Is Edgars back from the brink?

Edgars, once South Africa’s biggest clothing retailer, is almost through its turnaround but is not yet ready to sell, says Norman Drieselmann, CEO of new owner Retailability.

“We’re not desperate sellers,” he says. “Our goal isn’t to exit at all costs but rather to sell at fair value.”

However, it has agreed to sell apparel brands Style, Swagga and Legit, along with homeware brand Boardmans, to Pepkor. The price wasn’t disclosed, but is reported to be about R1.9bn.

It leaves Retailability to focus on the rump of the business: Edgars and Edgars Beauty (previously Red Square), Kelso (women’s fashion) and Keedo (children’s wear).

Market talk was that Pepkor wanted to buy Edgars and Retailability wanted to sell, but Drieselmann says any discussion of a sale of the group’s brands would have had to include the mention of Edgars.

“In an ideal world it would have made sense to exit in its entirety. We’re saying let’s continue running Edgars, extracting profit gains from the business, and then we’ll look to sell when the time is right.”

Edgars is repositioning as a family store in which private labels  “allow us to charge more midtier pricing, which gives us a level of fashionability the consumer wants,” says Drieselmann.

Retailability bought Edgars out of business rescue in September 2020 and has been working to fix it. One way is reducing store size. For instance, when it took over, the Sandton store was 12,000m²; it’s now 5,500m².

After a leveraged buyout in 2007 by Bain Capital, Edgars was saddled with too much debt. There was increased competition and a shift towards online shopping, but it was Covid that tipped it into business rescue. 

Over the years, the company made several strategic mistakes. In 2007, 65% of group turnover was credit. When the financial crisis hit in 2008 it stopped lending and sold its debtors book to Absa. Today the business is about 80% cash. 

“When you give up control of a fundamental strategic pillar you’re letting someone else apply thinking to your business; you’ll lose your way,” says Drieselmann.

In 2012 the group brought in international brands, many of which carried no local credibility. It shifted from middle-class to high-end consumers. A Ted Baker shirt may cost R3,500 but the average South African is comfortable paying R249-R349 for a work shirt, says Drieselmann. “We do still sell international brands but they have to carry credibility.” They include Levi, Polo, Guess, Forever New and Puma.

Edgars is also moving from a big department store format with multiple levels to single-floor operations, where possible. By the time it finishes the rightsizing, stores will, on average, be two-thirds of the size they were.

“We’re not becoming a small-box speciality store by a long way, but we’re rightsizing to what works commercially in the market today. If you’re too small you can’t service men, ladies and kids,” says Drieselmann.

When Retailability bought Edgars there were 131 stores (of which 116 were apparel). There are now 105. When it took over the chain, total floor space covered 460,000m²; it is now on 420,000m² and will reduce by a further 40,000m² this year. The company believes rightsizing the stores will help with profitability ratios, bringing these to the sustainable levels needed.

The Kelso brand has grown well over the past two years and dedicated stores are being rolled out. “We feel the Kelso standalone store can be successful in all regional malls.”

There are 20 Edgars Beauty stores, in the prestige space in the mid to upper market. With 15 Keedo stores, there is no plan to open more dedicated outlets: these will be rolled out into Edgars stores.

Drieselmann says 38% of the customers shopping with the retailer now didn’t shop with it last year. “We’ve had an influx of new customers,” he says. The private-label business has doubled over the past four years, helping to bring back cash customers.

The group is underrepresented in the Western Cape and is seeking space there.

Drieselmann is not sure if Edgars would fit into Pepkor’s strategic market but there may be other trade buyers or private equity buyers. “We’re honestly not even engaging with people on the sale of Edgars.”

But what he has found is that the more value it puts out, the better the sales.