As the seven-year turnaround story of Edgars Consolidated Stores (Edcon) reached its climax this week, a key trade union warned of the dangers of growing casualisation and monopoly in the retail sector.
This week Edcon delivered market-defying results, which CEO Steve Ross made a point of noting “were underpinned by a sound economy”. Headline earnings per share doubled to a record R15,97. Dividends rose by 149% to R7,68 cents per share from a trading profit of R1-billion.
At the same time, Simphiwe Nikiwe, organiser for the South African Commercial, Catering and Allied Workers Union (Saccawu), insisted Edcon could provide better standards of employment and warned that its increasing market dominance would intensify the use of non-union, casual labour.
The group’s largest assets are Edgars and Jet, with the latter incorporating Sales House and Cuthbert’s. Edgars and Jet contributed R8,8-billion, or 88%, of the group’s R10,5-billion sales. The balance came from recently acquired CNA and Super Mart. From this financial year, Edcon’s latest acquisition, kitchenware retailer Boardmans, will contribute to sales.
The group has also enjoyed a substantial rise in profits from R52-million to R137-million from its financial services activities. Apart from granting credit, the division offers insurance against death, disability and retrenchments.
At the results presentation in Johannesburg, management said there had been no increase in claims by retrenched workers, while loss of employment had not featured as a reason for defaulting on store accounts.
Ross is widely credited with having achieved one of the most remarkable turnarounds in recent South African corporate history. The group’s seven-year review says sales have doubled in the period from R5,8-billion to the current R10,5-billion, while operating profit margin has risen from 7,4% to 10,3%.
Earnings per share have grown from R4 to R16, a 61% increment over five years. Shareholders have seen their returns on equity shoot up from 12% in 1998 to 28,3% now.
The performance has been driven by a range of factors, including an aggregate tax break of R50-billion, the lowering of interest rates by 5,5 % last year, an 8% decline in the usury rate, and the lowest levels of household debt and the interest burden in 10 years. But the fact that it is doing better than other retailers suggests Edcon is doing something different.
Evan Walker, a retail analyst at Andisa Capital, attributed the success to three factors.
“They have positioned themselves well to take advantage of good economic conditions,” Walker said. “This has been primarily through efficient use of space and improved productivity.
“All shop floor space is rented and, over the past seven years, shop floor space has come down by 11%.”
According to Edcon, sales per retail employee have shot up from R306Â 000 to more than R1-million a year. Another major contributor has been improved cost structures from activities such as centralising credit granting, resulting in a reduction in credit offices from 13 in 1995 to the current three.
Management added that installing good systems to monitor inventory movements and process sales had substantially improved stock turnover. Over a 12-month period stock now moved from the back door through point of sales 5,2 times, up from 3,5 times in 1995 — and in the case of Jet, more than seven times.
Walker noted that while the market had been negative about Edgars’s purchase of CNA, the group had proved it wrong.
“I always knew it was a good business they could turn around,” he remarked.
But Saccawu’s Nikiwe was the skeleton at the feast, arguing that good results had been achieved at workers’ expense. Edcon currently has 11Â 250 full-time employees and 18Â 000 part-timers and casuals. Unions represent 35% to 40% of the workforce.
Nikiwe confirmed that the parties had reached agreements on working hours, recall for retrenched workers and a two-year, 8% annual wage increase. But he strongly criticised some of the company’s cost-cutting and productivity-raising activities, citing the case of permanent part-time employees who were guaranteed only a minimum 108 hours a month.
This group could be made to work on a Sunday without receiving the standard double rate — a case of “super-exploitation”.
In addition, there was the more vulnerable category of casual workers, hired during busy periods with no specified working times.
Nikiwe said casuals should be guaranteed a minimum of 30 to 40 hours of work a week to help plan their finances and avoid having their remuneration barely cover their transport costs.
Nikiwe praised Edgars’s commitment to training, and ranked it second only to Pick ‘n Pay in the sector as a promoter of workers’ literacy.
On Edcon’s increasing dominance, Nikiwe said the acquisition of Super Mart had led to the opening of more stores. However, the group was converting many full-time staffers into permanent part-timers. All unions at Edcon met on Thursday to discuss the issue.
Company figures show that Edgars and Jet enjoy a 30% share of the clothing, footwear and textile market.
According to Ross, the challenge for the year ahead is to integrate new acquisitions. CNA already accepts Edgars credit cards, and from June, Boardmans will follow suit.
There is consensus among managers and analysts that the 27% retail sales growth achieved last year is unlikely to be repeated. Walker said he believed growth of 10% to 15% was possible.
Though growth from Edgars and Jet is maturing, the group expects exponential growth from its new acquisitions.