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CNA appears to be in terminal decline

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CNA - [Google Images] CNA - [Google Images]

The Central News Agency, or CNA as it is known to South Africans, has been around for decades. But it appears to be in terminal decline, with dwindling store numbers and barely profitable. So why does its parent, Edcon, prolong the agony of this once-iconic business? The answer is not clear.

CNA has been in trouble for many years. In 1997, retail conglomerate Wooltru bought CNA out of CNA-Gallo of R447m. A turnaround plan was invoked but failed dismally and in 2001, the company was sold to an organization called Gordon Kay & Associates for R192m. They, too, had grand designs for CNA – but by the following year, CNA was in liquidation.

Edcon, under the relatively new leadership of American retailer Steve Ross, snapped up CNA for R141m. At the time, many retail analysts (including myself) perceived this as being a rather incongruous inclusion in what was predominantly a department-store/clothing retail operation, trading mainly as Edgars and Jet.

Notwithstanding the widespread skepticism, Ross and his team figured they could transform the business and, to be fair, they achieved a modicum of success in the first few years. But Edcon itself was soon in deep trouble, following the highly leveraged buyout by Bain in 2007, just before the global financial crisis.

The group lurched from crisis to crisis and was only saved from extinction a year or so ago by persuading their major creditors to swap their debt for equity. In a lacklustre consumer environment that is likely to persist for some years yet, it is far from certain that Edgars will survive, even under the direction of new CEO Grant Pattison, formerly the CEO of Massmart.

Pattison is an outstanding retailer but turning Edcon round may just prove to be a bridge too far.

And what of CNA? This business is struggling for a variety of reasons, some intrinsic and others more associated with management of the business.

At an intrinsic level, there appears to be a decreasing appetite for standalone stores in the genre of CNA, and global comparisons bear out this assertion.

In the UK, for example, the well-known news agent and magazine retailer, John Menzies, sold its entire retail operation to WH Smith in 1998, to concentrate mainly on civil aviation-associated operations.

WH Smith has spent many years acquiring and disposing of businesses, but still sticks mainly to its core competency of selling books, newspapers and magazines, as well as other loosely-associated items.

And like CNA, WH Smith has had to contend with competition from technology, for example in the field of electronic book and magazine distribution – via Kindle and other devices.

But WH Smith appears to have a major advantage over CNA, insofar as the British population is more geared to impulse buying in high street and mall stores.

In other words, the range of products that WH Smith sells literally flies off the shelves at airport, railway station and hospital stores, whereas CNA’s stores tend to attract casual browsers, or customers who are looking for specific types of stationery and are not inclined to get caught up in impulse buying as they approach the checkout.

From a management perspective, CNA has tried to adapt to changing consumer tastes over the years, but with limited or no success, and often technological advances leave them stranded. So for example, the company began selling CDs in the late 1980s and appeared to do quite well, notwithstanding having to install much tighter security to deter thieves.

The company also began selling mobile phones, laptops and tablets, but not with any great lingering success. It was demonstrably unable to offer the kind of specialist support that is required when selling sophisticated technological products.

However, it does appear to do quite well in the electronic games arena. Other ancillary products were introduced along the lines of what is typically found in a WH Smith – such as soft drinks and confectionery – but again this had limited success.

And all the while, its traditional base was being eroded by the large supermarket chains, which sell a reasonable variety of stationery products in addition to newspapers and magazines. Upmarket bookstores like Exclusive Books are destination shops for dedicated readers, and CNA frankly can no longer compete in this segment of the market. Its dismal book offering is largely concentrated in the area of trashy novelettes and textbooks.

The once-lucrative greeting card market has been decimated worldwide, as consumers either stop sending cards at all, or opt for electronic cards sent over the internet. There is a place for greeting cards, but an extremely limited one at the very top of the ladder, an area that CNA does not inhabit.

The South African situation is exacerbated by an entirely dysfunctional post office, which often leads to greeting cards being stolen by post office thieves looking for money inside the cards.

The CNA store base has shrunk from around 200 at the start of the decade to 185 now. Large flagship stores like the one in Sandton City have been downsized significantly, and yet profit margins keep falling.

As if all this overwhelming negativity wasn’t enough, in recent times CNA has had to contend with a young, aggressive competitor in form of Australian retailer Cotton-On’s subsidiary called Typo. Typo is aimed at a young and trendy market and appears to be doing well. It is difficult to see how CNA can compete with such a pushy upstart.

In my humble opinion, it is time to call an end to CNA’s messy existence. It is a distraction for management and produces very little in the way of profit.

I don’t believe it is a destination shop for most of the products sold in its stores, and South Africa’s demographics, spatial planning legacy and the demise of the high street shopping experience have all conspired to render CNA’s offerings far less compelling than they were a few decades ago.

I, for one, rarely venture through its doors unless I am looking for a pencil sharpener or something equally obscure. The staff appear disinterested and demotivated, reflecting the unexciting offering on the shelves.

“Oh Death! Where is thy sting? Oh grave where is thy victory?”

 


 

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