EDITORIAL: Dire times for Edcon, SA’s largest retailer
Will bailing out Edcon create a stronger retailer able to compete, or will it be akin to an SAA bailout — where the money vanishes up a chimney, with no value created
A few weeks ago, the FM reported that Edcon, an iconic SA retail brand that began life in 1929, was facing an imminent cash crunch. This weekend, news emerged that Edcon had written to its landlords, asking for a two-year "rent holiday" of 41% for all its 1,350 stores.
The reality may be less dramatic than the "Edcon crashes" headlines suggested, partly because its stores are still open and trading. But there’s no denying that these are dire times for SA’s largest clothing retailer.
That’s not surprising. Last month, CEO Grant Pattison admitted to the FM that new funding was needed. "The current process we’re under is looking for shareholders, new and old, to inject new capital into the business," he said.
Now, a letter dated December 11 and sent to Edcon’s landlords spells out details of how this new "restructuring plan" will work.
What is apparently on the table is that the retailer’s existing funders would convert R9bn of their debt into equity, while injecting another R700m. Then, the Public Investment Corp will inject another R1.2bn into Edcon.
For this to happen, the lenders have stipulated that Edcon’s 31 key landlords (like Hyprop and Growthpoint) must agree to the two-year "rent holiday". This would equate to R1.2bn worth of support, for which Edcon plans to give the landlords a 5% stake.
It’s a tough call for the landlords, especially since Edcon plans to shut a number of stores until 2022. But if they reject this deal, Edcon could end up defaulting on leases anyway.
The bigger issue is whether bailing out Edcon will create a stronger retailer able to compete, or whether it will be akin to an SAA bailout — where the money vanishes up a chimney, with no value created. It’s a tough call, since Edcon has been shrinking every year. Since 2012, it has lost 22% of its clothing and footwear market share; it once held more than 50% of the sector.
Disturbingly, there aren’t too many specifics on the turnaround plan. There are promises to close some stores and improve trading densities (sales per metre), get more stock through its tills, expand its financial services side (credit and insurance, primarily) and reduce IT costs.
There’s nothing ingenious in that, though. And it’s one thing to put those goals on a PowerPoint presentation, another to make it happen.
Still, the letter to landlords contains some interesting revelations.
First, it says that since March, advisory firm Rothschild & Co has been trying to sell Edcon, but has found no takers. It adds that unless there is a further "intervention", liquidation is "highly likely". Fortunately, Pattison seems to have a plan, likely to be announced in the next few days, to prevent that. Which is just as well, considering the 40,000 employees who would be affected.
Of course, Pattison hasn’t helped himself by repeatedly bungling the communications around Edcon.
He denounces the reports as "misleading", without saying exactly what was wrong. At the same time, he admits that when asked to comment by the Sunday Times, he declined.
There has been a consistent pattern of refusing to comment, then blaming the media for publishing what happened, when greater introspection might have been the wiser approach.
Unfortunately, it goes hand in hand with Edcon’s years of displaying a profound lack of respect for customers and, it seems, staff.
Hopefully, a much stronger Edcon will emerge from the ashes, one that can restore the principles and market position it once held, selling things that people actually want to buy.