As SA clothing retail icon Edcon battles to stave off collapse, it is worth looking at what is happening on the global retail front for clues as to its chances of survival.
To recap, just before Christmas the media broke a story of an Edcon turnaround plan that involved asking its landlords to take a massive rent reduction in exchange for a modest stake in the business. It is not yet clear if that plan has met with any success.
The stakes are high. If Edcon doesn’t manage to pull off some type of turnaround plan and does fold, then about 14,000 employees will lose their jobs. Looking at the big picture, the global outlook for retailers remains poor. Only those players with a robust online strategy will survive, and “bricks & mortar” or traditional retailers that have not fully embraced technology will eventually go to the wall.
In the US, the number of shopping malls stands at about 1,200 and that figure is forecast to decline to around 900 in the next 10 years. The latest retail casualty in the US is Sears, flirting with bankruptcy, hoping against hope that its chairman can find a way to rescue it, but it doesn’t look good.
Last year was horrible for UK retailers, with HMV, House of Fraser, Maplin, Poundworld, Conviviality, Toys R Us, Hardy Amies and many others either closing or going into administration.
Others such as Homebase, Mothercare, Carpetright and New Look have reached agreement with their creditors in order to keep bumbling along. UK department store chain Debenhams incurred its worst loss at about half a billion pounds. High rentals demanded by landlords, seemingly unfair business rates, and the general trend to online buying, have conspired to make traditional retailers less competitive.
The message is clear: adapt or die. Even traditional retailers can still survive if they understand that the game is changing and adapt successfully to those changes.
Many years ago, the CEO of a large local retail clothing conglomerate told me that, globally, the average lifespan of a retailer was about 80 years. And that was before the emergence of significantly larger online players such as Amazon. So it is likely that this average lifespan has declined even further since then. Stuttafords’ demise a couple of years ago only serves to highlight and endorse this view.
Back in the late 1990s, as a subsidiary of SA Breweries, Edcon was rescued from extinction with the appointment of US retailer Steve Ross as CEO. Ross had no baggage with him and achieved a remarkably fast turnaround in Edcon’s fortunes, leading to staff and some media nicknaming him Stevie Wonder. But unfortunately Ross and his cohorts plumped for a disastrous leveraged buyout at the time of the global financial crisis, which left the group with a totally unmanageable debt pile. But at least historical precedent is on current CEO Grant Pattison’s side and Edcon could be saved if the correct plan is applied and adhered to.
Now at about 90 years of age, Edcon is living on borrowed time. Will Pattison’s masterplan succeed, or will Edcon eventually bite the dust? Fundamentally, the odds are stacked heavily against it succeeding, notwithstanding Pattison’s previous success with Massmart.
A few years ago Edcon enjoyed a market share of about 50%. That has now dwindled to about 30% as local and foreign competitors have intruded into its dominance.
Any turnaround plan must be bold enough to attract back departed as well as new customers. As yet there is no indication that the turnaround plan is anything more than a holding strategy and one that may merely be deferring the final day of reckoning.
Chris Gilmour is an investment analyst...