8 of 2024

Newsletter No 8/8 March 2024






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Revamped Edgars dressing sensibly

By Adele Shevel

Slimming down: Edgars has reduced its coverage by just over 18,000m2 of space in the past nine months. Picture: Alaister Russell

Margins before market share — it’s not a space race, says Retailability CEO

The big retailers continue to roll out stores despite a tough economic environment. But Edgars is holding back on space expansion, having decided not to chase market share at the cost of bottom-line profit.

Edgars has reduced its coverage by just over 18,000m² of space and closed three underperforming stores in the past nine months, all in smaller outlying areas.

“We’re plateauing now, we’ve hit a sustainable level of market share across Edgars in particular,” says Retailability CEO Norman Drieselmann. “We’re choosing to not keep pace with the rollout of many of our retail peers, that’s not in our strategy — it’s not a space race, it’s all about unlocking profitability.

“We foresee our market share being diluted over the next year or so. What tends to be spoken about in the market is new store expansion, but we need to make sure our stores are profitable or not draining the balance sheet. What’s more dominant around our boardroom table is comparable profit growth.”

Retailability bought Edgars out of business rescue in 2020 and is now in the last phase of the turnaround. Drieselmann says business is going well “all things considered, given that we are trading in a tough environment where it’s difficult to unlock all the wins”. In addition to reducing underperforming store space, the group has negotiated more favourable rents.

The big listed retailers are reporting lower sales volumes of clothing but Drieselmann says unit volume sales at Edgars have been resilient due to price reductions, and with offerings more firmly in the value segment.

Norman Drieselmann: Scope for consolidation in the retail space. Picture: Khaya Ngwenya

“We’re in a fortunate space where all formats have given profit growth over the past nine months. We’ve also been able to grow our bottom line.”

Retailability bought 131 Edgars stores (including beauty stores) out of business rescue in 2020, and there are now 114 Edgars stores and 15 stand-alone Edgars Beauty stores. Drieselmann says last year it was able to double profits from 2021 and it has now stabilised the business. As it heads towards a more solid growth trajectory, so there is likely to be more interest in the business.

Bloomberg reported at the end of last year that Pepkor, the owner of Pep, Ackermans and Tekkie Town, was considering paying as much as R2.4bn for Edgars, but Drieselmann says there was never a deal on the table. “A cup of coffee is always free.”

Pepkor CEO Pieter Erasmus has previously said that while the discount retailer is focused on organic growth, it wants to sell more adult clothing and would consider doing that through acquisition “at the right price”.

Edgars has shifted its approach over the past few years. It has tried to entrench its position in the middle market rather than the upper market. Retailability’s other brands include Legit, Style and Beaver Canoe — and while Edgars is the biggest part of the business by far, Drieselmann sees the biggest growth coming from Style and Legit. Legit is focused on the young fashion woman and Style targets the low- to mid-income market.

The plan is to double the Style footprint of 105 stores over the next three years. “We’re seeing such strong growth there. That format has a nice footprint in Namibia and Botswana,” says Drieselmann.

“Edgars is still an absolute beast but what we hope to do is make Style as big as Legit, it’s a substantial brand. We will build Style into an equivalent brand to Legit in the market in terms of footprint and turnover.”

Drieselmann says customers are a lot more circumspect as to what they buy each month. “There are a lot more planned purchases as opposed to impulse purchases; we’re seeing that this month it’s for mom and dad, the next for kids, then for beauty.” 

He says there is scope for consolidation in the retail space, to strengthen the offerings and strengthen the sustainability of the balance sheets. It’s an increasingly competitive sector with Pick n Pay doing well in clothing and Shoprite entering this segment. Store rollouts from brands and the big groups are adding new product lines to increase market share, and to venture into new terrain.

Several have bought entrepreneur-founded businesses as they move into areas in which they’ve been underrepresented. Mr Price bought Sheet Street, Yuppiechef, Power Fashion (aimed at the lower end of the market) as well as 70% of Studio 88 (with more than 700 stores). In May last year Retailability bought Keedo out of Cape Union Mart.

Edgars launched Boardmans online midway through last year and wants to use it as a “sounding board” to determine potential to build bricks-and-mortar into the group. It is seeing continued interest in the beauty sector. This month Edgars took over two stand-alone MAC stores from the brand and they’re in conversations to take over several Jo Malone stores. Edgars traditionally had a strong presence in the beauty sector with Red Square. Edgars was slow to online sales, launching its online offering only in July 2021. It’s now growing ahead of bricks-and-mortar in the group.

Makwe Masilela, head of Makwe Fund Managers, says Edgars fashion is not resonating with current buyers and there’s some serious competition out there. “I think the legacy is that people were disappointed with the brand — it will take some time to dust that off and win back those customers.”

Masilela says its loyal customers are no longer buying what they used to, “they’re more worried and concerned about other things in life. They’ve grown up so they’re more concerned about value for money and they have responsibilities they didn’t have before. Then they may have had one kid at school, now they may have two or three. Value for money is paramount.”

He says if the company can capitalise on the brand itself then, with time, it should be able to get it right, but there’s more competition with international and local retailers which are starting to dominate the market. “Today you’re talking a different ballgame, you have all the international retailers and Shein is giving people a run for their money, not just Edgars.”

He says Edgars’s online presence needs work, and big store formats don’t work like they used to. “Gone are the days when it was seen as an anchor client.”

Retailability has more than 600 stores across Southern Africa including South Africa, Namibia, Botswana, Lesotho and Eswatini.







South African fashion retailers boost local production amid port delays

Photo by Bloomberg

South African fashion retailers are ramping up local production and using alternative sea ports and air freight to mitigate the impact of congestion at traditional ports that has caused massive delays in stock deliveries, executives told Reuters.

State-owned logistics company Transnet said in November the backlogs at the Port of Durban and congestion at Richards Bay were due to factors including under-investment in equipment and maintenance, warning that procuring some of the new equipment could take as long as 12 to 18 months.

Although South African fashion retailers have been moving production closer to home, they still rely heavily on imports, especially from Asia, for some products..

TFG, the owner of Foschini clothing brand, has fared better than competitors after it expanded its local factories and bought new ones over the last seven years.

As a result, TFG had enough stock for the key December festive season, it told Reuters.

The company added that it did not expect any major disruptions to ranges for the upcoming southern hemisphere autumn and winter months and that it was taking the necessary action, such as ordering earlier and amending destination ports..

South Africa’s autumn season starts in March.

Woolworths and Truworths are also ramping up local clothes production, using local suppliers and placing orders earlier, executives told Reuters.

Woolworths is placing smaller orders, more frequently, to avoid having big shipments stuck at the harbour, CEO Roy Bagattini said.

It is also directing ships to ports with fewer backlogs, such as Walvis Bay in Namibia, and then trucking the products to Cape Town, Bagattini added.

“Sometimes we look to air freight depending on the product and category. We fly stuff in, obviously it is costly and is not sustainable,” he said, adding Woolworths would not rely on this heavily to avoid higher expenses.

For the autumn and winter seasons, Woolworths is in a much better shape in terms of stock but not at 100% levels yet, Bagattini said, while Truworths cautioned there may be some stock shortages in autumn.

Truworths said its mitigation strategy also included sourcing from different countries.

It’s not just fashion retailers grappling with the problem. South African food services firm Bid Corporation said last week it was holding buffer stocks to mitigate the impact. https://cisp.cachefly.net/template/en2016/images/icon_article_end.png









Truworths interim results December 2023

Revenue went up 8.8% to R12.8 billion (R11.7 billion) whilst gross profit grew 8.7% to R6.3 billion (R5.8 billion). Trading profit remained stable at R2.2 billion (R2.2 billion). Profit attributable to equity holders was higher at R2.0 billion (R1.9 billion). Additionally, headline earnings per share increased by 3.6% to 512.6 cents per share (494.6 cents per share).


The directors of the company have resolved to declare an interim gross cash dividend from retained earnings in respect of the 26-week period ended 31 December 2023 in the amount of 332 South African cents (Dec 2022: 320 South African cents) per ordinary share to shareholders reflected in the company’s register on the record date, being Friday, 22 March 2024. through SENS.

Company outlook

Group retail sales for the first seven weeks of the second half of the 2024 financial period increased by 3.8% relative to the corresponding period of the 2023 financial period, with account sales decreasing by 0.6% and cash sales increasing by 8.2%.

South Africa: Truworths

The Group is cautiously optimistic on the medium-term prospects for the South African economy. Consumer spending and credit health will benefit from lower inflation and declining interest rates, which are expected to reduce from the second half of the 2024 calendar year.

Management continues to focus on the appeal of the Group’s merchandise and account offering to its approximately three million active account customers, while applying consistent credit granting criteria to maintain the quality of the account portfolio. Sales growth will be supported by refining the retail concepts launched in recent years, an intensified focus on unlocking opportunities by elevating and differentiating our product to enhance aspirational appeal, investing in the omni-channel customer experience and driving online sales.

Sustained pressure on the discretionary spending of South Africans, electricity load shedding, ongoing port congestion and international shipping disruption remain risks to the trading performance in the second half of the financial year. Global shipping disruption has also affected the delivery of imported merchandise for the first half of the winter season (January to March 2024) and, while impossible to predict, the Group is preparing for the possibility that this could continue for some time. Merchandise teams are able to partially mitigate this risk through the early delivery of certain categories of product and the ability to increase local production using stock fabric through our design centres and local suppliers.

Truworths’ retail sales for the first seven weeks of the second half of the 2024 financial period decreased by 0.5% relative to the corresponding seven weeks of the second half of the 2023 financial period. Trading space is planned to increase by approximately 1% for the 2024 financial period.

United Kingdom: Office

Current indicators show that interest rates and inflation are expected to decline in the 2024 calendar year, which should benefit UK consumer disposable income. Office will continue to capitalise on the strength of its global brand relationships, loyal customer base and well-established omni-channel offering.

Growth will be supported by Office’s store expansion and modernisation programme, with the planned opening of three new stores and the renovation and extension of seven existing stores in the second half of the 2024 financial period. Trading space is projected to increase by 12% for the 2024 financial period.

Office’s retail sales for the first seven weeks of the second half of the 2024 financial period increased by 1.3% in Sterling terms relative to the corresponding seven weeks of the second half of the 2023 financial period.



Woolies interim results December 2023

Revenue for the interim period grew by 5.8% to R37.9 billion (2022: R35.9 billion) and gross profit went up 4% to R13.8 billion (2022: R13.2 billion). Operating profit from core trading activities went down 7.6% to R3.1 billion (2022: R3.4 billion). Profit attributable to shareholders of the parent decreased to R1.8 billion (2022: R2.7 billion). Furthermore, headline earnings per share from continuing operations declined by 7.5% to 203.3 cents per share (2022: 219.9 cents per share).

Dividend declaration
Notice is hereby given that the board has declared an interim gross cash dividend per ordinary share of 148.0 cents (118.4 cents net of dividend withholding tax) for the 26 weeks ended 24 December 2023, being a 6.6% decrease on the prior period’s 158.5 cents, based on a payout ratio of 70% of earnings.

Company outlook
The outlook for the rest of the financial year is expected to remain challenging. Whilst inflation is expected to ease gradually, interest rates across both geographies are likely to remain elevated, placing continued pressure on consumer disposable income. In South Africa, the ongoing energy crisis, port and infrastructure challenges are expected to further constrain economic activity. In addition, the upcoming elections and ongoing global geopolitical tensions increase uncertainty.

Notwithstanding this challenging macro backdrop, we remain confident in our ability to deliver against our strategies, and are well placed to benefit from any cyclical consumer recovery. We have a robust balance sheet, are highly cash generative, and are leveraging our strengthened foundation to optimise our existing businesses and invest in new sources of future growth.








The Target Audience for Fast Fashion Retailers Is Largely Consumers Aged 18 to 24 

A 2016 study found that brands consciously target young consumers, often students with low incomes, with females of this age group found to shop in fast fashion retailers more than any other demographic groups. Not surprisingly, cheap prices and trendy styles are the key attractions for such audiences. In fact, the authors of the study argue that young consumers are usually more willing to sacrifice premium quality for a lower price and more variety.





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