of transformation but the pricing of products.
“All consumers are worried about are the price and the kind of goods they are getting from a particular store.”
As South Africa’s largest clothing retailer, Edcon has been part of the country’s fabric since 1929 and has more than 12 million customers, occupying a large portion of the clothing and footwear market.
Nevertheless, it has struggled to stay afloat since its debtladen R25-billion buyout by US private equity firm Bain Capital Partners in 2007.
In the past six months, Edcon has restructured its mountain of debt twice, including asking its bondholders to accept some losses on the debt in July.
In the latest restructuring, Absa and other lenders agreed to extend the maturity of more than R7.9-billion of its total outstanding debt of R22-billion.
With other measures, including new funding commitments, this will allow Edcon about R1-billion in interest savings over the next two years. This gives it room to manoeuvre financially, and Brookes said the resultant savings would be reinvested in the business.
Brookes spoke frankly and acknowledged the problems facing the retailer.
“We have lost market share quite significantly; we are the poorest in the market at serving our customers,” he said.
Edcon will spend between R600-million and R700-million a year in capital expenditure on its strategic realignment programme.
It had been diverting about R200-million a year to service its debt obligations.
Through restructuring of its assets, including store openings and the closure or redesign of nonperforming stores, Brookes plans to change Edcon’s fortunes in just two years.
“We can’t afford to take any longer than that because we are losing market share at a rapid rate. We’ve got to move very
We have lost market share quite significantly; we are the poorest in the market at serving our customers
fast,” Brookes said.
That is not the only area in which Edcon has to move fast. The 10-member executive committee has only four South Africans. Brookes and the five Europeans are newcomers not only to the group, but to the country.
Edcon’s top management team — overwhelmingly foreign and white — seems out of touch with more than 90% of its customers in stores such as Jet, Jet-Mart and Edgars.
“Everyone else is growing their business. We’ve got the lowest sales figure per square metre,” said Brookes.
Experts have blamed the group’s debt load for distracting management from operations, resulting in its competitors correctly spotting fashion trends and then eating Edcon’s lunch.
Asked if the absence of black South Africans in its top management structures could be responsible for the firm losing touch with its customers, Brookes confessed: “We don’t know our customer very well. We surveyed 3 000 of them and we sat down with focus groups to get an understanding . . . but we are starting to learn about them.”
He said some head office staff would be spending time in the stores “to learn about what the customer wants”.
David Shapiro, deputy chairman at Sasfin Securities, said Brookes’s position as a foreigner would not put him at a disadvantage, because other foreigners had made a success of other JSE stalwarts.
“If you look at Ian Moir’s coming in [at Woolworths], we had David Kneale from Clicks, we’ve had Richard Brasher from Pick n Pay, and all of them have had very good results down the line.”
Shapiro said it would take time and quality leadership for Edcon to finally turn the corner and return to sustainable profitability. “High quality in management makes a huge difference, so I think you’ve got to give it time. You can’t draw conclusions straightaway.”