“You look at a style and ask the buyer why they are buying so many units of it, and there are five hundred reasons why. Then you sit in the markdown session six months later, and the same buyer tells you all the statistically correct reasons why that thing didn’t work. And you kind of go, how did you change your mind in that period?”
It is the funniest moment in more than an hour of conversation, and perhaps the most telling.
Cardinaal steps down as Pepkor’s chief operating officer when his contract ends on 31 December 2026. His career has taken him from a denim fabric business in Hammarsdale to running Ackermans and Pepkor’s European businesses, followed by the past four years as COO of Pepkor Holdings.
When we sat down for the Exponential Retail podcast, he began his diagnosis of South African retail in that range-review room.
“Every single retailer, without a doubt, when they buy next season, they buy to take market share. Nobody buys to lose market share,” he says.
The trouble is that the market has stopped cooperating.
“If you have a structural adjustment in the market where the RLC goes from growing at four and a half per cent to two per cent, well, there’s going to be oversupply.”
By his reading of the Retail Liaison Committee’s clothing figures, growth has more than halved.
“At the moment, it’s a zero-sum game. If RLC is growing at 2%, how are you going to grow your business at 5, 6%? It’s almost impossible.”
The macroeconomic environment, he argues, is a given. What matters is how retailers respond to it.
“The macros are just like the weather. They’re a given, and everybody faces the same set of macros. And it’s what you do with those macros and how you adjust your business model within them.”
You don't necessarily blame the economy for the industry's problems. Where do you think retailers are getting it wrong?
What needs adjusting is the reflex to buy for growth. The fix, as I see it, is around discipline in the way you think about your assortment and how you execute on that assortment.
I also think we’ve got way too many retail options for customers right now.
For larger retail groups, what are the realistic growth options in a market that is barely expanding?
Big retailers get to a point where you go, it’s impossible to buy another local retail business. Or you’ve got to go way outside your category. Maybe you must now become a food retailer, a tech retailer or a furniture retailer, which is equally risky. Or you’ve got to go offshore, because that’s where you’re going to get your future growth.
Investors don't necessarily like that last option, because South African retailers have too many arrows in the back from previous offshore investments.
How do you identify a retailer that is carrying too much stock? Is it usually a case of buyers getting their forecasts wrong?
Your natural inclination is to think somewhere a buyer lost the plot, and they just went and bought too much of something.
But more often, buyers spread their bets across too many options.
They spread wide, and then what you get is a lot of nothing. There aren’t enough of the good sellers in volume terms to make up for all of the bad sellers.
What can retailers do differently to manage that risk?
The clever guys now start to do a bit of a 60/40 or 70/30 distribution. You buy yourself a bit more time, because we all know that your best chance of success is if you’re still sitting with the stock centrally.
The minute it’s in the stores, it’s good night. It’s markdowns or charity.
How much of the problem comes down to pricing assumptions and the way buyers estimate demand?
Take a jean. I sell it for R99.99, put it on promotion for R79.99 and buy three times the volume because I think that’s the elasticity I will get. But actually, it’s not a very elastic product, and I end up with a bunch of stock that I’m sitting on at a reduced margin.
You’ve spoken about the need for greater buying discipline. Are retailers also measuring the wrong things?
The old model is all about inflow margin. The buyer comes with their GP study: I’m going to sell that for R99.99, I’m paying R40 for it, my margin’s 55%, happy days.
But I don’t think about stock turn. I don’t think about aged inventory at the end of it. I don’t think about free cash flow.
If you measure the business differently, the decisions change. You might well make a decision that says, instead of spending 4% on distribution, I can spend 10% on distribution because I’ve taken 500 basis points out of my markdowns.
Could local manufacturing help retailers respond more quickly to demand?
It could, but the duty structure needs to make it more competitive.
A local manufacturer has to pay 22% import duty on fabric when there aren’t really recognised fabric mills around, and 15% duty on yarn. It’s just illogical when you think about what could happen if you made local manufacturing more competitive.
Online retail continues to grow, but international platforms such as Shein have achieved a different scale of growth. What do you think local retailers are missing?
We’re all growing our online shopping really, really quickly, but no one’s seeing the growth that Shein has seen, which tells you it’s not about online, it’s about the actual proposition.
What interests me most is how Shein treats suppliers.
The old-school way of dealing with suppliers was always an arm wrestle. I buy my T-shirts from you this season, but next season I go to tender, and mate, if you’re not the cheapest, I’m not buying from you.
Shein’s suppliers, by contrast, can see live sales and produce ahead of demand. They have much less risk of ending up with piles of inventory because they got the product mix wrong.
Can South African retailers compete with that model?
We’re never going to replicate 6,000 new styles every week. Against the big offshore online retailers, we are not on an even playing field.
But local retailers do have advantages. The biggest are last-mile delivery and customer credit.
Last-mile distribution is a particular challenge in South Africa, especially in informal settlements where customers don't necessarily have a formal street address.
Informal resellers are already finding ways around that, including through Pepkor’s own PAXI parcel network.
I’ve got no doubt that there’s Shein product moving from someone who lives in Cape Town, who’s bought stuff on behalf of someone who lives somewhere else, and it’s being delivered to a PAXI store in Mthatha. If you can crack last-mile distribution, you’ve really hit the nail on the head.
Where do you see artificial intelligence having the greatest impact on retail?
There are three areas I think about.
The first is the ability to rebuild legacy systems quickly and cheaply. That matters because every time retail wants to make a change, it has historically run into the same wall: “IT can’t do it.” It’s always been like that.
The second is merchandising. If you can make pricing, assortment, allocation and markdown decisions more scientifically, you have the ability to move margins by hundreds of basis points.
The third is the one I have less control over: the customer handing the decision to software.
What does that look like in practice?
In the old days, a customer’s shopping journey would be: I’ve got a party in two weeks, I think I look good in red, I’m going to search for red dresses.
Now the customer tells the shopping agent, “I’ve got a party,” and it goes, “Actually, you don’t look good in red, you look better in green.”
It is already happening. A large number of searches, and a growing number, hitting our website every day are coming via agentic search rather than directly from a customer. It’s ChatGPT or Claude coming in.
Does AI also create risks for the wider retail economy?
What worries me is the other side of the efficiency gain.
If half of the entry-level administrative jobs disappear, what happens to a country like South Africa? Those people are ultimately our customers. If they lose an income stream, we might be super efficient, but we’ve got half the customers that are gone.
Pepkor operates through a decentralised model, with individual businesses retaining their own identities and cultures. How important is that structure?
You’ve got to have the Lionel Messis of retail running each one of your operating units.
I judge my own tenure on hiring. Of all the leaders I appointed in the last five years, how many of those were good appointments? That’s as big a decision as deciding to buy Legit or OK Furniture.
How do you prepare a business for the unexpected in South Africa?
Operating in the South African market, a black swan event is an annual event. You can do your budget for next year, you can think the lights are on, the ports are working, but something’s coming. You don’t know what it is, but it’s coming.
At my first strategy session after returning to this country, we mapped out Steinhoff’s collapse, Covid, the riots, loadshedding and the floods. That gives you a sense of the environment in which South African businesses have to operate.
The cultures I admire are those that face bad news early and don't look for someone to blame. Nobody plays the man, everybody plays the ball.
People who have worked with you often point to your sense of urgency. How would you describe your leadership style?
Urgency is a polite way of saying this oke is so impatient.
What is the biggest lesson you take from your time at Pepkor?
The lesson I credit to Pieter Erasmus, Pepkor’s chief executive, is the importance of looking to disrupt yourself before somebody else comes along and disrupts your business for you.
What happens next for you?
I’ll stay on in an advisory role through 2027, with Garth Napier, currently chief commercial officer, taking over as COO on 1 January 2027.
After that, we’ll see. I’ve got lots of energy. I can’t go and sit on the beach all day.
For a clothing market growing at around 2%, self-disruption is less glamorous than it sounds. It does not require Shein’s 6,000 styles a week or a shopping agent that knows you look better in green.
It requires buyers measured on stock turn and free cash flow rather than inflow margin; ranges narrow enough for the best sellers to carry the weaker ones; and 30% to 40% of the buy held back centrally until customers have shown retailers what they want.
Listen to the full interview here.
