Edcon pins revival hopes on ‘strategist’ Pattison
CEO-in-waiting’s restructuring may involve sale of assets
Apparel retailer Edcon is readying itself for a strategic overhaul, following the appointment of Grant Pattison, the current chief operating officer, as CEO from February.
Pattison — who has been punted as a strategic thinker by industry peers, given his previous interaction with the world’s largest retailer, Walmart — has been given the green light to revive the Edcon business, a move some say is long overdue.
Atiyyah Vawda, an equity analyst at Avior Capital Markets, said Edcon’s business model for the past few years had been stagnant and in need of an overhaul, which was why the sale of the group’s noncore assets would be on the cards.
Vawda said that although it was possible that Pattison was fixing up CNA and Boardmans for a sale, “there’s a lot you need to fix from a strategic aspect and [to] reverse some of the issues that caused the downfall at the start of it”.
A sale “would be on the cards for any reasonable strategist. It all depends on how he goes about executing it. We’ll have to wait and see what actions he takes and what he prioritises,” Vawda said.
“Getting a strategist in place is something that Edcon does need.”
But overall, Edcon would be selling some of the businesses that were underperforming and putting a cash strain on the business, she added.
International brands
For the past two years Edcon has been under the watchful gaze of Bernie Brookes, who has managed to stabilise the company. This included managing the sale of the group by Bain to consortium debtors, including US investment firm Franklin Templeton, jettisoning underperforming international fashion brands in favour of local brands, and helping the company weather the impact of the economic downturn.
Between June and September, the company closed about 18 stores as part of its turnaround strategy.
The jury is still out on the impact Pattison will have. His credentials include his tenure as Massmart CEO between 2007 and 2014, when he readied the company for the sale of a 51% stake to Walmart.
Syd Vianello, a veteran industry analyst, said: “His biggest claim to fame at Massmart was dressing up the bride in order to make it sellable — and then he found the bridegroom [Walmart]. Quite frankly, that’s the only thing that he actually got right at Massmart. Massmart was a gigantic underperformer during Pattison’s tenure as CEO.”
Massmart earnings
According to Bloomberg data, Massmart’s earnings before interest, taxes, depreciation, and amortisation margin in 2007 was 6.4%; by the start of 2014 it had declined to 3.9%.
Vianello said there were two possible rea- sons for this: either the strategic decisions that Pattison took in terms of the direction of the firm turned out to be wrong, or the economy was against him.
During Pattison’s tenure at Massmart, the company reinvigorated its private-label offering, invested in upgrading Massmart’s supply chain infrastructure, entered into food retailing through Cambridge Food, Game, Makro and Saverite, expanded aggressively across Africa, initiated new formats including DionWired, Builders Superstore and Value Mart, while also establishing ecommerce operations for DionWired, Shield and Makro.
Modern practices
But despite Vianello’s criticism, he does not doubt Pattison’s abilities as the comeback kid, as he will apply modern retail practices to Edcon’s strategy.
“I’m interested in what he is going to do with CNA. It’s only a tiny part of the group, but it’s something where he could put a huge amount of thinking, a huge amount of strategic thinking, into what the business can do.”
In the first six months of the financial year, CNA sales decreased by 12.1% and sales at the group’s mono-branded stores including Topshop, Tom Tailor, Dune and Lucky decreased by 27.2%, or 7.9% if brands that were sold during the period, such as Legit and Edgars Shoe Gallery, were excluded.
Vawda said although there had been headway in correcting the business, “there’s a lot of debt and a lot of moving parts that you are going to have to fix at the same time. It’s a tricky job [but] what we’ve seen so far is deeply encouraging, [even though] there’s still more to do.”
On whether Edcon would be ready for a listing in the next three years, Vawda said it was hard to say.
“If we can see a little bit more profound increase in productivity, [trading] density and overall profitability of these stores, it could really help them and change the direction of the business a bit. There are myriad possibilities.”
Pattison declined to comment, but the company confirmed that there are a number of strategic initiatives in the pipeline that will be announced next year.
[Pattison’s] biggest claim to fame at Massmart was dressing up the bride Syd Vianello Veteran industry analyst