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Footgear makes bid for Edcon’s Edgars Active

‘We are not a massive growth story, we are more a massive recovery story’ – CEO.

NOMPU SIZIBA: Edcon recently concluded a R2.7 billion recapitalisation of its business. This included negotiating with property companies to secure lower rentals, in turn giving them a stake in the Edcon business. The 90-year-old retailer was within a whisker of having to shut shop due to high debt and a very difficult trading environment in which consumers continue to show signs of taking strain.

So, now that the opportunity is there to turn things around, how is it going so far, what tweaks have been made and what are the plans going forward? I’m joined on the line by Edcon CEO Grant Pattison. Thanks very much, Grant, for joining us. There is an article I read about you which says you have a Mr Fixit type of mindset. Edcon has been in a mess, and you’ve now been given a financial lifeline, so to speak, and come to certain agreements with key stakeholders to make a turnaround work. What have you done so far to fix the operations of the giant retailer?

GRANT PATTISON: Good evening. What we have implemented is a three-pronged strategy. One is to fix the balance sheet, which is the financial restructuring. So, we’ve got rid of all the debt and raised R2.7 billion. So that’s complete and behind us.

The second thing is obviously to improve our product offering, and listeners will know that we’ve gone through a period of substandard products and service offerings. We are working very hard on fixing that.

Then, the third part is to focus the group, as is traditional in these types of turnarounds, on its core business, which is CNA, Edgars, Jet and our Thank U financial services company. That’s also largely been done, particularly with the announcement that we have sold Edgars Active. So, that’s another business which is non-core.

NOMPU SIZIBA: Yes. Edgars Active – that’s all your sporty-type of wear. That’s been bought up by Footgear. Are you at liberty to tell us what sort of money you’ve been able to make, and what you are going to be applying the funds to?

GRANT PATTISON: We are not discussing the amount but, needless to say, they really bought the stock and the fixtures and the fittings from us. There was not a business for sale as such. They bought about 100 stores and are going to convert them to Footgear stores and we are going to retain the Edgars Active brand.

NOMPU SIZIBA: Okay. Ahead of the restructuring fund or the recapitalisation programme, you had already begun with the business of shutting down a number of stores – I think 150 or so. What was the job-loss toll from this and, going forward, as you shrink your floor space, do you have an estimate as to how many more jobs may be lost?

GRANT PATTISON: We are tracking it closely. What we have done so far, as we consolidate our businesses, is we’ve put Red Square and Boardmans and now Edgars Active and our international brands business into Edgars, and so we’ve shut down a lot of the smaller stores. And we’ve also shut down a business called JetMart, as opposed to the Jet clothing stores.

We have had no forced retrenchments to date, and we are giving all store employees the opportunity to move into the other stores. We have had about 100 to 150 employees take up voluntary retrenchment.

NOMPU SIZIBA: In your strategy, have you completely moved away from importing foreign brands? Are you looking to basically be a 100% South African retailer?

GRANT PATTISON: In Edgars there will always be some international brands, as we call them – but as the secondary part of our business. We are primarily a home, beauty and apparel retailer of private brands. But in those areas where we struggle to compete against the higher-end brands, we keep things like Mango and lip C brands and others to satisfy the upper end of the market.

NOMPU SIZIBA: Are you still pushing very firmly towards ensuring that you help to develop South African designers and that kind of thing in your apparel area?

GRANT PATTISON: Correct. Over 50% of our private brands are designed and manufactured here in South Africa – quite often out of cotton grown in South Africa. So, we are very much on a localisation drive, as are every one of our buyers, and we’ve a special designers’ development programme, who are focused on creating those garments themselves. Most of the private brand garments that you buy at Edgars and Jet are designed in-house by our designers through our design programmes where we develop designers.

NOMPU SIZIBA: I have Zimbabwean connections. I do pop into that country every so often, and I know that you have stores there. What’s the situation like there, because we hear that the economy is really struggling, consumers are struggling. Are you getting any traction businesswise in Zimbabwe?

GRANT PATTISON: We have a 40% stake in that business, so we don’t get involved operationally. But we are a shareholder there and I’m on the board. I think, as you’ve said, it’s a very, very difficult time for any business in Zimbabwe, and I would say the business stands up reasonably well in these times. It has a very experienced management team, and if you have Zimbabwean connections, you know that they’ve been through this before. So they do know how to respond to it.

NOMPU SIZIBA: Coming back to South Africa, you are looking to focus mainly on Edgars, Jet and CNA. But once you fine-tune the business, get it to where you want it to be – hopefully by that time we don’t have the current economic dynamics that we do, but, if we do, what do you then do because obviously you need to be able to get more feet into the shops and make sure that those translate into sales?

GRANT PATTISON: Those brands – Edgars, Jet and CNA, and our financial services brand, Thank U – are quite mature businesses. So, once we’ve right-sized the business and we’ve got it profitable, we really are exposed to the consumer economy, and so we’ll do well in times where there are expanding credit cycles and GDP growth, and we will struggle in times like this. So, we are not a massive growth story, we are more a massive recovery story.

NOMPU SIZIBA: Alright, Grant. All the very best, and good talking to you.

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