We Are EGG Part 1: The business model

Paul Simon and Arie Fabian opened the first We Are EGG (EGG) store at Cape Town's Cavendish Mall in December 2020. With 94,000 people through the doors in month one, the outlook for its local-first, contemporary experiential department store concept was hopeful, despite the return of lockdown just before New Year's Day. Within a year, even with lockdowns and shopping centre violence dampening numbers, EGG had welcomed 400,000 shoppers.

Fast-forward to today and EGG's new Johannesburg store at The Zone in Rosebank has been open for 2 weeks (in October 2022, after construction delays involving key partners pushed launch out from April). The Johannesburg location expands EGG's surface area for answering the big question for a new generation of local fashion businesses: What happens when you put an edit of some of South Africa's best independent brands in its beloved malls?

Retail Legacy

Paul Simon has worked in retail for more than 27 years. With two business owners for parents, he grew up with entrepreneurship modelled at home. At just 21, he cut his fashion studies short to start the Young Designers Emporium (YDE), a retail outlet for independent South African brands focused on the youth market.

Truworths International bought 75% of YDE in 2003, and the remaining 25% in 2005. After 10 years running YDE, Simon moved on to other projects that enabled access to market for growing local businesses, a focus that's defined his career. He founded, advised and consulted before partnering with longtime friend Arie Fabian.

Following a year-long global retail internship with Hugo Boss, Arie Fabian returned to South Africa to work in and eventually run his family's business, Fabiani menswear, in 1998. He brought G-Star RAW to South Africa in 2009 along the way, and eventually sold both the Fabiani business and the G-Star RAW partnership to The Foschini Group in 2011, staying on as brand director for both. Fabian helped transform and grow TFG from a credit retailer to a holding company before leaving in 2016 to consult for entrepreneurs and brands, a job he still does alongside his role as a co-founder at We Are EGG.

Along with the commercial leasing insight and experience provided by 50% finance partner Old Mutual (a mall landlord taking an equity stake in a retailer is a first-of-its-kind-partnership in South Africa), We Are EGG benefits from Simon and Fabian's combined networks, decades of experience, and razor sharp focus on growth.

The Model

"I believe that entrepreneurship and small local business is actually the key to the growth of the economy in South Africa," Paul Simon shared at the start of our first conversation last November. That belief has driven his focus on platforming local fashion and lifestyle SMEs in a landscape that isn't built for them to thrive. EGG offers a way to reach new customers through the market's favoured channel, previously out of reach for them: malls.

"The business model was designed not for small, new businesses," Simon says of how malls make their money — long leases, with heavy deposits and meagre set up support. While lockdowns pushed many malls to structure new deals to keep their tenants and attract new ones, the updated options are still far out of reach for a large number of growing brands, which is where EGG comes in.

"All the associated things that come with retailing a product are supplied by EGG," Simon explains. "Lots of people don't think about that, like the security tag that goes on the garment, the hanger, the in-store visual merchandising team, right up to the actual bag that leaves the store. So normally, if a brand went to a shopping centre, they would need to sign a lease, they would need to shop fit it, they'd have their rental, then they'd have to pay the operating expenses, their lights, electricity, the credit card commissions. That is all included in our offering, a basic monthly rental."

The rental isn't a negligible cost, and it's not a glass slipper — EGG can't guarantee brands their perfect spot on the floor or even as much space as they want — but by November 2021, at least 200 partners agreed it was a worthwhile investment (or at least a fair deal). They deliver product, brand their space, set their price, and EGG does the rest. "Our business model is that we take a percentage of turnover... therefore it's obviously in our interest to sell as much product as possible."

EGG gives the partners unprecedented access to the omni-channel operation's nuts and bolts, including backend access to their e-commerce platform and a store-based shipping service for online orders with a click & collect option. "We built a fulfilment warehouse above the [Cape Town] store. So if an e-comm sale comes through and we don't have that product in the warehouse, we literally walk down to the shop floor, take it off the rail, pick and pack it and send it for them."

If things don't work out, it's easy to exit – with no long leases, both parties have the option to exercise a month's notice and end the contract. "I believe in a win-win scenario, and if it's good for us and good for the brand, it will be an ongoing indefinite relationship."

Putting local brands first

With a brand mix that's almost 80% local SMEs, EGG combines a contemporary department store setting built on global best practices with what YDE proved years ago: that local fashion brands with a working production plan can succeed with the right distribution, despite the market's lingering hang ups about the quality and price of what they offer. "They really get a full turnkey operation, and ideally, very similar to what I did with YDE, this gives them the opportunity to literally do what they are good at, and that is produce amazing product. I think that we are perfectly positioned, and will continue to be the home of small brands and local SMEs."

EGG's selection includes several local favourites, from Cape Town's Sol Sol and Artclub & Friends, to influencer-founder brands like ByCara and For Everyone Asking, as well as premium and luxury names like Rich Mnisi and Hamethop . EGG also props up lesser known local brands by using desirable established brands, mostly international ones (a trait that's more circumstance than design, according to Paul), to draw traffic in, resulting in a comfortable and familiar shopping experience with a fresh injection of novelty in an environment that promotes brand discovery. By collaborating with local brands on their growth, Paul hopes EGG can act as a retail incubator, a role that inspired its name.

The viability study

Getting onto the floor at EGG requires passing muster in its viability study, the process used to determine retail-readiness. Brands don't need to be ready to own and operate a store, but they do need to be ready to supply one. "We look at basic information; what is the current value of their stock holding? How many people do they employ? What other channels do they use to sell their things? We even look at things like how many Instagram followers they've got. None of these individually would exclude someone; it gives us a holistic picture."

The defining criterion is retail's standard stock-turnover ratio. "A lot of the really new young guys don't realise you need a minimum of three times stock. So if you want to do R10,000 turnover, you need a minimum of R30,000 stock. If you want to do R100,000 turnover, you need R300,000."

The study is biased toward inclusion, and so are the tiered partner packages the process attempts to match brands to: "We've got what we call our Halo partners, and those are the big guys that might take as much as 20 sqm, that might even do a shop-in-shop. We've then got what we call our Core partners, and those are five and 10 sqm spaces, and we've then got a proposition for what we call Next Gen and the Next Gen would be anywhere from one and a half to two and a half sqm. We will be able to assess which category that fits into in once we look at the person, applying this viability study."

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The model works if you work it — Dear Lola, a brand that started out as a Next Gen partner, quickly grew to become one of the Cavendish location's top 5 sellers.

That doesn't mean that what gets you through the door will keep you there. Paul recounts having to part ways with a designer whose turnover had stalled. "He said to me, Paul, I don't understand, you know, why would you ask me to if I pay the rent every month? I tried to tell him we're not a landlord; I don't make money out of your rental. That goes towards the rent of the store and the staff and the cleaning and the lights and all the other things that you can't see. I actually need product in order to make this viable."

That designer had R26000 in stock available when he met with Paul to discuss the problem. "Even if you have a 50% sell through, which is unheard of in fashion, you can only make R13,000... he said he'd had a couple of quiet months, and that is unfortunately a microcosm of what a lot of the local brands have. A lot of them saw themselves through and have done fine, but we needed to de-risk it as a business, because from a business point of view, if you're 80% or 90% small local brands, which is really where my passion is and what I set out to do, if they can't give you the product, you need to look at it, because it doesn't matter in retail how good your shop fitting is, how good your operations are. If you don't have the right product in the right place at the right time... I know it sounds old school but it's true. There's nothing you can do."

Thanks for reading! I'll be sending part 2 on Monday, breaking down some reported sales insights, lessons from the Cape Town store that were applied to Joburg, market challenges, and future plans — I hope that explains why this story has taken so long; there's that much to get through. Please share your thoughts and questions below.

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