COMPETITION TRIBUNAL
REPUBLIC OF SOUTH AFRICA
Case no.: 02/LM/Jan03
In the large merger between:
Pepkor Limited
and
Fashaf (Pty) Ltd
_______________________________________________________________________
Reasons for Tribunal decision
_______________________________________________________________________
Approval
The Competition Tribunal issued a Merger Clearance Certificate on 2 April 2003
approving the merger without conditions. The reasons are set out below.
The merger
The transaction
Pepkor Limited (“Pepkor”) made an offer to the liquidators of Fashaf (Pty) Ltd
(“Fashaf”) to acquire shares in Fashaf subject to the approval of the Creditors. Failing the
approval of the creditors, Pepkor will acquire the stock in trade and fixed assets of
Fashaf. Upon completion of the transaction Pepkor will control all stores trading as
Dunns & Millers excluding the two Giant Stores in Giyani and Welkom.
The Parties
The primary target firm, Fashaf, is a private company controlled by Fashion Africa Ltd,
which is a public company listed on the JSE Securities Exchange. Fashaf, as well as its
wholly owned subsidiary Jones Retailing (Pty) Ltd (“Jones”), was placed in provisional
liquidation since 1 November 2002. Fashaf controls the Dunns, Millers and Giant brands.
Dunns trades through 143 stores and Millers 36 stores in South Africa.
The primary acquiring firm Pepkor is a public company listed on the JSE Securities
Exchange. Its single largest shareholder is Dr. C.H. Wiese who owns 21.29% of the
shares and has 44.3% voting rights. Pepkor controls 17 companies which all relate to one
of the following brands: Pep, Ackermans and Best & Less (Australian Outlet).
Pep operates through 846 outlets and Ackermans through 245 stores and 10 Hang Ten
stores in South Africa.
The Rationale for the transaction
According to the parties Fashaf, through its Dunns and Millers stores, focused on a
different consumer market, the clothing market for the young and trendy, that differs
from that of Pepkor’s Pep and Ackerman stores, which focus on timeless and basic
clothing items. Entry into the market aimed at the young fashionable consumer supplies
Pepkor with a viable alternative for expansion rather than opening more Pep and
Ackermans stores.
Pepkor intends to continue to operate the Dunns and Millers stores as well as expand it
post the merger. It will, however, dispose of the Millers brand as soon as it has turned
profitable.
The relevant market
Both the merging parties trade in the retail market for clothing, footwear and related
goods for cash throughout South Africa.
The Commission defines the market narrowly by making a distinction between the
following product categories:
Ladieswear
Menswear
Boyswear
Girlswear
Footwear
The Commission also investigated an alternative definition for the relevant product
market namely by defining the product market according to income group classification
(LSM). According to this definition Pep would focus on the LSM 15, Dunns on LSM
36 and Ackermans on LSM 47. However, the evidence indicates that it is not that easy
to define the market according to income classification, because consumers do not
necessarily restrict themselves to stores that target their LSM group. Market research, for
instance, shows that consumers in the lower LSM groups will frequently buy from the
instance, shows that consumers in the lower LSM groups will frequently buy from the
higher LSM targetted shops and vice versa. There is thus a degree of overlap between the
various LSM categories.
2
The parties submitted evidence claiming that players in this industry compete in the
market not by focussing on customers in a specific LSM category but rather by
promoting a certain “customer image” that offers, within the same store, merchandise at
different price levels thereby attracting customers from a broad band of LSM categories.
For instance, Pep sells basic clothing at the lowest price, Ackermans more classic, family
type, value for money clothes while Fashaf sells casual, trendy clothes for younger
customers. The effect of this is that a store or chain would not necessarily compete with
the same players in each product category but would, for instance, in home textiles
compete with Woolworths while its children’s wear division would compete with
products from Jet or Mr Price. 1 Neither does it seem to matter whether stores offer
merchandise on credit or not because some players, such as Edcon, have recently also
introduced cash cards while most of the cash stores offer sales on layby. Moreover it is
easy to open an account because most of the players do not have strict criteria for opening
an account. It is thus easy for lower income consumers to buy on credit.
However we do not have to define the product market for purposes of this merger,
because the increment in the market share of the merging party is small and the effect on
competition negligible whichever market definition one uses.
The geographic market is national since prices are set on a national basis. Pepkor did
indicate that it would, in special circumstances, allocate budget to counter localised
competition from independent stores in the form of regional promotions, specials or
markdowns. Store managers usually alert regional managers of special promotions within
their areas. Regional manager, at their discretion, would then allocate budget to
specifically counter such competitive activity. Although this evidence could point to a
specifically counter such competitive activity. Although this evidence could point to a
narrow definition of the geographic market, i.e. a local market, we will for purposes of
this merger define the market as national.
Market shares
There are a large number of national players, as well as independent stores, in the retail
clothing market such as Edgars, Foschini, Woolworths, Truworths, Jet, Markhams,
Queenspark, Clothing City and Mr Price. 2
In the Ladieswear market the three largest players are Wooltru (with a market share of
37.9%), Edcon (22.6%) and Foschini (12.9%). Post the merger between Pepkor and
Dunns, Pepkor (including Pep, Ackermans and Dunns) will have a total market share of
1 This is supported by market research done for Ackermans by an independent company called Research
Surveys.
2 We were not provided with market share figures of independent players and have thus not included them
in the market share analysis. However the Commission has indicated that the independents represent
approximately 2% of the total retail clothing market. We also do not have market share figures for all the
National chains in the retail clothing market and it is, therefore, possible that the market shares, which we
have used in our analysis, could in some instances be lower.
3
approximately 6.4%. 3
In the Menswear market the three largest players are Wooltru (30.4%), Edcon (27.6%)
and Mr Price (12.4%). After the merger transaction Pepkor (including Pep, Ackermanns
and Dunns) will have a total market share of approximately 10.5%.
In the Boyswear market the three largests players are Edcon (31.2%), Pep (23.7%) and
Wooltru (16.8%). Post the merger Pepkor (including Pep, Ackermans, Dunns) will have a
total market share of approximately 34.6%. In the Girlswear market Edcon (33.1%),
Wooltru (20.2%) and Pep (13.9%) are the three largest players. After the merger Pepkor
(including Pep, Ackerman’s and Dunns) will have a total market share of approximately
26.7
In the Footwear market the largest players are Edcon (35.1%), Wooltru (22.2%) and Pep
(12.8%). Post the merger transaction Pepkor (including Pep, Ackermans and Dunns) will
have a total market share of 20%.
Effect on competition
According to the parties this is a highly competitive market. In order to compete in this
sector players need, inter alia, high stock levels, branded products, the right location,
good marketing and competitive prices. Apparently Fashaf lost market share because it
was running its business on limited stock, not offering “wanted” product and focussing
only on price. It is therefore clear that Fashaf was not an effective competitor in the
market.
Moreover, Fashaf’s market shares within the different product markets are low, ranging
from 0.9% to 3.6%. Post the merger Pepkor’s combined total market share in the retail
clothing market will increase by approximately 1.6%.
Given their different consumer profiles and product offerings the two groups could not be
regarded as direct competitors. Indeed nowhere in the marketing and strategic material of
Pep stores and Ackerman’ s does one see any mention of Dunns although a number of
other competing retailers are repeatedly mentioned.
other competing retailers are repeatedly mentioned.
In light of the above we agree with the Commission that the merger will not substantially
prevent or lessen competition.
Public interest Issues
The transaction does not raise any public interest grounds.
3 Pepkor’s total market share figure includes the market shares of Pep, Ackermans and Dunns.
4
____________ 8 May 2003
D Lewis Date
Concurring: N Manoim, M Holden
5