Edgars keeps Jet from takeoff
Brand should attract buyers but separating it 'nearly impossible'
Any would-be buyer interested in Edcon would consider the Jet brand the prize asset because of its low price-point entry and could seek to acquire it separately from Edgars.
The problem, though, is disentangling Jet from the less attractive Edgars, which independent analyst Chris Gilmour says would be "nearly impossible" because their systems are so "inextricably linked".
This leads to the question of who could be keen to undertake such an exercise.
Listed retailers Pepkor, Mr Price, and TFG, which owns Foschini, were considered by the market to be likely contenders. But they have said they are not interested in buying any part of Edcon. This leaves a private equity player as most likely to show an interest.
The number of Jet stores in SA
In response to questions from Business Times, Pepkor says it "confirms that it has no intention nor ambition to acquire Edcon or any portion thereof". TFG CEO Anthony Thunstrom says his group "is not interested" in either part or all of the business. Mr Price said in a May statement that it "has no intention to acquire Edcon, in part or in whole".
Gilmour says the systems link between Jet and Edgars was highlighted by Thunstrom during a results presentation last week, when "they [TFG] said they are not interested in Edgars because it is a department store. No-one is interested in department stores any more and this goes back before Covid-19. It's a dying model."
Gilmour says TFG also said that Jet was the better part of the business, but was so "inextricably linked into the Edgars systems that unravelling it would hardly be worth the effort".
"That unfortunately highlights that the whole process of trying to get rid of Jet is that much more difficult."
Gilmour says that without a doubt Jet is the most attractive part of the Edcon group because it is aimed at the discount end of the market.
"Post-Covid a lot of people are going to be unemployed, retrenched and furloughed, and they're going to be looking for value [at] the likes of Pepkor, Ackermans and Jet, [which] are all playing in a similar space."
Gilmour says Jet could fit "beautifully with Mr Price". But Mr Price, with 1,400 stores, does not necessarily need more outlets.
There are 472 Jet stores and 178 Edgars stores in SA.
"Jet is a good operation and it's perfectly positioned in this post-Covid world. It has a strong children's clothes section. It's a good business and, to be fair, [Edcon CEO] Grant Pattison has streamlined it as much as he possibly could. The problem you have now with systems is it is difficult to disentangle the two."
Gilmour considers Edgars itself "unsellable" except perhaps for one or two of the large flagship outlets in higher-end destinations such as Melrose Arch and Sandton City.
He says "maybe half-a-dozen" of the Edgars stores would be worth buying.
Asked who would be a likely buyer of part or all of the Edcon business, Gilmour says it would likely be a private equity grouping.
"I don't think it will be a high-profile JSE-listed company because anyone who takes this thing on is going to be saddled with stuff that isn't going to perform for a while, so you don't want it to be in the public eye.
"You want to be able to take it offline and do what is required to be done with it, so private equity would be absolutely ideal."
Jean Pierre Verster, CEO of Protea Capital Management, says although a private equity player could be interested in parts of the Edcon business, "it's not like there are lots of private equity players out there at the moment with a lot of money burning a hole in their pockets".
Verster says that given the weak economic outlook, Jet, as a discount retailer, "is in a much better position versus a more upper-end department store concept".
Bjorn Samuels, an equity analyst at Argon Asset Management, says that in the recent past, sales at Jet caught up to those of Edgars despite it trading "off a smaller floor space". "This implies the trading densities of Jet are much better than those of Edgars."
Edcon business rescue practitioner Lance Schapiro says the practitioners are "pleased" about "how the sales process is progressing", with "interested parties currently completing their due diligence and binding offers set to be received by the end of June".
Schapiro would not give details on who the interested parties were, saying it was a competitive and confidential process.
"We will keep all stakeholders informed as the sales process unfolds."
SA's big property owners have Edgars and Jet stores in many of their malls.
Estienne de Klerk, South African CEO for Growthpoint Properties, SA's biggest property group, says: "It is our understanding there are well-motivated, interested buyers of either the whole or a portion of the [Edcon] business, some of which we have introduced into the process.
"We don't know what the potential buyers are prepared to pay for the business, or components thereof. We also don't know which shops they would like to keep. There are parties who are interested and hopefully the majority of that business will be taken over, separated and will continue to trade."
Growthpoint owns about 1% of Edcon as part of a deal whereby landlords helped recapitalise the retailer.