Breathing space
A deal with stakeholders might give Edcon the room it needs to turn itself around — but the retail market remains challenging
Edcon is at a turning point yet again. The retailer — which operates the Edgars, Jet and CNA chain stores — has just wrapped up a deal with 250 stakeholders, including its shareholders and landlords, in a bid to keep its doors open.
The deal, concluded in December, will allow Edcon to renegotiate its store leases and bring in new shareholders. It follows one done two years ago in which creditors converted the bulk of Edcon’s R26.7bn debt into shares.
On December 11, Edcon wrote to its landlords, asking them for a two-year “rent holiday” of 41% for all its 1,350 stores. In exchange, they would get a 5% stake in
Edcon. The letter said that Edcon’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. Still, Edcon has not yet announced what the final terms of its restructuring deal were.
The retailer says it is starting to get the mix of product and pricing right. “Much of the commentary reflects how it was two years ago,” Edcon CEO Grant Pattison told Bruce Whitfield on 702’s Money Show early last month.
Pattison’s point was backed up by the group saying a few weeks later that Christmas sales were encouraging. It said in a statement there were signs that its credit sales business was starting to recover, as credit sales growth now matched cash sales, and that the number of new accounts was on the rise.
This is good news for a struggling company operating in a difficult retail sector. Besides being knocked by increases in the VAT rate and higher fuel prices, Edcon has also had to deal with a retail clothing market that’s very different from the one it dominated just a few years ago. Local competitors like Mr Price have had success in attracting younger customers, while overseas retailers including H&M, Zara and Cotton On have moved aggressively into the SA market.
There’s also the looming rise of e-retail. If SA follows the trend seen in some markets overseas, as much as 30% of clothing could be sold online.
All this means that while the deal with its stakeholders might have given Edcon some room to turn itself around, it will not be easy, as it has to do so in a market that’s become hyper-competitive.
Pattison admitted as much. “We are going to need a bit of luck. It’s hard to turn a business around when consumers are under such pressure,” he said.
Though the group might be making some progress, it’s been a case of catch-up rather than setting the agenda, says Gryphon research analyst and portfolio manager Casparus Treurnicht. “So, all in all, most of the changes that Edcon made were more reactionary instead of proactive. It is doing things today it should’ve done more than two years ago.”
Treurnicht is also not entirely convinced Edcon has done enough to turn things around. “It will definitely be compressing space to areas where it is making better sales and margins, but I would like to see operational changes made in its remaining space as well.”
Its latest deal might be keeping it alive, but it comes at a price for