Renewed hope for Edcon’s recovery plan

The appointment of former Massmart executive Grant Pattison to lead struggling retail group Edcon, which breaks the tradition of hiring foreign CEOs over the last ten years, is a new start for it to return to its bellwether status.

Pattison, who was instrumental in the acquisition of general goods retailer Massmart by US retailer Wal-Mart in 2011, will replace outgoing CEO Bernie Brookes in February 2018.

“Restoring Edcon to its former glory is a privilege and a challenge. I’m excited about the challenge of restoring it to being the best retailer in South Africa,” said Pattison.

But the road to recovery is long for Edcon, which recently staved off bankruptcy after creditors took it over, resulting in the reduction of its smothering debt load from R26.7 billion to R7 billion.

As part of the handover process, Pattison was appointed to a new board in April that is more au fait with the retail industry than corporate finance. He will initially join the company as a COO from June.

Top of his priority list is reviving Edcon’s ailing CNA business and exploring opportunities in the rest of Africa.

Brookes, who still speaks on strategy until Pattison is installed as CEO, said plans are afoot to consolidate brand product categories at CNA. “It was fiddling in too many categories such as digital, gifting, and electronics. CNA will be a stationary, gift seller and still continue with a limited range of books and magazines.”

Africa opportunities will be explored once Edcon contains bleeding sales and market share loss to its agile local and international fashion retail competitors. “But first, we have to get the top line moving, which will be hard.”

Edcon’s group retail sales decreased by 6.7% to R25.3 billion during the year-end March and comparative store sales (stripping effects from new store openings) sunk by 6.7%. Cash sales fell by 2.4% while credit sales fell by 13%.

Brookes said Edcon’s sales would have improved if it had more merchandise after Black Friday discounts, the US retail phenomenon fervently embraced by South Africans on November 25, resulted in empty shelves and the move of Easter from March to April. These trends reflected in its adjusted Ebitda, which fell by a sizable 45% to R1.4 billion.

“It’s an awful decline in Ebitda, which was due to the R300 million we’ve spent on clearing old merchandise and being competitive on price.”

Radical changes are already taking place at Edcon since Brookes, who is the former chief of Australia’s largest department store Myer, took over from Jürgen Schreiber two years ago.

To stabilise the business, Edcon sold its non-core assets, among them, ladies apparel brand Legit to private equity firm Metier for R637 million.

Management has renegotiated with Absa to gain control of its store cards book. It now controls 80% of the book, which allows it to move quicker on granting credit to eligible consumers. After Absa bought Edcon’s store cards book for R10 billion in 2012, the bank subsequently tightened the credit taps to consumers. As a result, its book value dropped from R8 billion in 2012 to R330 million.

The company will close underperforming stores over the next three years and scale back on new store openings. Retail space has grown by 6% to 8% over the last five years, which became inefficient from a cost saving perspective. The floor space of international brands including River Island, Tom Tailor, Lucky Brand, Vero Moda and others will be shut.

Under Schreiber’s leadership, Edcon aggressively pushed international fashion brands into Edgars and others with standalone stores – an expensive exercise which flopped. Other turnaround initiatives include spending R1.4 billion on its ageing IT systems, spanning across the point of sale and merchandise management.

The big question is what Brookes’ next move will be. The 57-year-old said he never planned to stay longer than two years as his mandate was to stabilise the retailer. “I will continue to support Edcon long after I leave. If I was younger, I would stay for another three to five years and see the business go through an IPO.”