Resigning after nine years as Myer CEO in March of this year, long-serving retail executive Bernie Brookes was soon after appointed to the role of CEO/managing director at struggling South African retail giant, Edcon. Commencing with Edcon on September 30 and based in Johannesburg, Brookes has been tasked with turning around one of South Africa’s largest retailers – albeit one that is suffering from an inefficient supply chain, poor IT infrastructure, a high cost base and an ailing customer base.
With more than 1400 stores, annual revenues of Rand 25.2 billion ($A2.7 billion) and a history dating back more than 80 years, Edcon is one of the largest clothing, footwear and general merchandise retailers in South Africa and competes head to head with Woolworths Holdings (owner of David Jones) across a number of categories. Edcon’s largest brand is Edgars, which sells clothing, footwear, textiles, cosmetics, accessories and cellular products across 203 stores. Its other brands include, amongst others, discount variety chain, Jet; fashion chain, Legit; and homewares chain, Boardmans.
Justin Grey: How did the move to Edcon and South Africa end up in your lap?
Bernie Brookes: I wasn’t certain what I wanted to do once I’d left Myer. My original thought was to do something in the private equity space, so this fit that criteria. I was working in a couple of small businesses I own myself that I have a CEO running, so I was just fiddling, for want of a better word, when they opportunity came. It was four to six weeks after I’d left Myer.
Secondly, it fit the criteria of being something that’s quite exciting and required a significant surgery and had a turnaround associated with it. And the third thing was the excitement of learning a whole lot of new things in a different country. So, rather than look for something in the Australian marketplace, this landed pretty quickly and it fits that criteria pretty well. It’s an exciting opportunity and I really do believe I can make a difference and turnaround what is a fantastic large business that just requires some fundamental change to get back to the basic things of retailing. So to me it was a very easy decision to make. And this is week eight, so it’s proven to be all those things.
JG: Are there parallels between the current issues Myer is facing and the challenge that lies ahead for Edcon?
BB: Not really. The problems were more like what Myer were facing in 2006. It’s a very different environment and different set of issues to what Myer faces now, but if I go back to 2006, from a Myer point of view, when we carved it out of Coles-Myer, the business then was losing $66 million. So potentially it was a real mess, and required a repositioning of its cost base – head office was a very expensive, cost-inefficient business with really bad IT and supply chain. And similarly, it didn’t have a focus on the customer or customer service, and the business had lost $266 million. And over the next five years to the IPO, we took that business to be highly profitable. So that sort of turnaround is almost a duplication of what’s required at Edcon.
The difference is that Edcon is still profitable, but it has an inefficient supply chain, poor IT, a limited focus on the customer, and it has a very high cost base. So the similarities are frightening from the point of view of Myer. I think Myer, when I left, had a different set of problems in regards to the digital interruption that’s occurring and the movement to online from bricks and mortar.
JG: Edcon has been more than ailing of late. What were the challenges presented to you when you took on the role?
BB: [Private equity firm and Edcon owner] Bain Capital were very upfront in regards to the problems the business faced. Firstly, it’s a very debt-laden business. The business had more debt repayments every year than it actually made profit. The business was making 2.5 to 2.7 billion Rand every year, and was paying nearly three billion Rand in debt repayments. So the business was living from year to year.
So the first change was to work with the consortium of banks to renegotiate the debt, and we’ve ended up with a sizeable reduction in our debt repayments, which means the business can become profitable and has got some headroom.
The second thing that Bain have done is given me carte blanche to make sizeable change – and that’s really pleasing. So, giving me the opportunity to use the learnings from Woolworths Australia and Myer in 2006, really is an opportunity to make a mark, and so far it’s been well received. It’s the talk at the moment; now I’ve got to walk the walk for the next few years and really get the business back to what it was. This used to be the premium retailer in South Africa.
JG: You’ve previously headed up whole of business turnaround strategies for both Woolworths and Myer; how are those experiences informing your strategy for Edcon?
BB: It’s how do you manage the day-to-day business when it’s struggling, together with making change. The way I’ve found, if I go back to Woolies in the late-90s, we set up a team of about a dozen young people who came out of the business and set up with this Project Refresh team the operating model for centralising all of the offices in Woolworths, and then making the sizeable change in each area. And similarly in Myer, we bought in what I call a series of guns for hire, which were a number of execs who would come in and parallel the exec team. That formula I’ve always been a big fan. So we’ve got a team of about a dozen people – some external consultants, some internal people – who are working at a rapid rate making change. They can effectively be focused on that change. And you bring along the rest of the exec team on the journey, almost weekly keeping them updated. And they get input into it, but they don’t have to do the doing. So that formula has been successful for me a couple of times before, and I’m confident it will be again now.
JG: What are your thoughts on all the recent cross-pollination in retail between South Africa and Australia in terms of both retail brands and retail executives crossing borders?
BB: There is a lot of logic to it, when you think about it. Firstly, they’re [both] Southern Hemisphere, so the apparel is quite similar. Secondly, speaking the same language is a big help. Thirdly, most African businesses, including ourselves, buy from Bangladesh and China, so there’s a similar profile of product. And both are similar in that they have the same supply chain difficulties with the tyranny of distance, and they have an expanding wealth. So, there’s a symmetry where the same product can be shipped to either country. And although some of the product is a little different here with a higher black population, there’s no doubt that it’s a lot easier to transit from South Africa to Australia than it is to transit from South Africa to Europe or the Americas. And I think you’re going to see more and more businesses across both boundaries for all those reasons.
JG: What key differences are there to doing business in South Africa, compared to Australia?
BB: The biggest differing issue in Australia is the very high cost of labour and rent. In South Africa, the two biggest issues and differences are crime and inflation. Whereas inflation in Australia is very subdued, the current inflation rate here runs at six and seven per cent. So there are a couple of differences that make it challenging, but there are more similarities.
JG: Would an Edcon entry into the Australian market be feasible under your watch?
BB: No. [The brands] are very similar to what already is in Australia and I don’t think there’d be any point of difference. And we’ve got our house to fix here, rather than opening a new house anywhere else. We are in about a dozen countries – a lot of the sub-Saharan African countries. About 90 per cent of our business is done in South Africa. If we were going to expand anywhere, it’d be further into Africa.
JG: How long do you envisage staying in the role and in South Africa?
BB: It’s an open contract, so it’s going to take quite a few years. I’m not putting a timeline on it, but it’d be a few years. It really depends how fast we move through the level of change that’s needed. But my view is it’s going to take quite a few years, but I don’t know how many years that will be.
JG: What are your thoughts on the strategy that Richard Umbers is rolling out to turn Myer around?
BB: Myer is a very strong brand in the marketplace. It’s been under attack from international players and the arrival of the internet at a faster rate. But equally important, there’s so many new competitors in the marketplace – fast fashion brands, all of which have been chomping away at Myer’s core. If I look at what we did in 2006, it was make sizeable change. And what Richard is doing now, quite smartly, is making sizeable change.
I’m pleased that someone else is delivering and making change, so I think it’s smart. And if it wasn’t smart, I’d say so. I think it has some really important parts to it. Firstly, it’s about pursuing, at a faster rate, the digital world, and the digital disruption that’s occurred, and driving online and the integration of online and instore. And they’ve got a focus on the customer and driving the brands that the customer wants. And they’re going about getting a lower cost base. So all those are good strong initiatives, and then there’s consolidation of the size of the stores and the number of stores. Now, that’s what needed to be done in the business, and I think by putting a new team and a new lease on life in it, that can do it.
Could I have done it? Maybe, but I think Richard will do it better, faster and with a fresh set of eyes. So I think what the board have done and what Richard and his team are starting to do is smart. I think it will pay off. It needed to be done, and I’m watching with interest and sharing the enthusiasm around when I can.
JG: How do you think Richard Umbers has faired to date at the helm of Myer?
BB: We bought Richard in as one of three people to look at the business to potentially be a successor, and full credit to the board because they put in place someone who understands what needs to be done and is getting on with it. I think the market has to have patience with him and I think he knows what needs to be done, so I appreciate the fact that they’ve put the right person in to run the business.
JG: You’re about to release more details on your Edcon strategy. What will that entail?
BB: The main essence of it is becoming a customer-centric organisation. The customer service is the poorest in the country, so that’s number one. Fixing the supply chain and making it faster and more agile is certainly number two. And thirdly, it’s an incredibly complex business. There’s about 17 international brands that we manage, either through management rights or through joint ventures. And then we’ve got five separate chains of CNA, which is like Officeworks; Led Square, which is like Sephora; and one of the largest telephone distribution networks, like the Telstra shops. And then you’ve got Edgars and Jet and Boardmans. It’s a very, very complex business, so simplifying the way in which we run those is going to be part of the plan. That doesn’t mean we’re going to sell them off or close them down, but we need to prioritise Jet and Edgars, which do 85 to 90 per cent of our business, as our main way forward. It’s not a significantly elaborate strategy; it’s getting the very basic things right. It’s a turnaround, just as Myer was in 2006 and just as Project Refresh was a turnaround in Woolworths in the 90s.
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