Bain’s Edcon Seeks Cost Cuts as South African Consumption Slumps

  • Retailer plans eliminate jobs in plan to save $32 million
  • Owner of Edgars lost market share in 3 months through December

Edcon Holdings Pty Ltd., South Africa’s largest clothing retailer, is seeking 500 million rand ($32 million) of savings as the company tries to halt a sales slide and woo customers even as the country’s consumer confidence approaches a 14-year low.

About half the savings planned for fiscal 2017 will be from job cuts at its head office and the rest from a reduction in travel, advertising and security costs, Chief Executive Officer Bernard Brookes said on a conference call on Friday. He declined to comment on the number of expected cuts because the process is ongoing. The retailer cut about 1,500 positions at its Edgars chain a year ago.

“There’s no doubt it gets harder with the headwinds we’ve got,” Brookes said. “Hence it’s made us go stronger on the cost reductions we’ve needed to take and made us go faster with the restructure.”

The owner of the Jet and CNA chains continued to lose market share in the three months through December, he said.

“Every other retailer in town is having our lunch,” he said. “If we are declining at over 1 percent, we’ve lost market share” to Woolworths Holdings Ltd., Truworths International Ltd. and Mr Price Group Ltd. as well as international retailers such as Hennes & Mauritz AB, the CEO said.

Rising Costs

Edcon’s retail sales fell 1.7 percent to 8.69 billion rand in its third quarter. South African retailers and consumers are under pressure as inflation rises and a weakening rand prompted the central bank to raise interest rates by half a percentage point last month, increasing repayment costs for those with loans or mortgages.

Edcon reported a quarterly profit for the first time since 2012 following a debt refinancing that will see borrowings reduced by 4.5 billion rand. Net income was 2.98 billion rand in the period, compared with a year-earlier loss of 188 million rand.

“We are looking to get some financial benefit from April, but true opportunity to reclaim our market position and market share will come for us in 12 to 18 months as we really start to gain momentum and drive some sales lines,” Brookes said.

Brookes, who was head of Victoria, Australia-based Myer Holdings Ltd. until May and became Edcon CEO on Sept. 30., said in December that the company is reducing its focus on international labels and turning to more profitable own brands.

Bain Capital Partners LLC, based in Boston, bought Edcon for about 25 billion rand in 2007 to tap into rising economic growth in Africa’s second-largest economy. The deal burdened the retailer with debt, which increased 4.1 percent to 22.6 billion rand year-on-year.

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