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 1-5, Dunns on LSM 3-6 and Ackermans
on LSM 4-7. 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 higher LSM targetted shops and vice versa. There is thus a degree
of overlap between the various LSM categories.
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. 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 lay-by. 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 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.
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 approximately
6.4%.
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.
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.
____________
8 May 2003
D Lewis
Date
Concurring: N Manoim, M Holden
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