Johannesburg - Edcon, South Africa’s biggest retail and clothing retailer, was rolling out a revised strategy in an effort to boost sales, it said yesterday as it released its second-quarter results. Edcon’s net loss widened to R2.1 billion in the period, compared with a year-earlier loss of R627 million.
This as retail sales growth dropped to 2.7 percent year on year to September, according to figures by Statistics SA on Wednesday.
Struggling with debt
Edcon, which was bought by US private equity firm Bain Capital Partners for R25bn in 2007, was struggling with debt, which had increased by 15 percent to R27bn in the quarter. The retailer would simplify its “complex” business model, and reignite its own brands between now and Christmas, Edcon chief executive Bernie Brookes said.
One of Edcon’s weaknesses was that the business model was complex, with 76 different computer systems and multiple distribution systems, he said. “Retail is about providing the best products in a simple way. That is where we have to focus,” he added.
Included in the strategy was the option of selling non-core assets, excluding stores. Currently no negotiations were underway to do so in the medium to short term.
Edcon – whose brands include Edgars, CNA and Boardmans, as well as discount stores Jet and Legit – said cash sales had grown by 5.6 percent in the quarter to September, compared with the same period last year. But a 7.6 percent drop in credit sales during the quarter was a drag. To improve sales, Brookes said lay-bys would be introduced at 200 discount stores in the year ahead.
“We need to make credit sales grow, as well as cash sales,” Brookes, who took over as the chief executive in September, told journalists.
In the year ahead, Kelso and Stone Harbour, Edcon’s own clothing brands, would be rebalanced with international brands, including Topshop, Dune and Tom Tailor.
Jean Pierre Verster, an analyst of 36ONE Asset Management, said Edcon might have gone too far in introducing third party brands. “The weakness of the rand has meant that the third-party brands may have reached uncompetitive levels,” he noted.
Verster also warned that there would probably be costs involved in simplifying the business. “It will be a challenge,” he said.
Edcon would be focusing on store space productivity, while emphasising digital retail that would enable customers to click and collect their items. This would include the beefing up of stationery brand CNA, whose sales were down 4.3 percent in the quarter to September.
Resurrection
Brookes said: “It is obvious that CNA needs to be resurrected to ensure it is a stationary solution for customers.”
Total cash sales growth in the Edgars division remained strong, increasing by 6 percent. However, credit sales growth declined by 6.7 percent, which resulted in Edgars’ total retail sales decreasing by 0.3 percent for the second quarter to 2016 when compared with the second quarter of 2015.
“The results are still burdened by Edcon’s sale of the debtor’s book to Absa and the tightening of credit granting criteria, with credit sales at only 40.3 percent of total sales for the quarter,” said Verster. “Edcon’s own second-look credit book is still tiny, at only 3 percent the size of the book controlled by Absa.”
BUSINESS REPORT