Bain's Edcon Switches Focus to Private Label to Revive Profit

  • International brand prices rising with weaker rand, CEO says
  • Market share at flagship Edgars chain fell to 11% in 4 years

Edcon Holdings Ltd., South Africa’s largest clothing retailer, is reducing its focus on international labels and turning to more profitable own brands as new Chief Executive Officer Bernie Brookes shakes up strategy to revive sales and earnings.

Under previous CEO Jurgen Schreiber, Edcon introduced a range of international brands such as Topshop and Tom Tailor in an attempt to fend off local and foreign competition from Inditex SA’s Zara and Hennes & Mauritz AB, which are both carving out footholds in South Africa. While Schreiber bet the new brands could differentiate Edcon from its competition, Brookes sees greater benefit from the company’s own labels.

“The international brands make us look expensive,” said Brookes, who was head of Victoria, Australia-based department store operator Myer Holdings Ltd. until May and became Edcon CEO on Sept. 30. “The prices of these international brands have moved up with the weaker rand and are often out of the price range of our average customer.”

Edcon has struggled since its 25 billion-rand ($1.7 billion) purchase by U.S. private equity firm Bain Capital Partners LLC in 2007 and has seen market share at its flagship Edgars chain slump to 11 percent from 17 percent four years ago, Brookes said at presentation in an Edgars outlet in Johannesburg on Wednesday. The company expects to lose further market share over the holiday trading period and a planned turnaround will take as long as two years, the CEO said.

“We have to simplify -- focus on a defined target segment,” he said.

Investment Hampered

Edcon’s takeover by Boston-based Bain saddled the retailer with debt, hampering its ability to invest in stores at the same pace as South African rivals Truworths International Ltd. and Mr Price Group Ltd. The arrival of Zara in 2011 also caused shoppers to defect. Retail sales in the three months through Sept. 26. fell 0.1 percent as transactions settled on credit slumped 7.6 percent, the Johannesburg-based company said Nov. 19.

The retailer is moving its private-label brands such as Kelso and Stone Harbour to more prominent locations in the stores, lowering prices on some ranges and promoting these brands through new display backdrops and posters.

“Our core customer has been neglected,” Brookes said.

Edcon, which cut its executive team to nine from 17 over the past six weeks, plans to eliminate more head office jobs in February and March, he said, without specifying how many.

Debt Refinancing

The retailer announced on Nov. 30 that it had agreed with lenders to a debt refinancing that will see it reduce borrowings by 4.5 billion rand, easing the pressure on its balance sheet and enabling the company to pursue the turnaround plan.

Edcon is also seeing an improvement in credit sales after starting its own so-called second-look credit book in October 2014. This borrowing platform, which considers customers that failed to meet lending criteria stipulated by primary lender Barclays Africa Group Ltd., stands at about 200 million rand, Brookes said. The retailer’s loan approvals halved after Edcon sold its private-label store cards business to Barclays Plc’s Africa unit in 2012.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE