Edcon on discount store road

30 April 2017 - 02:02 By PALESA VUYOLWETHU TSHANDU
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Edcon, which is still struggling to recover from years of underinvestment in stores due to its debt burden, is investing in its discount brands Jet and Jet Mart stores, which could be the answer to the retailer's woes.

Edcon, South Africa's largest apparel retailer by stores, is piloting various formats, as in its speciality division, which includes Edgars and Boardmans, and in its discount division. They are likely to be rolled out towards year-end.

An Edcon spokesman said this week that while details of the plan remained confidential "one of the reasons for divesting from Legit was to form a dedicated and focused team to drive our Jet business".

Plans for the discount division did not include rolling out more Jet Mart stores, he said.

Already the group has raised its capital expenditure. In the third quarter of 2016-17, it invested R40-million in the discount division from R10-million in the previous matching period.

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An SBG Securities retail analyst, Kaeleen Brown, said Jet stores were Edcon's biggest opportunity to grow its retail business. "So if they come up with a format that works well and allows them to distinguish themselves in that part of the market, I think it's definitely positive for the group.

"Jet has been a higher-quality business versus Edgars. That's definitely where I would be focusing my energies," said Brown.

In the group's third-quarter results for 2017, sales in the discount divisions declined 4.9% compared with a decline of 2.5% rise in the Edgars division. The group has 522 Jet and Jet Mart stores.

But Chris Gilmour, an investment analyst at Barclays Africa Wealth and Investment, said Edcon was not the only retailer to have a diversified offering. "You only have to look as far as Game within the Massmart stable.

"About six or seven years ago, Massmart changed Game, so that you would have fresh food."

On whether the group would look at acquiring other discount businesses, Brown said "the balance sheet would not allow that".

Brown said: "I don't think they'll ever get access to additional debt financing and they don't have sufficient equity financing, so they need to try and trade themselves out of the position they are in."

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