Edcon builds up discount division as it targets the bargain hunters

Edcon's, the country's largest apparel retailer by store footprint, has deepened investments in its discount division as bargain-hunting consumers find more appeal in aggressively priced retailers.

Edcon's discount division, which consists of Jet and Jet Mart, is the group's second-largest contributor to revenue with its 522 stores.

As Edcon rights the wrongs of the past, it has undertaken strategic initiatives at its discount division to attract more customers.

This strategy means consumers can now also buy TV sets and white goods such as microwaves and washing machines, putting the brands in direct competition with Massmart's Makro, Dion Wired and Game stores.

According to research by Euromonitor, Massmart held the leading position among mixed retailers last year with a 33% value share, attributed to its "aggressive low-price strategy".

Alec Abraham, a senior retail analyst at Sasfin Securities, said there was an impression that while Edcon had scaled back on Boardmans and was incorporating Boardmans into its Edgars stores it seemed to be "reducing on the one hand and expanding on the other and introducing [white goods] into the Jet Mart stores".

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Boardmans and CNA were the two brands that analysts said Edcon should have shed during the debt-equity swap through which private equity group Bain ceded control of the retailer to a consortium of investors.

But after capital restructuring, the only business the group dropped was clothing retailer Legit, which it sold to Retailability for R637-million.

In the third quarter of the 2016-17 financial year, capital expenditure in Edcon's discount division was R40-million versus the previous year's R10-million.

At its Edgars division, the group's flagship brand, capital expenditure declined to R17-million from R56-million the previous year.

Abraham said: "You've got a broad range of different income groups, and a large part of the population are in LSM 4 to 6."

Edcon "lends itself to having a discount division because obviously there are some lower-income people there that you would certainly attract.

"There is a place for discounters," he said.

"What you are finding is that all retailers, particularly apparel retailers, are focusing on pricing and discounting in a market where it's difficult to get sales, to try and win sales.

"It just hurts everybody because everyone is running through the price route," said Abraham.

Other retail brands are also offering shoppers a wider mix of merchandise.

Discount clothing retailer Pep, which is owned by retailing group Steinhoff, has introduced grocery items.

Chris Wilkinson, a retail consultant and MD of New Zealand-based First Retail Group, said: "We're seeing a global trend of mid-to-high demographic consumers orienting towards more bargain brands, which began during the global financial crisis but has continued as shopper behaviour changed."

In the US, the discount retailers have had a significant effect on department store retailers such as JCPenney, Macy's and Sears, which have been closing hundreds of stores because of falling traffic and sales.

Wilkinson said that off-price brands such as TK Maxx and Nordstrom Rack had grown dramatically because even wealthy shoppers increasingly looked for bargains.

"The same applies across other categories too, such as electronics and whiteware, home furnishing and other consumer durables."

He said that South Africa's market was similar, as demonstrated by the popularity of fast fashion brands such as Cotton On.

"Edcon will be mindful of the potential impact competitors could have on this high- performing part of their business especially because of its contribution to the group.

"The continued growth of Cotton On must be on their radar as in many ways their offers overlap," said Wilkinson.

tshandup@sundaytimes.co.za