The clothing retailer looks to bolster sales by enabling pressurized consumers to buy more on credit.
Edcon Holdings, South Africa’s largest clothing retailer, plans to sell more items on credit as a boost in revenue at the discount division helped narrow its full-year loss.
The retailer, which is in talks with African Bank Investments about providing loans to its customers, sees credit sales as its “biggest challenge,” chief executive Jurgen Schreiber told reporters on a conference call on Tuesday. Edcon depends on credit sales for 47% of total revenue, down from 52% in the previous fiscal year.
Edcon wants to enable shoppers to buy more clothes on credit to boost sales as high unemployment and inflation weigh on disposable incomes. A deal with African Bank would provide Johannesburg-based Edcon with an alternative credit provider to Barclays’ Absa Bank unit, which bought Edcon’s private-label store cards business in 2012.
Loan approvals have halved since Edcon sold its book to Absa, which has “more conservative credit policies” than banks used by some competitors, the company said.
“We are hopeful that there is some improvement on the approval rates,” Schreiber said.
Edcon posted a loss of R2.5-billion for the 12 months through March, compared with R5-billion a year earlier, the company said in a statement. Retail sales advanced 5.1% to R27-billion, while revenue at the discount division, which includes the Jet chain, rose 7.4%.
Retail sales at the Edgars unit slowed to 2.7% from 4.1% a year earlier, while the division’s gross margin narrowed to 38.6% from 39.7% as it increased promotional activity to offset lower credit sales. The company, which has been renovating the Edgars outlets, said capital expenditure rose to R1.3-billion, compared with R837-million a year earlier.
“We see already the first fruits coming” from the Edgars store improvements, Schreiber said. The yield on Edcon’s 425-million euros of 13.375% bonds due June 2019 fell 35 basis points to 15.11% by 12.15pm in London.
South African retailers have been struggling as an unemployment rate of 24% and high inflation hurts consumer spending. Bain Capital, based in Boston, bought Edcon for R25-billion in May 2007.
Edcon, which owns chains including CNA, Boardmans and Red Square, had 1 403 outlets at the end of the reporting period, with the average retail space rising 5.2%. – Bloomberg