Retail analyst Syd Vianello speaks about the state of SA retailers as many close up shop due to foreign competition and economic stagnation

BUSINESS DAY TV: In light of dwindling sales and as the prospect of liquidation looms, Stuttafords has launched a barrage of discounts to entice customers back into its stores. The department chain, which placed itself into voluntary business rescue in October, is said to meet creditors and shareholders at the end of the month to vote on a new business rescue plan. Independent analyst Syd Vianello joins us now with his views on the retailer and still with us is Nerina Visser of Exchange-Traded Fund SA (etfSA).

Syd, thanks so much for joining our conversation this evening. So Ellerines has aborted its plan to feed R12bn into the Stuttafords business...

SYD VIANELLO: Not R12bn it was R12m.

BDTV: R12m ... Let’s just correct that quickly — R12m.

SV: But they would need about R1bn to pay all their creditors if they wanted to pay them in full plus buy ... well they talk of winter stock but I guess the way we’re going at the moment we should actually be thinking about summer stock.

BDTV: Absolutely. Okay, so let’s put that clear R12m has been taken off the table, how are you rating the likelihood of a rescue plan now emerging by May 31, or are we looking more so at a liquidation here in your books?

SV: It’s sad to say, and if the Stuttafords management are watching tonight, I’m sorry gentlemen, but we are at a point ... we are two weeks away from the end of May and from what I heard from my sources last week, and granted, I guess they are close to one of the families that’s involved in the business, there is no offer on the table, or I was told there’s no offer on the table. And if there was no offer last week then you’ve got two weeks to go before the end of the month, I don’t believe there’s going to be an offer and I don’t believe there’s going to be a vote and, sadly, I think the thing is going to go to liquidation.

In preparation for tonight’s discussion I actually took a walk there today, just to...

BDTV: Did you delve into the 65% sale?

SV: No. Yes, it’s a three for two sale, if you buy two, I presume two of any particular product you can get a third one for free. Which is tantamount to a 33% discount. But be that as it may, the fact is the shelves are looking empty. There are racks that don’t have much stock and in the menswear side, which, obviously, I guess I would understand better than any other part of the store, what you’re really seeing is summer merchandise.

That’s last summer’s merchandise which is there because they’ve got to have something in the shop because many of the creditors obviously, with this impasse going on, have refused to supply because they don’t know if they’re going to be paid or not...

BDTV: A lot of goodwill has been whittled away here.

SV: … so there is really and truly no winter stock there. Now my fear, this is the problem that any bidder faces, I don’t know what their trading was like in December, they claimed it was good but good can be defined in any way depending on what your definition is. But since then, we know that the retail market has been atrocious. We’ve seen formal retail sales for January and February, we know that March is going to be good because of the timing of Easter, but conversely we also know that April is going to be horrific on a year-on-year basis for exactly the same reason. Put together, I think that March and April are also going to look poor from what I’m hearing.

Now, if Stuttafords, if you don’t have any stock, I always used to say — and Nerina will bear me out — unfortunately, fresh air doesn’t have any economic value. So if you don’t have any stock you aren’t going to sell it, so if you haven’t sold much stock between January and May, clearly you’ve incurred massive losses. Whatever cash they’ve collected they’ve probably used to pay operating expenses.

Remember the rent, the current rent, has to be paid before any creditor gets paid, ditto for the wages and all the other operating expenses. I doubt if there’s any cash left, which means that the buyer has to make an offer to creditors which is now probably going to be, if there was one, is going to be a lot less than the 12c that they were offering, which was minuscule in any event. Plus, he’s got to start buying the summer merchandise and if you don’t place the orders now, when is the stuff going to arrive?

BDTV: Syd, looking at the scenario, are we looking at a case of greedy shareholders or justifiable concerns on Ellerines’ part? If you are going to be pumping R12m...

SV: No, there aren’t, they have justifiable concerns and one of the concerns, which was quoted in the press and probably one of your newspapers or part of BDTV group, was the fact that they were not provided access to the financial statements. Now, obviously, if the parties concerned are not prepared to give you financial statements, well I know what I would do: I’d walk away. I’d say, thank you. Cheers. And I fully understand the view of Ellerines if the scenario is correct, because I would have done the same thing.

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