Edcon M.O.D.E.A Practice in Evolution

December, 2013

In the midst of what was

widely regarded as the

most significant slump in

consumer retail spending

for decades, with entire

economies failing and a

global credit crunch in

progress, Southern Africa‟s

largest non-food retailer

took a bold step by

investing massively in a

foggy financial future.

Three years later, we look

back on one of the biggest

success stories in their 80

year history.

The Edcon Group, Southern Africa‟s largest and most established clothing

and footwear retailer, has now fully realised the benefit of their decision

made near the close of 2010, which was to embark on the most extensive

implementation of Oracle Retail Solutions ever seen on the African

continent, and the second largest globally at the time. The project would

call on the end-to-end configuration and roll-out of nearly all Oracle‟s

various Retail Merchandise and Planning products.

“It was a massive undertaking”, says Group IT Business Integration Executive Calvin Low Ah

Kee when reflecting back on pitching the R190 million (US$27.5 million) purchase to the

executive committee back in 2010. “We knew the scale of our business meant that our

requirements from Oracle Retail would involve replacing, upgrading or installing anew so

many of our existing legacy systems, that a complete business process renewal would benecessary”.

The Existing and Future Challenges

The ‟scale‟ Low Ah Kee talks of is but one of challenges that Edcon and Oracle faced at

the outset and duration of the project back in 2010. In the world of the large retailer, there

are myriad of business processes, integrated, supporting and disparate software

applications and logistics concerns to get their merchandise to market in the most

efficient way possible. The Edcon Group, with 12 retail chains, over 4 million consumer

credit customers, and over 80 years of successful operations, was all too aware of the way

shifting dozens of software applications would affect every aspect of their business

operations, risk exposure and ultimately their market and customers‟ perceptions.

Leading up to the decision, Edcon was just emerging from a slump in retail sales figures

due mainly to the overall downturn in the local and global economies and reduced

consumer credit spending, yet still managed to generate R21 billion rand ($3 billion) in

retail sales during their 2010 fiscal year, equating to a profit of R7.8 billion ($1.1 billion) for

the same year. Edcon‟s executive board took aggressive steps during this period to

reduce their credit risk exposure, improve cash flow and ensure ground-level operations

were optimized; credit was discontinued on certain lower margin products such as cellular

airtime and food; expenses and space expansion were reviewed and revised down;

seasonal inventory was cleared aggressively and merchandise orders were reduced in line

with expected trend. Edcon admits that in the second quarter of fiscal 2010, when the

effect of the recession coincided with the cumulative impact of these key control

measures, the going was tough.

“…realizing you

need to spend

almost R200M while

emerging from a

global recession

does require a

somewhat special

approach.”

However, the risk of not changing was even more

prominent in the minds of the decision makers. Geoff

Ayoub, Group Chief Planning Officer, was a proponent of

change within Edcon from 2009, when he recognized that

the existing business processes, hamstrung by legacy

systems with limited upgrade potential and cross-platform

integration capabilities, would ultimately do more harm to

the group over the coming years than any risk associated

with its mammoth overhaul. “Wherever I turned it seemed

that our buying, planning and merchant channels were

limited; opportunities were being lost, and optimization of

our critical retail business activities was being foregone in

lieu of an aging software landscape. We had to create a

better future“.

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“We could see the light at the end, but what we exposed during this forced optimization

process was something of immense value” continues Ayoub. “By uncovering every area of

sub-optimal performance throughout the business, we could see where we were simply

wasting time, effort, resources and money. When stores were forcibly downsized, we realised

that in many cases they weren‟t carrying the correct stock, or in the correct sizes or quantities.

When we were forced to optimize our replenishment operations, we discovered that supplier,

merchant and even distribution centre lead times were often too long and the commitments

between them, the buyers and the stores sometimes vague. Taking these end problems back

full-circle, we realised that our planning, forecasting and buying processes needed a

complete revamp in order to ensure that they met the new demand placed on the

organization by a leaner economy”.

Although Edcon was able to successfully close the door on fiscal 2010 with an upward swing,

the mandate was clear; the existing suite of merchandise planning, buying, forecasting and

inventory management systems and processes were not capable of delivering optimal retail

efficiencies. The core building blocks of successful retail operations - ensuring the right

product arrives at the right store at the right time (in the right size and colour profiles), at the

right cost – were eroded and shaken.

Rudimentary

forecasting data

could no longer

reliably predict

wildly fluctuating

consumer patterns.

The red lights

leading up to 2010

had exposed every

weakness that

could change

Edcon‟s future

In the new light of day, it had become clear that too much

stock was hitting clearance prices due to incorrect store

profiling and stockholding patterns. Rudimentary forecasting

data could no longer reliably predict wildly fluctuating

consumer patterns, and the backlash on the merchants and

vendors in the supply chain was rapidly breaking down

relationships, accountability and overall store service levels.

Inventory and allocation planning and distribution practices

were not cognizant of or able to respond quickly enough to

Edcon‟s new efficiency demands. Business processes and

interaction at the head office level, in the financial and

merchandise planning, sourcing and buying departments,

had become cumbersome and disparately managed on

separate software applications and spreadsheets, resulting in

what could have been considered a presumptuous, „best-

effort‟ approach with little fact-based, justifiable science

backing it.

Although the current software applications and business processes had, up to now,maintained Edcon’s leading position in the C&F retail landscape, the red lights leading up to

2010 had exposed every weakness that could change their future, and so Ayoub and his

team embarked on a hunt for the most advanced, encompassing and appropriate retail

system available. After spending the better part of 2010 assessing vendor submissions, the

Oracle Retail solution was chosen, which encompassed a suite of integrated modules to

address the challenges of large-scale retailer merchandise, financial, logistics and forecastplanning and management.

“However, realizing you need to spend almost R200M while emerging from a global recession

does require a somewhat special approach”, says Ayoub. “Every module had to be critically

analysed in terms of its need, perceived benefits, business impact and risk, even though we

had proven the critical need for such tools. The Oracle solution was the only one

demonstrably capable of meeting our massive retail needs, with a range of integrated

modules interdependent on one another to deliver maximum overall benefit and positive

transformation across the organization. It was our „go big or go home‟ moment; so we wentbig“.

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The Building Blocks of Retail Redesign

Oracle‟s proposed solution consisted of various modules to be fully implemented into

Edcon, based on their Retail Predictive Application Server (R.PA.S.) infrastructure. Distilled

down to the basic mantra of successful retailing, every solution component had to play its

part in getting the right product, in the right quantities and size profiles, to the right store at

exactly the right time, and then on the shelves at the right price. The Oracle Retail solution

provided a modular platform to address the business activities of a large retail organization

which were aligned and enabled to deliver on these requirements.

Merchandise Financial Planning (M.F.P.) is the core starting point for major apparel retail

operations, ultimately deciding where the company will spend its hard-earned profits

based on experienced analysis of historical data in collaboration with the Retail Demand

Forecasting (R.D.F.) team. Within these financial parameters, the Advanced Inventory

Planning (A.I.P.) teams work closely with the buyers and merchants in order to create store

laydowns and Assortment Planning (A.P.) strategies which are feasible and profitable. Every

item in the buying plan must be analysed in order to reach the most optimized balance interms of store Location Planning (L.P.) and Size Profile Optimization (S.P.O.).

A bespoke Workspace

presentation layer was

developed to present

the information in a

filtered, customizable

and attractive user

interface.

Once these optimized designs are in place, they must

be continuously monitored, measured and maintained

both pre- and in-season using the new toolset.

Furthermore, the entire range of stock has to be

assessed in terms of their hierarchical structure, as well ashow they would fit into the “replenishment” (ongoing,

regular core sale) or “fashion” (seasonal, once-off

demand) item mix This calls upon the appropriate

Replenishment Optimization (R.O.) practices and further

module design, to ensure quick reaction to changing

demand, and ultimately maximum efficiency of the

entire supply chain operations. To integrate and

manage the masses of data generated by these various

interacting systems, in a way which delivers operational

value to its hundreds of users, a bespoke Workspace

presentation layer was developed to present the

information in a filtered, customizable and attractiveuser interface.

At the time, only a handful of Edcon‟s chosen R.P.A.S. version modules had been

successfully rolled out anywhere else globally, and some were brand new products that

would have to be proven during the implementation. Even more looming was the fact that

the adoption of the new applications meant an almost complete redesign of all their

associated business processes, all the way from human resource training and positioning

requirements, to the impact they would have on their vendors, merchants and consumers.

The risk/reward mitigation strategy had to be ironclad, which meant all aspects of the

project deliverables, timelines and costs were under constant scrutiny. Although some of

the abovementioned retail modules had been implemented before, very few had been

done so on such a large scale or in so much unison. Edcon‟s Edgars Division consists of

seven department store chains (Edgars, Edgars Active, C.N.A., Boardmans, Red Square,

Temptations and Prato) and there are five Discount Division chains (Discom, Jet, Jet Mart,

Jet Shoes, and Legit). Together, these divisions and chains account for 60,000 individual

stock-keeping units in over 1,200 stores, all managed and supported by relevant teams of

buyers, planners and merchandisers dependent on the evolution about to take place.

“With so much investment, both financially and personally, by the various stakeholders in

their respective departments and project portions, it could have become easy for the

project as a whole to miss the wood for the trees” comments Ayoub.

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“We had to bring in

everyone who could

possibly contribute or offer

guidance or experience

as to how we could move

forward on a successful

path, one which we had

to forge together for the

next few years, sometimes

into the unknown.”

Bringing in the Team

To mitigate the risks associated with such a broad reaching undertaking, Edcon knew that

the best possible team of both internal executives and external consultants must be

assembled, aligned and committed to the project from the start. Every operational area

touched by the project would experience radical business process change, and these in

turn were intertwined with supporting and dependent systems and processes themselves.

The understanding of the project quickly evolved from system implementation to an entire

remodeling, modernizing and streamlining into the way Edcon conducts its business today.

Edcon is one of a handful of large organizations

which successfully relies on the outsourcing of

various critical head-office business operations to

specialized consultants, with a focus on the

management of the outsourced services and

their various projects. Fortunately, with such a

large project involving so many new solution

modules, expert members from both Accenture

and Oracle (both sharing long standing

partnerships with Edcon and one another),

alongside smaller niche expert representatives,

were keen to get involved in such a unique

opportunity. When the time came to build the

team, Edcon assembled what may be seen as

the United Nations of project leadership, bringing

in world renowned experts in retail, project and

Oracle implementations from Brazil, Europe, the

United States, as well as Australia and the U.K.

…they took cognizance of not

only their impact on other

business areas, but also

recognized where interlocking

processes and systems could

be mutually optimized and

benefitted.

“For us, as well as even the best consultants available, a lot of the project deliverables and

components were completely new territory” says Low Ah Kee. “We therefore had to bring

in everyone who could possibly contribute or offer guidance or experience as to how we

could move forward on a successful path, one which we had to forge together for the

next few years, sometimes into the unknown.”

This mutually adopted „green fields‟ approach of the entire team created a sense of

working for the greater good rather than concentrating on what each team wanted for

themselves in isolation. Although the project team was naturally broken up into its various

work streams and system component configuration and delivery tasks, Edcon‟s well

established Project Management Office (P.M.O.) ensured they often worked closely

together to ensure they took cognizance of not only their impact on other business areas,

but also to recognize where interlocking processes and systems could be mutually

optimized and benefitted.

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Systems, Process, Change and Evolution.

One of the key messages Edcon had to impress upon the hundreds of stakeholders in the

project was that it was not about the implementation of a new piece of software, nor a

realignment of existing processes or an exercise in improving a single area of their

operations; it was a complete evolution of their business foundation. In fact, the term

„evolution‟ became the project‟s official moniker, while the words „project‟ or „system‟ were

avoided due to their finite, microcosmic connotations in what was actually an ongoing

process of learning, growth and optimization of everything Edcon considered important

towards their retail success.

“When you change something so fundamental in your operational success, so intertwined

with so many other elements, and so critical towards the success of many other operational

objectives, which will completely redefine your success parameters, you are not

completing a project. You are not changing a system, nor modernizing it, or redesigning a

supporting process. You are doing all of these things in unison to create a platform for the

ongoing evolution of the business.” Whilst they may seem profound, Ayoub‟s words are far

from philosophical musings, and if Edcon‟s latest statistics are anything to go by, evolution

has most definitely taken place.

A dedicated „change

agent‟ was appointed

from each work stream to

work in conjunction with

the training and change

department, to ensure that

benefits would be realised

early on, with as little

resistance or business

interruption as possible

Managing and Supporting Change

Another major consideration of the MODE evolution was the Change Management

component that accompanied it. With the scale and volume of impact it had, a complete

awareness, alignment and training strategy had to be considered very early on in

development. A large scale launch of the project principles, components and goals

(summarily branded “MODE” – Merchandise, Optimize, Distribute, Evolve) was conducted

where all stakeholders, from every retail operation the project would touch, were

introduced to the MODE dream that would take Edcon into a new era of retail efficiency

and understanding.

Further to this, a dedicated „change agent‟ was appointed from each work stream to work

in conjunction with the training and change department, to ensure that over the project‟s

three year initial rollout plan the benefits would be realised early on, with as little resistance

or business interruption as possible.

“In any project, buy-in is a crucial element of its

overall success; adoption and ownership of

change determines how quickly and to what

degree any new way of working delivers value”,

says Sonia Peres, Group Merchandise Planning

Executive and key member of the change

teams across all work streams. “Over 600 people

were being asked to open their arms and

champion a completely new way of doing

things, using new tools, processes and systems,

sometimes even rewriting their career paths, not

to mention adopting a completely new social

networking support infrastructure.”

The new support structure that Peres speaks of was Edcon‟s introduction of a radical new

way of integrating social media into the company‟s support structures, particularly to

smooth the challenges staff would face post-MODE. Recognized as a younger, vibrant

organization, Edcon acknowledged that many of its staff were savvy to social networking

tools such as Facebook and Twitter, as well as looking for quicker, more personal ways to

solve their day-to-day system and process problems by calling on their peers, rather than

logging laborious support calls.

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Through a combination of a dedicated MODE Facebook group, linked to Twitter and RSS

feeds, as well as the implementation of Windows Live Messenger, Edcon created

interactive groups of users within their community, who could throw out questions,

suggestions, tips and general MODE related information easily, at any time of the day, to

selected groups of subject matter experts, peers or managers. The response of the staff was

incredibly positive, welcoming a new way of sharing their thoughts, skills and feelings.

“By creating a simple, fun platform for all those going through the MODE evolution, people

were sharing their daily activities and experiences, their knowledge and their suggestions for

improving the new status quo” says Kevin Willemse, one of MODE‟s Group IT Project

Managers. “By constantly sharing in this manner, people were aligning their practices to

create a sustainable, best-practice functional area which called upon its own ranks to

resolve issues much quicker, and probably much better, than a segregated support desk

function could.”

Not only were the various business units at Edcon evolving into self sufficient expert network,

but by constantly monitoring, channeling and responding to the content of the social

networks when needed, the Change Management and Training teams could react more

quickly and appropriately. “We now have an ear to the ground in terms of where real issues

exist, such as where a system or process may be failing or problematic. We can see where

training sessions or optimization may be required. We can ensure we don‟t focus our efforts

on anything but the most prevalent complaints, or worse, end up simply not knowing of any

inherent system or process inefficiencies that staff silently soldier through every day”.

Social networking has

also reduced potential

costs associated with

the support function,

and proliferated a

shared learning culture

within the entire Edcon

group..

By monitoring activity on the various social media

and micro-communications networks implemented

as part of MODE, Edcon also was able to recognize

and motivate staff who were actively participating in

the various user groups as unofficial trainers or subject

matter experts. Those who responded to fellow peers‟

questions regularly, with valuable information and

solutions, became instantly recognizable as

proponents of the MODE evolution and experts in

their areas, and as such were recognized by being

asked to perform informal training, assist in system

enhancement design, or even perhaps receive a

promotion or transfer to areas where their skills could

be utilized and nurtured best.

This innovative approach alleviated much of the pressure the current „formal‟ Edcon

systems helpdesk was expecting to receive from MODE‟s inherent systems impact. As an

outsourced service, it has also reduced potential costs associated with the support

function, and proliferated a shared learning culture within the entire Edcon group.

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Counting the Benefits

Today, just three years later, Edcon is a completely different entity altogether. The various

components of the Oracle Retail Solution have been successfully implemented and

integrated, and MODE has been further expanded to include Oracle‟s Clearance

optimization Engine (C.O.E.) module, which will manage their (significantly reduced) slow-

moving stock off their store floors.

On the planning side, the scientific retail demand forecasting system provides much more

accurate predictions, based on years of data with thousands of reference points all

calculated in the background, which allows the financial planning team to better decide

and allocate budgets across their various expense areas. This improved faith in financial

budget allocations has released often locked-up open-to-buy funds to the buyers, thus

allowing them more freedom to buy product as well as capitalize on opportunities that may

arise in-season or quickly respond to increased demand. Further capital reserves could also

be allocated to their ever-growing basket of profitable financial services products as well.

The operational business model of Edcon has also changed, and where different

departments and work streams were somewhat segregated due to their different systems

and dependencies, they now operate as a cohesive unit. By all speaking the Oracle Retail

language, everyone from the financial manager to the hosiery buyer can understand and

call upon data to substantiate and assist in making their relevant decisions.

The entire structures

and core principles on

which the group is

based, so easy to

become stagnant and

rigid in large corporate

retailers, have become

agile, interactive,

responsive and

evolutionary.

Edcon‟s merchants, logistics partners and suppliers,

heavily involved in the design considerations and

implementation of the MODE project, are also

reaping reward by having much clearer and reliable

instructions at their fingertips. Since the forecasting,

allocation and overall planning has drastically

improved, they have less to worry about when it

comes to unexpected item replenishment requests.

This benefit cut both ways in Edcon‟s favour, as their

suppliers‟ and merchants‟ service level and quality

assurance agreements were revised to ensure that

they met the levels that MODE demanded as part of

its success criteria, in order to hit peak optimization of

the entire supply chain. Communication throughout

all tiers of the supply chain are clear, comprehensive

and trustworthy, thanks to reliable data.

At the store level, one of the most notable impacts was the „right-sizing‟ of many of Edcon‟s

stores. Once the stores were receiving optimized stock mixes (an aggregated cut of 8%

across the board equating to R1.9 billion), it became immediately apparent which stores

could be reduced in terms of floor area and still meet demand, and which should be

expanded to meet it. Edcon‟s massive (and expensive) property footprint was therefore

also optimized without negatively affecting its ability to supply the merchandise the public

was asking for. The same logic was applied to the types, sizes and brands of apparel that

was on offer across all (now 1,400 and counting) stores, to maximize allocated floor and

shelf space to the appropriate products. Not only this, by increasing the service level and

item planning accuracy to the stores, Edcon‟s Edgars Chain has reduced sale items from a

massive 19% to just 7%, while the Discount Chain has gone from 9% to just 5% of floor goods

marked down.

Edcon‟s reported growth is streets

ahead of analyst expectations,

and its competitors…

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While the past three years have seen a cautious but steady climb in consumer confidence

and subsequent spending across all retailers, the 21% retail sales growth which Edcon

reported this year is streets ahead of analyst expectations, and its competitors. This must

also be viewed in context, since the optimization benefits of MODE only truly came online

halfway through 2012, where Edcon showed an 11% growth, so the almost doubling of that

figure between then and now may well be attributed to MODE‟s success. More of a

yardstick against the project however is their adjusted EBITDA figure of 23%. This

performance brings their 30% market share in FYE2010 to 39% by FYE2013, more than

doubling its closest competitor.

MODE has hit the

bulls-eye when it

comes to evolving

an organization

towards a new

identity and way

of retail operation

optimization.

However, ask any of the team who were involved in Edcon‟s

transformation from good to great and, while aware, they will

not say that the success of MODE translates into dollars and

percentages. The entire structures and core principles on

which the group is based, so easy to become stagnant and

rigid in large corporate retailers, have become agile,

interactive, responsive and evolutionary. Every one of

Edcon‟s 20,000 employees has felt the organization shift in

the way it reacts to and embraces change in itself, the

market, and the new-age economy in which it flourishes. If

nothing else, MODE has, in its various forms, components and

concepts, hit the bulls-eye when it comes to evolving an

organization towards a new identity and way of retail

operation optimization.

“We‟re at a good point in our lives, with an excellent foundation; but we can‟t afford to

slow down now, or see ourselves as evolved”, Ayoub is quick to point out. “Evolution never

ends; it just makes us better all the time.”

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