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Edcon reverses international strategy

CEO Grant Patterson says the company is in the process of exiting some brands.

NOMPU SIZIBA:  Edcon Holdings is said to be turning to international brands such as Topshop and Tom Tailor as SA’s biggest clothing retailer seeks to restore profit seven years after being acquired in a leveraged buyout. There are also rumours that the company is looking at shedding quite a number of jobs. On the line we do have the CEO of Edcon, Grant Pattison, to tell us exactly what’s happening. Thank you so much, Grant, for joining us. How is the restructuring process going on at Edcon, and what is it that you are putting in place?

GRANT PATTISON:  I wouldn’t refer to this as “restructuring”. Essentially what we are doing is refining the strategy. Edcon in its heyday expanded into many new categories, many new formats. And it’s typical in a turnaround type of situation, which Edcon clearly is in, for it to focus and go back to its core business, which is clearly Edgars, Jet and CNA.

NOMPU SIZIBA:  Tell us exactly what’s been going on, because some months ago there were rumours that you were going to close down a key Edgars store in town, your very first Edgars store that had been established for several years. So what exactly are you putting in place, what is happening at the company?

GRANT PATTISON:  Sure. What we are struggling with at the moment is actually the communication with the media on this. The media seem to be very interested in announcing store closures; obviously we would never announce a specific store closure without first informing both the landlord and the staff. That’s what you heard a couple of months ago – it was a journalist misinterpreting what I had said.

What certainly is true, though, is that we are shedding space. So Edcon has about 1.5 million square metres of trading space and over the next three to four years we are going to drop that by 250 000 square metres. The way we are going to do that is we are going to merge, in the Jet division, Jet and JetMart. I think your listeners will be familiar with both formats, so when you see two of them together, we will lose one of them and rebrand under Jet.

And then also something your listeners will be familiar with is that in a mall not only do you see an Edgars, but you’ll also see in that mall a Red Square and a Boardmans and a La Senza and several other well-known international brands, Dune and the like. Those brands are also available inside the Edgars [store]. So what we are doing is we are just focusing back on the Edgars brand. We are going to rename Red Square Edgars Beauty, we are going to rename Boardmans Edgars Home and we are going to merge all those stores into the main store in the malls where there is an Edgars. And where there is no Edgars, we’ll also open those stores. There is also an increased number of stores, so for your listeners who live in Gauteng, we’ve got like Nicolway, where that Red Square will become an Edgars Beauty and we’ll look to opening an Edgars Home there.

NOMPU SIZIBA:  So what are the implications of this process for jobs? Are there going to be some job cuts?

GRANT PATTISON:  There will of course be some job cuts. I think it would be naïve to say that one can turn around a company without cutting costs in all areas. What we are trying to do, though, is we are trying to move the sales. We don’t want to exit markets, we want to merge. So, by and large, 90% of the staff will be transferred from one store into the other that they are being merged with. There will of course be some job cuts because some staff members, probably more at a store management or assistant management level, can’t be accommodated in that new store or won’t want to move to that new store. So it’s certainly not a massive retrenchment exercise. We are trying tor retain the sales, so we obviously want to try and retain the sales staff.

NOMPU SIZIBA:  What’s happening with your debt situation? We know that’s been a real stumbling block for you. We know that you are in the process of making the company more efficient, but in the meantime have you managed to whittle that down somewhat?

GRANT PATTISON:  Well, as of today, Edcon is in discussions with its bankers and shareholders, so we’ve gone into a time where we are not paying the interest on our debt. It’s being accrued by the lenders, and that was covered in the announcement of our February results which we put out in March. So we are in discussions with them, which are going relatively well, and the idea is by the end of September to come to an agreement with lenders and shareholders to restructure the company in that respect. We are certainly restructuring the debt.

NOMPU SIZIBA:  Just coming back to the issue of international names and all of that, you say you are focusing on South Africa. But is there any truth that indeed you are also looking at bringing in the likes of Topshop and Tom Tailor?

GRANT PATTISON:  No, in fact it’s the opposite. Back in 2011/12, the Edgars brand, the Edgars division, brought in 30 international brands, alongside the existing international brands we have, like Levi’s and Dune and La Senza and Victoria’s Secret. So the company actually went on a strategy to bring international brands to South Africa. We are reversing that decision. It hasn’t worked well. So what we are doing is focusing back on our really well-known private label brands like Kelso and Stone Harbour, but we are keeping some international brands in their departments inside the store, and certainly those brands will shrink and there will be less of them. And then we will rotate them and try and keep exciting fashionable brands that customers want.

We are exiting brands like Topshop – so that brand is about to leave. And there are others like that. We are already out of River Island. So it’s already been closed down.

NOMPU SIZIBA:  So this means that you are going to be promoting South Africa talent, South African designers going forward?

GRANT PATTISON:  Yes, through several methods. Our buyers at Edgars and Jet are really designers themselves. We don’t buy from a selection of clothes. All our buyers are designers. They construct the garments, they design them, they choose the fabric, they choose the silhouette, they choose the colouring and the assortment, and they put together that assortment. So that’s one area where we are supporting local talent. And remember that over 50% of our private-label clothes are actually manufactured here in southern Africa, and in particular in our own manufacturing division down in Durban.

On top of that we are supporting young designers and so we have a programme where we bring the young designers up through our training programmes, and then give them an opportunity to sell through our stores.

And then we do support local designers and products in our stores.

NOMPU SIZIBA:  Okay, Grant. A last question, and it’s a broader question, really. How are you assessing the South African economy currently? The consumer is under pressure obviously with a lot of increases in taxes and inflation and so on. How does that then now gel with your business and your keenness obviously to get sales and become profitable again?

GRANT PATTISON:  It’s very unfortunate. To try to do a turnaround in a good economy is hard enough – and at the moment the economy is terrible. You guys have reported a lot. There seems to be no good news – increased taxes, increased petrol price, and bad news coming out of the turnaround of the state-owned entities, although good progress has been made. So no, this is going to be doubly difficult. Not only do we need the support of customers and suppliers to survive as Edcon, but we also need the support of the economy.

NOMPU SIZIBA:  Absolutely. Well, Grant, thank you very much for your time and putting us straight of a few issues there.

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