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Claude

How can Edcon be saved?

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The Edcon group which includes Edgars and Jet has been on deaths door for a long time. With over 100 000 jobs on the line when you factor in supply and value chains, Edcon's demise will no doubt have an impact on many South Africans.

I would like this thread to be about how Edcon can be saved, not whether they should be saved, there is another thread for that. I would like you to apply your mind to come up with solutions as to how a sustainable Edcon group would look like?
 


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It ain't much but it's honest work.

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Posted (edited)

 

As I said in the other thread, Edcon has a large footprint of prime locations in all the big malls, yes its expensive space (which is one of the structural challenges they are facing). But let's look at their strengths for now:

Here are the facts according to Edcon

Edgars
203 stores
Average size 3 496sqm
LSM 6-10, all ages
 
Jet
560 stores across South Africa and Africa
Average size 650 sqm
LSM 4-7

LSM refers to the Living Standards Measure "is a marketing and research tool used in South Africa to classify standard of living and disposable income. It segments the population into ten deciles based on their relative means, with LSM 1 being the decile with the least means and 10 being the decile with the greatest means". (Whether LSM is still an effective marketing segmentation tool is another story for another day).

Edgars thus competes with international groups Zara & H&M and local TFG / Foschini Group (Foschini & Markham) and Truworths  in the upper LSM range, whereas Jet competes with Ackermans and Pep in the lower LSM range. Ackermans is probably Jet's closest competitor as Pep is rated by some a bit lower at 3-6 whereas Ackermans is rated by some a bit higher at 4-7 the same as Edcon's rating of Jet above.

However as the Competition Commission notes:
"Consumers do not necessarily restrict themselves to stores that target their LSM group. Market research, for instance, shows that consumers in the lower LSM groups will frequently buy from the higher LSM targetted shops and vice versa. There is thus a degree of overlap between the various LSM categories".

I haven't gone through the available financial reports to see the performance of Edgars vs Jet. But both appear to be struggling.

Edited by Mesa Verde

Specialist in failure.

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Now that we have the competitive landscape out of the way. I do not believe that Edgars can compete in the upper LSM range against Zara and H&M (and even against Cotton On) these fast fashion brands are far more agile. As for TFG and Truworths I think they are more diversified than Edgars and can compete better.

So what can Edgars do with their 709688m2 (203 x 3 496m2 shops) of prime mall real estate? 

I would go with a neutral coworking subletting model and distribution network.

The subletting model could resemble YDE or even WeWork for retail. Retail space is rented in bulk and subletted at a profit. Shelf space is rented to brands and Edgars takes a commission of each sale as well. 

As for the distribution network? Edgars can expand their pay points to resemble Shoprite Money Markets and sell a lot of other things. But their prime locations can be utilised as a distribution network for other products as well. They have a wide reach, available in all major areas, they already have warehousing and logistics with deliveries coming in all the time.

As for Jet I have to look at their financial performance but I think they are probably in a better position to compete with their competitors than Edgars considering that most of South Africans fall into lower income brackets.

That is my opinion. What do you think?


Specialist in failure.

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On 4/6/2020 at 4:30 PM, Mesa Verde said:

 

As I said in the other thread, Edcon has a large footprint of prime locations in all the big malls, yes its expensive space (which is one of the structural challenges they are facing). But let's look at their strengths for now:

Here are the facts according to Edcon

Edgars
203 stores
Average size 3 496sqm
LSM 6-10, all ages
 
Jet
560 stores across South Africa and Africa
Average size 650 sqm
LSM 4-7

LSM refers to the Living Standards Measure "is a marketing and research tool used in South Africa to classify standard of living and disposable income. It segments the population into ten deciles based on their relative means, with LSM 1 being the decile with the least means and 10 being the decile with the greatest means". (Whether LSM is still an effective marketing segmentation tool is another story for another day).

Edgars thus competes with international groups Zara & H&M and local TFG / Foschini Group (Foschini & Markham) and Truworths  in the upper LSM range, whereas Jet competes with Ackermans and Pep in the lower LSM range. Ackermans is probably Jet's closest competitor as Pep is rated by some a bit lower at 3-6 whereas Ackermans is rated by some a bit higher at 4-7 the same as Edcon's rating of Jet above.

However as the Competition Commission notes:
"Consumers do not necessarily restrict themselves to stores that target their LSM group. Market research, for instance, shows that consumers in the lower LSM groups will frequently buy from the higher LSM targetted shops and vice versa. There is thus a degree of overlap between the various LSM categories".

I haven't gone through the available financial reports to see the performance of Edgars vs Jet. But both appear to be struggling.

 

On 4/6/2020 at 5:15 PM, Mesa Verde said:

Now that we have the competitive landscape out of the way. I do not believe that Edgars can compete in the upper LSM range against Zara and H&M (and even against Cotton On) these fast fashion brands are far more agile. As for TFG and Truworths I think they are more diversified than Edgars and can compete better.

So what can Edgars do with their 709688m2 (203 x 3 496m2 shops) of prime mall real estate? 

I would go with a neutral coworking subletting model and distribution network.

The subletting model could resemble YDE or even WeWork for retail. Retail space is rented in bulk and subletted at a profit. Shelf space is rented to brands and Edgars takes a commission of each sale as well. 

As for the distribution network? Edgars can expand their pay points to resemble Shoprite Money Markets and sell a lot of other things. But their prime locations can be utilised as a distribution network for other products as well. They have a wide reach, available in all major areas, they already have warehousing and logistics with deliveries coming in all the time.

As for Jet I have to look at their financial performance but I think they are probably in a better position to compete with their competitors than Edgars considering that most of South Africans fall into lower income brackets.

That is my opinion. What do you think?

Good summary and submission. 

I agree that Edcon's footprint can be used to do money sending and ticket selling services as they have so many branches, but they can also be used to take over some functions of the post office, delivery point for couriers and act as collection points for E-commerce sellers etc. But their expensive floor space is a challenge for any scenario. Logistics networks depend on cheap warehouse space; it will probably be cheaper to deliver to people's houses than to let parcels be stored in the shop waiting for collection.

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