EDITORIAL: Politicians need to learn right lessons from Edcon demise
With Covid-19 set to ground more businesses, regulations should aim to promote as much activity as possible
Coming just more than a month since CEO Grant Pattison told suppliers that Edcon couldn’t meet its obligations to them, the retailer’s slide into business rescue is no big surprise.
And unfortunately it won’t be the last in an economy suffering from a Covid-19-induced slump that is likely to be worse than anything indicated by the official forecasts. Reserve Bank and private-sector forecasts point to an economy that is set for yet more pain, with some economists putting job losses at more than 1-million.
With Covid-19 infections not expected to peak before September, it will be a while before life returns to any kind of normality and shopping malls start experiencing traffic at a rate resembling anything we saw before March. And the suffering is not just in SA either, with reports from Australia to Europe showing varying degrees of pain for consumer-facing businesses.
Some countries have been more pragmatic than SA, so there are pockets that have thrived, such as, ironically, bottle stores in the UK. Even there, anyone selling clothes has taken a hit. Oasis and Warehouse, two of that country’s best-known brands, were set to go into a form of business rescue.
Up until a month ago, the UK retail sector probably thought a hit to consumer confidence due to Brexit — a factor that had also left SA companies that made mistimed ventures into the UK with bloodied noses — was its biggest problem.
The Covid-19 outbreak and the associated lockdown that is now nearing the end of its fifth week will take down even stronger companies than Edcon, and in that fateful call with suppliers Pattison conceded that the owner of Edgars and Jet brands was among the weaker ones who would likely be among the first to fall.
Its assumptions then were based on a three-week lockdown that would cost about R800m in lost sales. That was extended and the country is only entering a slightly relaxed phase on Friday. For Edcon and its 18,000 strong workforce, that relief comes too late.
When it told the market on Wednesday that it had thrown in the towel and had placed itself in business rescue, a form of bankruptcy protection that aims to stave off liquidation and allow a restructuring that might enable the company to operate in some form, Edcon said it had lost R2bn in sales and had run out of cash.
Edcon insists that its recovery plan was working and that the rescue was not R2.7bn poured down the drain to only delay what market forces made inevitable
Of course it would be wrong to pretend that Edcon would have had a bright future without the intervention of the Covid-19 disaster. This after all is a company that had to go through restructuring processes twice in recent years, the most recent being a R2.7bn bailout in 2019, in which the Public Investment Corporation, a custodian of workers’ pensions, participated. Landlords pitched in with rental discounts.
There was unease about that bailout, championed by Cosatu, given the company’s failure to adapt as the industry transformed and competition grew in the decade that followed its takeover by Bain Capital in 2007.
Edcon insists that its recovery plan was working and that the rescue was not R2.7bn poured down the drain to only delay what market forces made inevitable. Sadly, we might never know.
All we can say with any degree of certainty is that this won’t be the last failure and retail won’t be the only sector to be hard hit. Already we are debating whether we will have an aviation industry on the other side of the coronavirus outbreak.
This should be a cautionary tail for President Cyril Ramaphosa to rein in some of his ministers who have used the lockdown and newfound powers to unleash their antipathy to business and love for regulatory overreach. Intervention should only be aimed at facilitating as much business activity as we can.