Back in 2001 two former Sportshoe World colleagues, Stephen O’Brien and Barry Sickle, created a stir in the independent footwear retail industry when they opened Footgear in Access Park, Cape Town. Today, we would call them innovative disruptors, but in those days, they were known as discounters who offered customers top branded footwear at prices they could almost not understand, but certainly afford.
Now, Footgear is again disrupting the existing market by bucking the acquisition trend: as a relatively small chain they are buying a slice of the debt-ridden behemoth, Edcon – more precisely, its Edgars Active and High Key athleisure footwear and clothing stores.
Eighteen years ago, the first big, double story Footgear store offered a good selection of technical performance rugby, soccer, hockey, hiking etc. boots as well as lifestyle footwear and their cheeky ads ensured that the store was jam-packed, especially on a Saturday morning. After a few months the founders were joined by sport shoe industry experts Rob Williams and Neil Stephens, who are currently running the show.
Over the next few years they opened another store in Cape Town and two more in Johannesburg. But, in 2012 “we reviewed our strategy and decided to roll out stores,” says CEO Stephens. Whilst mostly remaining under the radar, they quietly grew the chain to 63 stores across the country – some in value centres, others in malls, with the larger stores carrying more variety than the smaller ones. They also focused more on athleisure than sports specific footwear.
From the start Footgear was known for offering top branded footwear at lower prices and yet they have always been well supported by the top brands, including adidas, who is currently running a competition with them. “We have always worked very closely with our suppliers,” confirms Stephens.
Then, earlier this month (July) they instantly they became a Top 5 player in the local footwear and clothing market by growing their footprint to 180-200 stores through the acquisition of Edgars Active and High Key. “Their store footprint was a good fit with ours – in other words, mostly in locations where we are not, and it would take us several years to get to that number of stores,” explains Stephens.
While Footgear had been growing successfully in the athleisure market, the Edcon “debt issues were a major distraction from trading.” This, they hope to remedy by following the Footgear success recipe of placing the focus on the customer through “high levels of customer service, in a unique retail experience, delivered by an energetic and motivated staff complement.”
The transaction was concluded after Old Mutual Private Equity (OMPE) acquired a majority interest in Footgear at the beginning of June. It is the direct private equity investing arm of Old Mutual Alternative Investments, which manages over $4-bn in assets across private equity, infrastructure and various impact funds via its offices in South Africa, West and East Africa.
Depending on Competition Commission approval, it was announced that OMPE would not only provide capital to support the growth of the Footgear business but will also be a strategic partner to the management team, who hold the remaining shares.
“Footgear’s acquisition of Edgars Active and High Key will significantly enhance the retailer’s scale and footprint across Southern Africa, effectively tripling the existing store base and put them on track to reaching a network of 200 stores,” says Chumani Kula, Investment Principal at OMPE, in a statement. “We look forward to supporting the management team as they roll out Footgear’s highly successful formula across all of the newly acquired stores.”
The acquisition highlights their own and their investor’s mutual confidence in Footgear’s business model and the markets in which they operate, said Stephens in the statement. “Through this acquisition we are able to undertake the next steps in our expansion plans, supported by an enabling partnership with a market-leading private equity firm like OMPE.”
Once the Competition Commission gives the go-ahead – they are hoping for an outcome by November, at the latest – Footgear will be taking over the Edcon store locations, stock and store fittings. Edgars is retaining the Jabari brand and Edgars Active brand name, which they will incorporate in existing Edgars stores.
Footgear’s plan is to convert the Edgars Active stores, but they are still assessing how the High Key stores will fit in their plans. Other decisions in the pipeline are whether the former Edcon stores will be incorporated into the Footgear model, or if the stores will be differentiated, and whether there will be any difference between the target consumer profiles of the stores. They will initially continue with the clothing currently sold by Edgars Active, but still have to make an assessment whether clothing will be expanded into the current Footgear stores and if the current brands will be retained.
“Branded footwear remains a robust and growing market, and has shown relative resilience, even in times of slower macro-economic growth,” Kula said. “We are culturally and commercially aligned to Footgear’s high-quality management team and are proud to back a team that has a long and successful track record.”
OMPE seeks to back savvy operators, like Footgear, that are building a business to international standards, added Farhad Khan, OMPE Investment Principal. “We view this as a smart means to invest in a resilient and burgeoning sector in a brand that is loved by its customers. We look forward to working alongside the team as it enters its next growth phase.”