Edcon chooses to stick with old store format in modern retail world
The struggling retailer is going back to basics as it prepares itself for the biggest battle in its history
Edcon is betting its future on an old department store format that is under pressure worldwide.
The struggling retailer, which has a large debt burden and has increasingly been losing market share to international retailers such as H&M and Zara, is going back to basics as it prepares itself for the biggest battle in its history.
Key to this strategy is focusing on the original 89-year-old department store format of Edgars.
But in a world where the department store retailing format seems to be dying, as evidenced by the recent closure of Stuttafords stores, some analysts are questioning Edcon’s move.
"I don’t know if they will survive. Edgars will continue to lose market share and there is a reasonable chance that they will follow the same route as Stuttafords," says Alec Abraham, a senior equity analyst at Sasfin.
"The big difference between Edgars and Stuttafords is Edgars is partly finding their relevance and boosting profitability and getting rid of more brands and doing more house brands, which tend to be higher margin."
In 2017 Stuttafords closed all its stores after 159 years, as it failed to draw in consumers with high-end international fashion brands such as French Connection, mirroring the realities of department stores in Europe and the US.
A revitalised in-store experience will also centre on elevating store windows with a focus on displaying private brands and enhance story-telling with co-ordinated looksMike Elliott
CEO of Edgars
Abraham says Edcon needs to try to find its relevance again in the South African market.
"Part of that process of trying to get rid of that is getting rid of Topshop; the consolidation of Red Square and Boardmans into Edgars is part of trying to find its relevance. The department store format doesn’t seem to fit into the modern world."
But the Amazon era has made it difficult for many retailers to survive.
US department store Macy’s is one of the casualties of ailing department store retailing and has announced the closure of 100 stores. In the UK, House of Fraser said it planned to close 31 stores, including its flagship store in Oxford Street, as many retailers felt the strain of consumers shifting to online platforms.
Yet with an impending deadline of September 30, by which time creditors are expected to sign off the newly proposed restructuring plan under Edcon CEO Grant Pattison, the group is looking to breathe new life into Edgars.
The restructuring plan proposed by Pattison aims to improve Edcon’s sales density so it meets its target of a 20% to 30% improvement.
The group will also review its store portfolio with regards to a possible leasehold estate restructuring, including the consolidation of some of its stores across various divisions, while also expanding its credit and financial services value proposition to support top-line growth.
Mike Elliott, CEO of Edgars, says that in order to change brand perceptions, Edgars will have to change its marketing approach to revitalise the brand and regain fashion credibility.
"A revitalised in-store experience will also centre on elevating store windows with a focus on displaying private brands and enhance story-telling with co-ordinated looks," Elliot says.
"Revised store layouts and product adjacencies facilitate the creation of strong category statements and have been captured in the design of Edgars’ Store of the Future that will form the basis of the new Fourways store to be completed in April 2019."
Edcon also hopes that Edgars will be re-established as the anchor tenant of premium shopping centres.
"In this endeavour, Edgars will be rebranding and relaunching the Boardmans and Red Square businesses as Edgars Home and Edgars Beauty, respectively.
"Edgars will provide the optimal customer experience through continued incorporation of our customers’ feedback into our value proposition," he says.
This will result in the closure of the standalone Boardmans and Red Square stores, which will be consolidated in-store.
Despite the number of changes the retailer has been looking to implement since Bain Capital’s acquisition in 2007 for R25bn, the retailer has been struggling to stay afloat.
At the end of 2017, Edcon’s net debt was R4.2bn, compared with R24.7bn in the previous year, before a consortium of investors — including Franklin Templeton, Sanford C Bernstein and Harvard University Pension Fund — took over the company.
An analyst who did not want to be named says, "the struggle with Edgars is that their quality is not that great, aside from the department store offerings that they have.
"They have been so dependent on promotional activity for a long time that the consumer comes to expect that promotional activity.
"If they were to step away from that and try and go off on their own, I don’t know anyone who would choose to buy from Edgars and that speaks to their potential for margin growth as well."
Edgars has also had to do away with its international joint venture agreements with some of the House of Busby stores such as Mango, Nine West and River Island, after the investments yielded little value for the retailer.
It is choosing to focus on its investments with local brands such as make-up brand 3INA and lingerie brand Women’s Secrets.
Mark Sardi, group CEO at the House of Busby, which has a longstanding concession business with Edcon where they rent space within the Edgars environment, says: "Edgars remains a significant trading partner for us under the concession model where we have 74 store-in-stores within Edgars stores including 30 Forever New stores, 17 Steve Madden stores and 27 Aldo store-in-stores.
"We regularly review our brand performance and based on product relevance, pricing architecture and economic factors we may make the call to disinvest in certain brands or formats as the prevailing market conditions may dictate so that we may allocate our resource and effort more optimally."
Pattison says that if creditors do not sign off on its new restructuring plan, it may be difficult for Edcon to continue its operations as a holding group.
This could mean the break-up of Edcon as we know it.
The Edcon CEO says that CNA, Edgars and Jet stores could be unbundled from the group.