Edcon to roll out stores in Ghana‚ Nigeria

The booming economies of Africa‚ the world's second fastest-growing region‚ have caught the eye of retailers in search of higher yield. The region is topped only by emerging Asia.

Accelerating economic growth on the continent has caught the eye of large retailers reaching for untapped consumer spending potential. Africa's consumer-facing industries are expected to grow by $400bn by 2020‚ representing its single largest business opportunity‚ according to a McKinsey report.

Edcon's current expansion outside South Africa is mainly through the Jet‚ Jet Mart and Edgars Active formats. Its total number of stores outside the country increased by 39‚ from 115 at the end of the second quarter 2013 to 154 at the end of the quarter ended September 28.

South Africa's largest clothing retailer operates in Zambia‚ Zimbabwe‚ Lesotho‚ Swaziland‚ Botswana and Namibia.

Exciting opportunity

"This remains an exciting opportunity going forward‚" Edcon CEO Jürgen Schreiber said.

Mr Price‚ Truworths and Foschini Group also have stores in Nigeria. Earlier this month‚ Woolworths said it would pull out of its three stores in Nigeria as high rental costs‚ duties and complex supply-chain processes made trading in the West African country "highly challenging".

"We normally go into a new country with Jet‚" Schreiber said. "In Zambia‚ though‚ we went in also with Edgars‚ which is working well‚ and then we will go into Ghana‚ next year in the second half‚ with both Edgars and Jet‚ because the market is quite strong.

"Nigeria would be a discount approach and not an Edgars one at this point. We have more learning experience and it's a little bit more of an easier format.

Success in Nigeria

"Other clothing retailers have been very successful in Nigeria‚ especially when they work in the discount space‚ so we are comfortable and confident on the Jet side."

In Edcon's African division‚ sales grew 25.5% in the quarter ended September 28‚ compared with the second quarter‚ due to the higher number of stores as well as improved merchandise selection and availability‚ the company said.

These sales contributed 11.4% - or 9.1%‚ excluding Zimbabwe - of retail sales for the quarter‚ up from 9.6% (7.1%) in the prior comparative period. Edcon owns 39% of Edgars Zimbabwe‚ a Zimbabwe-listed public company that is independently managed.

The retailer reported a 5.9% increase in retail sales to R6bn for the quarter ended September 28.

Edcon‚ which is reviving its Edgars chain‚ has underperformed its peers and lost market share since its highly leveraged private equity buyout in 2007 by Bain Capital. Its net loss narrowed to R724m in the period compared with a restated R2.7bn a year earlier.

72-store transformation project

The implementation of the 72-store transformation project in Edgars remained disruptive in the quarter but was almost complete‚ Edcon said.

The Edgars division grew retail sales by 3.4% from the second quarter. This was primarily due to the continued opening of Edgars Active stores as well as promotional campaigns. The total number of stores in the Edgars division is now 466.

However‚ same-store sales were 1.6% lower when compared with the second quarter as temporary disruptions from the transformation initiatives affected results.

"At the end of the second quarter 2014‚ 61 of the 72 stores were completed and we remain on track to complete all but one of the stores before the start of the Christmas trading period‚" Edcon said.

By September 28‚ the cumulative cost for the project was R443m.

Edcon's strategic initiatives include improved sourcing‚ beefed-up merchandising teams and the addition of international brands such as Dune London‚ Lucky Brand‚ Lipsy and TM Lewin. It also acquired the controlling stake in the companies that hold the local franchise rights for Accessorize‚ La Senza and Inglot‚ in line with its strategy to offer more global brands.

The gross margin was 38.6%‚ down slightly from 38.9% for the second quarter.

The discount division‚ which includes Jet and Legit‚ saw sales rise 10.3% and same-store sales grow 5.4% from the second quarter‚ primarily due to a strong performance in ladies- and menswear and benefits derived from turnaround measures over the past two years.

The company expects R1.2bn in capital expenditure in the 2014 fiscal year.