Edcon CEO Bernie Brookes. Picture: SUNDAY TIMES
Edcon CEO Bernie Brookes. Picture: SUNDAY TIMES

SA’s largest clothing retailer Edcon says it plans to appeal last week’s ruling against it by the national consumer tribunal, which could have potentially far-reaching financial consequences on the struggling retailer.

The tribunal ruled that Edcon, which owns Edgars and Jet, isn’t entitled to add a "club fee" to its credit agreements with customers. It’s a blow for the company, given that an estimated 3.4m account holders are also club members.

For the year to March 2016, these club fees brought in R590m in revenue for the retailer. For the nine months to December, it had clocked up R418m in club fees.

At this point, however, the financial consequences for Edcon are unclear — including the size of a potential fine, as well as the quantum of any refunds for customers.

The national credit regulator (NCR) first brought the case against Edcon in November 2015. Last week’s ruling will affect other retailers whose customers also belong to a club.

Edcon, however, will appeal the finding.

A spokesman said: "The board and shareholders are aware of the (tribunal’s) decision, and based on our legal advice they agree with management that the decision is wrong."

However, he said it would be premature to respond to whether Edcon would refund members, if the appeal goes against it, "as the matter is not yet finalised".

The retailer argued that club membership is voluntary, and can save members up to R17,000 per year if they use the benefits — including discounts for gyms, movie tickets and travel.

However, Nthupang Magolego, a senior legal adviser at the regulator, says Edcon has not yet provided the NCR with an official response.

"Should we be notified of the appeal, the NCR will file its intention to oppose the appeal, as we believe the tribunal came to a correct decision on the matter."

However, Magolego is tight-lipped about the course of action the regulator would take should Edcon be unable to pay the fine, saying: "In order to avoid jeopardising our next course of action, we wish not to divulge or pre-empt the next course of action."

For Edcon’s new investors, who bought the company from Bain Capital in a debt-to-equity swap for US$1.5bn in September after the retailer almost hit a wall under a R27bn debt burden, this finding is unwelcome.

For the three months to December, Edcon’s revenue fell 2% — a sign of just how difficult it is to get back on its feet.

Kaeleen Brown, a retail analyst at SBG Securities, says there is no positive spin for Edcon in this news. "Edcon’s debt has been restructured, but the bottom line is that there is no real positive — it’s negative.

"The fact is that the environment is deteriorating a lot more than everyone is expecting so, as difficult as it is for everybody else, it’s even more so for Edcon, which is in a relatively weak position."

Brown says that losing close to R590m is not something that a retailer such as Edcon would recover from easily.

"What I can tell you, having chatted to their competitors, is that pretty much across the board the numbers have come in weaker than expected for this year ... but other retailers are better positioned than Edcon and are also getting much more cautious about the outlook."

What seems clear is that Edcon won’t be the only casualty of the regulator’s scrutiny. Asked about retailers that have similar pending cases against them, Magolego says: "We are not able to divulge this information at this stage."

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