Credit-card unit’s sale to help revive Edcon — CEO

Edcon welcomed Absa’s decision to sell the clothing retailer’s store credit-card business to a more risk-tolerant RCS Group, saying the deal has granted it a new lease on life.

Absa sold the business to RCS Group, an SA consumer loan unit of French bank BNP Paribas, for an undisclosed amount on Tuesday, nine years after coughing up R10bn to buy the business from Edcon, which needed the money to pay debt.

Tighter lending criteria shortly after the deal by Absa choked growth at Edcon. Absa was owned by Britain’s Barclays until 2018, and Edcon operates in a clothing retail market where instore credit cards account for up to two-thirds of total sales.

Edcon, which owns chains including Jet, Edgars and CNA,

narrowly avoided complete collapse thanks to banks, landlords and the Public Investment Corporation who backed its R2.7bn recapitalisation deal in February. This allowed the retailer to keep its stores open as it struggled to keep up with rent and debt repayments.

“Edcon’s decline can actually just be a story of credit sales decline. There has been a decline in the credit sales in the market anyway. The Credit Act has tightened things up and I think it’s a good thing, but really any market share we’ve given up, we’ve given it up on credit sales,” Edcon CEO Grant Pattison said on Tuesday.

Jane Canny, CEO of Edcon’s loyalty programme ThankU Digital, said the company’s Absa deal will give RCS a pool of more than 10-million customers at which to pitch its unsecured loans — the high-margin loans that rely solely on a customer’s promise to pay them back.

The credit book that RCS is buying from Absa has about 2.1million customers, a dramatic decline from 4.3-million in 2010

— two years before Edcon offloaded it to Absa, Canny said.

RCS CEO Reagan Adams said Absa was more conservative because it did not understand the sector well. Absa’s credit approval rates on the Edcon book were the lowest RCS has seen. RCS is among the biggest unsecured lenders in SA after striking deals with companies such as Pick n Pay and TFG to extend credit to their customers.

Absa declined to comment on how it ran the book, but has previously said its former parent Barclays had set its risk appetite.

Pattison said while Edcon’s competitors had the advantage of using credit “countercyclically” when consumer spending is depressed, Edcon lately has struggled to do that. While about 70% of Truworths sales in SA are funded through credit and about 50% at Foschini, Pattison said credit sales accounted for 38% of Edcon’s sales