Grant Pattison. Picture: MARTIN RHODES
Grant Pattison. Picture: MARTIN RHODES

SA’s struggling mall owners need a few lucky breaks in 2018, and one of them could be the resurgence of the once mighty Edcon — owner of Edgars – which was almost brought to its knees by a private equity buyout in 2007.

Following a debt restructuring in 2016, Edcon is now under the stewardship of former Massmart CEO Grant Pattison. Business Day asked him what he has been doing since taking over in January.

I’ve put together a four-point strategy… The first is to continue the retail turnaround [under former CEO] Bernie Brooks’s creditors plan: take out international brands, focus on private brands, improve service levels through adding staff, decentralise the company and reduce costs. We have to increase our trading densities by 25% and increase stock turns from three to five. That largely has to be done by making our store portfolio more efficient, which will mean less space going forward.

Does the group own its property portfolio?

We lease it entirely. It’s a five-year strategy so we can make decisions as leases come up for renewal. Number three is to improve our replacement systems and then number four is to build our credit and financial services business … follow the Fintech model. We have a very large financial services business which I think is untapped and I think there are some opportunities there.

How many account holders do you have?

We probably have a relationship with about 12-million people. And we aren’t really doing it properly.

Because Edcon was so hamstrung by its debt?

It’s a bit of a sad story. The first mistake was that the business was over-geared and had been capital-starved for a while. The second mistake was selling the book to Absa. We lost skills of the people running that business. The Absa mistake has been reversed by opening up [Edcon’s own book]. So we’re in charge of opening new accounts now, and that’s growing. The third mistake was the international brands business and the fourth was we expanded our store portfolio too much. Edcon lost its way in terms of properly evaluating store openings and having what I call a store location theory. Maybe they retrenched the department that did that… [We opened] space in every mall … without thinking about it.

Is Edcon fixable, in a very different environment to when it delisted?

Clothing is a cyclical business and we are sitting stuck at the top of an interest rate cycle. The cycle should have turned, I think, in 2015-16 but because of the political problems we got stuck with interest rates at a high level. But one shouldn’t panic when one has a few quarters of poor sales and say that clothing’s dead.

The other big cycle that we needed to keep an eye on was the entry of Zara, H&M and Cotton On. I think Truworths and Foschini got their response right, which was to focus on their business and do it better. They didn’t make silly errors like we did by trying to bring in international brands. If I look at our private brand business in Edcon, our apparel brand, it’s growing at double digits. But we’ve got a business with a whole bunch of other things in it: homeware, stationery, general merchandise and food. We need to shrink those down.

Will you now run two loan books simultaneously?

As the Absa book shrinks, our second book will grow. We have no intention to increase our sales of credit as a percentage of total sales. We’re around the 35% mark. We just want credit and cash sales to grow by the same amount. I think it’s a flawed strategy to grow sales by lending more money.

Edcon has R2.2bn of debt to be refinanced by September. Will it do so?

Whether it’s an injection of new capital or it’s extended or converted to equity is a discussion between the Opco [operating company] lenders and the Holdco [holding com-pany] investors.

Is yours the most difficult job in retail at the moment?

I came in with my eyes open — this isn’t a surprise to me. I’m often asked why I’m here and my answer is rather glib. It’s arrogant to think you can just go around and choose great opportunities where the company is going to do fantastically. I think someone like me who’s had a lot of luck and some success so far, I thought I’d step up to the plate.