Edcon is South Africa’s largest non-food retailer, with a market share of the South African clothing and footwear market nearly twice that of its nearest competitor, trading through a range of retail formats. The Group has grown from opening its first store in 1929, to trading in over 1 500 stores in South Africa, Botswana, Namibia, Swaziland, Lesotho, Mozambique, Zambia and Ghana. Edcon continues to make significant progress in its employment equity and transformation goals.
We sell good quality South African footwear and apparel brands, our own private labels, as well as top international apparel and cosmetic brands that attract customers from the entire socioeconomic spectrum. Our retail businesses are structured under three divisions:
Edgars division, including Edgars, Boardmans, Edgars Active, Edgars Shoe Gallery, Red Square and the Group’s Mono-branded stores, serves principally middle to upper-income markets;
Discount division including Jet, JetMart and Legit, serves principally middle to lower-income markets; and
CNA, the Group’s stationery, books, games, movies and music retailer.
Through our network of stores, we also sell other key products such as cellular phones and airtime, homeware and electronic equipment.
We are committed to developing a high performance culture in support of goals and objectives and we endeavour to support community initiatives that align with our social responsibilities and business operations, while at the same time ensure effective governance and sound management principles.
Our strategy is driven by four key levers. We aim to increase sales by growing comparable store sales and benefiting from new space growth, while we continue to roll out new stores in South Africa and other African countries. We leverage the benefit of these increased volumes by improving the margin on our sales. Our ability to offer credit through our strategic relationship with Absa Bank Limited (Absa) enhances customers’ access to the products we sell.
Our board has delegated authority for the day-to-day affairs of each of our divisions to our executive managers.
The executive management team is mandated to assist in managing the operations and performance of the Group and its subsidiaries, developing strategy and policy proposals for consideration by our board and implementing the directives of the board.
The Chief Financial Officer is responsible for credit and financial services division, as well as other support functions including property, business intelligence, IT, loyalty, internal audit, logistics, legal and secretarial services.
The Chief Operating Officer is responsible for HR, transformation, sustainability, internal communications, store management and store execution for the chains.
The Chief Executives of the respective Edcon Division and the Discount Division are responsible for strategy, merchandising, procurement, planning, marketing and promotion for the division, as well as in-store layout and visual merchandising.
We have market-leading stores and merchandise brands with diverse formats, customers and categories. We have a strong financial services offering and loyalty programme with significant economies of scale and an unrivalled footprint. We have improved supply chain efficiencies and there is an experienced management team and strong equity sponsorship firmly in place.
Yes, Celrose is the manufacturing division, which is an apparel manufacturer, focusing on mid to high-end garments of mostly woven construction. This operation also manufactures ladies’ and men’s outwear for the Edgars and Discount division.
Our vision is to be “the places to go” and “the place to work”. We have made great strides over the last year in implementing the changes we believe are necessary. A key initiative is the Edgars transformation programme which is focused on delivering a refreshed, consistent and compelling shopping experience. The programme consists of three key elements; refurbishment, a store optimisation programme, and people support. The refurbishment phase includes enhancements to visual marketing and remerchandising of product.
Yes, and this has improved fundamentally over recent years. Debt been reduced as proceeds from the sale to Absa of the trade receivables book were used to unwind the securitisation programme as well as part settle the 2014 maturities, but more importantly, future credit sales no longer require a cash investment.
Our cash conversion rate has improved significantly. With approximately 51% of sales on credit Edcon previously had to fund the resultant receivables. Following the Absa transaction all receivables will be funded by Absa and from an Edcon perspective, cash will be received immediately on all credit sales.
The additional cash flow will be used in the short term to fund the investment required to accelerate store refurbishment and the opening of new stores.
We are confident there is room for growth in the South African market in the medium term. Our commitment to grow space, both with existing and new formats and bring in new local and international label brands, are some of the initiatives supporting this belief. There is also undoubtedly large potential for growth outside of South Africa. Our Jet and Edgars Active formats are easier to roll out and there is robust demand for their merchandise. Our expansion strategy in the region has worked well for us thus far and will continue to be advanced prudently – we already have over 160 stores outside South Africa and their sales continue to grow strongly. We have the right strategy in place to address our key strategic levers – growing comparable store sales, adding new space, expanding our margins and realising the opportunities in our credit offering. As the groundwork we have done in the last two years beds down, same-store growth should pick up. We have extremely strong brands and an extensive network across the country in the best locations, so even small improvements across such a big base will make a difference.
Edcon believes that sustainable business must be built around its stakeholders. We recognise that establishing, understanding and responding to the relevant expectations of key stakeholders helps to build sustainable value for all stakeholders. We interact with many of our stakeholders, such as customers and suppliers, on an ongoing basi. We endeavour to ensure that engagement is a two-way process which not only takes into account what we wish to communicate but also opens channels for stakeholders to talk openly to us.
We have identified the material issues that are all interlinked and important. Ensuring that we deliver stakeholder value is a key issue on which we are permanently focused. Edcon is a large organisation with a wide range of stakeholders, including bondholders, current and potential investors, more than 35 000 employees, the communities in which we operate, an extensive supply chain and, of course, our customers. This creates its own challenges in finding win-win solutions, especially in more challenging times. We believe, because of our scale and presence, we have a unique opportunity to leverage our experience to serve customers more effectively, create opportunities for our employees and add value to all our other stakeholders. We are continuing to deploy our strategy to accelerate growth and improve returns in our businesses and this will enable us to add value. We will continue to serve communities and work with the leaders in the areas in which we operate to support continued development.
Store cost management has become increasingly challenging in light of the ongoing electricity, water and rates increases, which have been well ahead of inflation. These costs, combined with the contracted lease rental increases have exerted significant pressure on store costs. Considering these pressures, we are very pleased with the successful management of these costs. This was made possible through productivity improvements, partly due to the store optimisation project, and the implementation of more efficient light and power solutions across the store grid.
While Edcon continually reviews its operations and drives further efficiencies to grow its leadership position within the South African and African target market, Edcon has over the past 18 months made significant progress in right-sizing the cost base in stores and at Head Office. The wise use of capital is always a priority for Edcon, but the focus is more on strategically growing its footprint in Africa, and investing further in initiatives such as the store refurbishments which have been so well received by customers.
Edcon’s business model is very sound, with profitable businesses and strong cash sales across the stores in the Group, which is proof that the business proposition is on the right track. Edcon is the largest South African apparel retailer by revenues with well-recognised brand names enjoying the support of more than 12 million customers who are members of Edcon’s loyalty programme – the biggest in the country. Our major challenge is not at store level, but rather at the Edcon holding company level. The company is funded by money invested by shareholders and by debt, much of it raised at very high interest rates before the 2008 global financial meltdown. The size of this debt has increased significantly over the years because of factors beyond management control, such as the weakening rand, and the interest bill on this debt has become a significant burden on the cashflows of the business. The company has thus been actively reducing both the level of overall debt as well as the cash interest bill it is required to service.