Sourcing Safari

South Africa’s dominant department-store retailer, Edgars Consolidated Stores (Edcon), has an aggressive growth strategy that includes opening the equivalent of one new store every four days and acquiring existing retail chains that complement its portfolio. To support this plan, the company has standardized processes and centralized procurement for the sourcing of its private-label as well as branded merchandise.

Since opening its first store in 1929, the Johannesburg, South Africa-based company has become a leading clothing, footwear and textiles retailer in the sub-Sahara region and has recently added stationery, housewares and general merchandise to its product mix.

Store brands are grouped into two divisions. The department store division includes Edgars, CNA, Boardmans, Prato, Red Square and Temptations. The discount division includes Jet, Jet Mart, Jet Shoes, Legit and Blacksnow.

Primarily a bricks-and-mortar retailer, Edgars and CNA also have e-commerce sites, but online sales represent a small percent of Edcon’s overall business. In April 2007, Edcon was acquired by Bain Capital, Boston, which owns a number of U.S.-based retailers including Babbages, Michaels and Staples.

Calvin Low, business integration executive at Edcon with responsibility for Edcon’s IT projects, development projects and acquisitions, spoke with Chain Store Age about strategic initiatives that will support the company’s aggressive plans.

“Following the acquisition by Bain Capital, we identified areas where we could make improvements that would enable the company to pursue its aggressive growth plan. One of the key areas that we have focused on is sourcing excellence,” Low said. “We have undertaken a broad-ranging project that will create more efficient global-sourcing processes and procedures.”

Edcon sources from approximately 1,500 suppliers around the world as well as from local manufacturers and agents. Approximately 40% of its goods are sourced internationally from roughly 25 countries. Its largest supplier is Hong Kong-based Li & Fung, which provides primarily house-branded items in both soft-line and hard-line categories. In addition to the private-label merchandise, Edcon purchases global brands such as Nike, Reebok and Estee Lauder from local agents.

The vast majority of product is processed through one of Edcon’s four distribution centers, two in Johannesburg and one each in Cape Town and Durban. Approximately 10% of the merchandise, including cosmetics and cell phones as well as bulky items like furniture, ships direct to stores.

To facilitate improvements, Edcon recently implemented a Web-based, automated-sourcing system from Eqos, Burlington, Mass. When it went live in October, it was rolled out for girl’s wear, boy’s wear and infants, but the intention is to expand it to ladies’ and men’s wear early in 2008.

“The Eqos technology supports our RFQ [request for quote] process, design process, order [placement] and tracking of orders—particularly as these pertain to global suppliers, but we have also extended it to domestic orders,” Low explained. “Historically we did not take advantage of the Edcon store brands, but now we are coordinating to get the best pricing regardless of whether it is buying for one chain or several chains. The benefit of centralized sourcing is the ability to negotiate tougher on pricing with larger numbers of units ordered.”

Negotiating for the best possible price became even more critical last year after the South African government levied tariffs on product imported from select countries, most notably China. The new regulations imposed a 40% import duty on apparel, 30% on footwear and 25% on textiles.

However, Low said, “The biggest driver for implementing the Eqos system was to create a standardized system for global sourcing. Prior to that, we had a non-standard way of developing new products that was largely manual and was supported by Excel spreadsheets, faxes, e-mail and diagrams. With Eqos, we have put standardized business processes in place and a standardized critical path. The system forces buyers to conduct business in a certain way, with a certain discipline. It really is an enabler for us to change the business processes to something that is more efficient and that speeds up the sourcing processes.”

Although it is too early to measure actual results, Edcon’s expectation is that the new system will take time out of the development life cycle for new products. Additionally, Low explained, “If there is deviation from the critical path, the system automatically sends e-mail alerts when critical milestones are not met and this allows us to handle the exceptions rather than have to cull through a whole bunch of reports.”

In addition to the Eqos solution, Edcon uses technology from Oracle Retail (formerly Retek) and JDA supported by Accenture.

“We also have a project under way utilizing Oracle Retail to accelerate the housekeeping of our SKUs so we have fewer SKUs to keep track of,” Low added.

He estimated the company has roughly 1.1 million SKUs in its Edgars database, 800,000 SKUs in the Jet system and 200,000 under CNA. “We believe we can actually take 40% out of those numbers so that what we have become the more current SKUs as opposed to items we sold years ago,” Low added.

Slow but steady: Edcon experienced a strong growth period from 2005 to 2006, but 2007 was slightly less strong. Last month, Low acknowledged that the company, like many retailers, was not anticipating that this holiday season would be as strong as the previous two years, which had produced double-digit growth. However, he was confident that 2007 holiday sales would exceed the previous year and was hopeful the company would have a positive growth.

Overall, he attributed the slowed growth largely to contraction in the global economy, driven by increased domestic interest rates, quipping, “When the U.S. economy sneezes, we catch a cold.”

However, Edcon anticipates a large injection to its sales as a result of infrastructural investment and visiting soccer enthusiasts when the Fifa World Cup occurs in 2010. Edcon was recently appointed the official operator for the Fifa World Cup stores, which includes the right to produce and sell official licensed merchandise for the event. Official event stores are planned for 160 Edgars’ locations and the first stores began opening last month.

“In spite of the roller-coaster effects of the global economy, we are very positive in terms of [expectations for] significant growth both for our organization and our country,” concluded Low. “We are allowing for very aggressive growth over the next five years with significant improvement in product assortment as well as continued acquisitions.”

In 2007, Edcon acquired the 160-store Discom health and beauty chain and remains in the market to acquire additional retail entities. Indicative of its commitment to growth, Edcon plans to expand its square-meter presence 50% by 2013.

“That is another reason why we have a global-sourcing initiative—we need to be more efficient with global sourcing to support this growth,” Low explained.

Edcon plans to expand the use of the Eqos system to all its key suppliers and continues to roll out the processes to buyers and suppliers across additional product lines. Currently, the system is used only for soft lines, but it will be extended to footwear and hard lines by the third quarter of this year.