SUNDAY TIMES - UK fashion brand River Island to jump ship as Edcon tidies its shelves
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Sunday Times Business By ADELE SHEVEL, 2017-03-12 00:00:00.0

UK fashion brand River Island to jump ship as Edcon tidies its shelves

DROWNING: After less than three years in South Africa, River Island is to quit
Image: Supplied

British retailer River Island is to close shop in South Africa by the end of September this year, having been in the country for less than three years.

The move is part of an overhaul by fashion group Edcon, which has a franchise relationship with River Island . Edcon's new strategy is to push higher-margin, private-label fashion over branded goods.

It is also reducing its focus on promotions and for the first time dedicated stores for Edgar's private-label brand Kelso will be opened, with the first one at Bedford Centre in Johannesburg.

It's also telling that River Island, a London-based high-street fashion brand, is not going to continue operating in South Africa other than with an online presence.

In response to questions on its departure, River Island said: "For the immediate future the focus is to drive business via our online platform riverisland.com and in existing markets with operational stores."

River Island has 12 stores in South Africa - four of which are sections-within-stores in Edgars stores - and one in Namibia.

Consumers under pressure are increasingly choosy about where they spend their money, and fast-fashion foreign retail giants H&M, Zara and Cotton On have upped the competition in South Africa.

Edcon also has its own issues to overcome.

Last month, the group finalised the restructuring of its debt, reducing it from R26.7-billion to about R7-billion. Edcon had been lumbered with massive debt repayments since Bain Capital bought it in 2007.

At the time of the Bain deal, Edcon had a non-food market share of 28%.This now stands at 16%, but it is still the largest apparel retailer in South Africa.

The deal with Bain quickly turned sour. Shortly after the buyout, the financial crisis hit and, to compound matters, Edcon made several strategic blunders, losing market share as it failed to invest in stores.

International brands were brought in, but this strategy failed and most of the 37 international brands will be dropped. TM Lewin and Topshop are among those that will be retained.

The restructuring now under way will enable the owners of Edgars, Jet and CNA to shift focus from cutting debt to improving performance.

At the end of last year, Bain Capital handed over ownership of the group to creditors in a debt-for-equity swap. CEO Bernie Brookes has been running the company since September 2015 and though analysts say it's too early to tell whether Edcon is on a clear growth trajectory, the reduction of the debt is a major step to unshackling it.

Sasfin's senior equity analyst, Alec Abraham, said the closure of River Island "suggests that the marketplace is crowded".

"The reality is ... that, structurally, consumer spending is on the decline. It's levelled off on a very, very low level. Despite the fact that the expectation for GDP growth is 1.4% - more than double last year - it's way too low to support the retail base."

He added: "Having more players in the market spreads the pie so much smaller and it can't support everybody.

"The reality is unless you have a compelling or unique offering, there's a huge focus on pricing, and pricing has become cut-throat. The retailers that don't focus on their merchandise and offer an attractive product will take strain."

River Island was established more than 60 years ago and has more than 350 stores in the UK, Ireland and in Asia, the Middle East and Europe.

An Edcon spokesman declined to comment on the move as the " 'winding down' process is under way and we are still in consultation with the relevant stakeholders both internally and externally for finalisation of this process".