Sinking Retailer Edgars Faces Turnaround Challenge?

Edgars, once the flagship clothing retailer in South Africa, is nearing the end of its transformation, but not quite ready to cash out, says Norman Drieselmann, CEO of the Edgars' new owners, Retailability. "We ain't desperate sellers," he declares. "We're not looking to exit at any cost; our aim is to sell at a fair market value."

However, an agreement has been reached to offload apparel brands Style, Swagga, Legit, and Boardmans, along with Pepkor, for a reported sum of about R1.9bn. With these brands out of the picture, Retailability will concentrate on the remaining operations: Edgars, Edgars Beauty (formerly Red Square), Kelso for women's fashion, and Keedo for children's wear.

Rumors were swirling that Pepkor was eager to acquire Edgars, and Retailability was eager to sell – but Drieselmann clarifies that any discussion regarding a group sale would have had to encompass Edgars due to its importance in the business mix.

"In an ideal world, it'd make sense to exit entirely," explains Drieselmann. "But for now, let's continue to run Edgars, squeeze profits out of the business, and then we'll think about selling when the time is right."

Now that Edgars is transitioning into a family store, private labels are intended to support mid-tier pricing, which shoppers want, according to Drieselmann. Edgars was snatched by Retailability from business rescue in September 2020 and has since been working hard to get it back on track.

One key strategy is downsizing stores. For example, when Retailability took charge, the Sandton store spanned 12,000 m²; now it measures 5,500 m². After the financial crisis of 2008, the company was left in debt, facing increased competition, and shifting consumer preferences for online shopping. However, it was the pandemic that pushed it into business rescue.

During those years, the company made several strategic missteps. For instance, in 2007, nearly two-thirds of the group's revenue stemmed from credit. To top it off, several international brands brought in during 2012 had little local credibility. Edgars shifted from targeting the middle class to the high-end market, with pricey items like a Ted Baker shirt going for R3,500, which the average South African wouldn't pay. Today, the company focuses on international brands with credibility, such as Levi, Polo, Guess, Forever New, and Puma.

Despite rightsizing stores, Edgars is not becoming a small-box specialty store – just one adapted to the needs of the present market. When Retailability took over the chain, there were 131 stores (116 of them apparel). Now, there are only 105, with a slight reduction in total floor space from 460,000 m² to 420,000 m². An additional 40,000 m² is planned to be shed this year. This downsizing is expected to boost profitability ratios, bringing them to sustainable levels.

The Kelso brand has seen impressive growth over the past two years and is being made into an independent retail option for major expansion over the next five years. There are 20 Edgars Beauty stores in the prestige sector; no plans are in place to open more dedicated locations – they will instead be introduced into Edgars stores.

Drieselmann reports that 38% of the shoppers visiting their stores were not there the previous year. The private-label business has doubled in the last four years, attracting more cash customers to the stores. The company is scaling back its presence in the Western Cape and continues to seek new space there.

As for the future of Edgars within Pepkor's market, Drieselmann expresses some doubt. Nevertheless, he remains open to potential trade buyers or private equity investors, even if they don't happen to be actively engaged in discussions about Edgars at the moment. The key is to keep delivering value, and sales will follow.

Norman Drieselmann, the CEO of Retailability, clarified that they are not looking to exit Edgars at any cost, but aim to sell at a fair market value.
In an effort to increase profitability, Retailability is downsizing Edgars stores, with the Sandton store reducing from 12,000 m² to 5,500 m².
Despite downsizing, Edgars is not becoming a small-box specialty store, but rather one adapted to the present market.
The Kelso brand has seen impressive growth and is being made into an independent retail option for major expansion over the next five years.
Drieselmann remains open to potential trade buyers or private equity investors, even if they are not currently engaged in discussions about Edgars, as long as they can continue to deliver value and boost sales.