Edcon ‘stuck’ as Absa tightens credit criteria
CREDIT-starved consumers, struggling to open new store accounts as a result of stricter credit criteria, have sent retailer Edcon back to the drawing board in its search for a secondary credit provider.
Edcon, whose credit book was recently bought by Absa for R10 billion, needs to find an alternative credit provider to mitigate the impact of customers unable to qualify for credit through Absa, which is Edcon’s primary credit issuer.
Edcon had been in discussions with African Bank Investment Limited (Abil), but those talks have collapsed. Abil is the lender that buckled under in August after racking up billions in losses. Its salvageable part has now been placed under curatorship.
The retailer’s credit sales continue to take a beating as consumers grapple with rising costs, a weak job market and high levels of indebtedness.
For the second quarter to September, Edcon’s credit sales fell by 3.8 percent, slightly worse than the 3.3 percent decline in the first quarter.
“Within Edgars our credit sales are down by 8.3 percent, yet the competition was achieving growth of up to 5 percent. The gap is wide,” Edcon’s chief executive Jurgen Schreiber said. Edcon owns 1 430 stores trading under the brands Edgars, Jet, Boardmans and CNA. It was bought out by private equity firm Bain in 2007 and delisted from the JSE.
Schreiber was gloomy about the current state of the consumer, saying, “nothing much has changed”.
Since Absa took over the book, Edcon has seen a high number of credit applications rejected after the bank tightened credit-granting criteria.
The group’s cash sales grew by 8.7 percent and contributed more than 50 percent of the group’s total sales. Although Edcon had not signed any binding contract with Abil, it had signed a term sheet, a nonbinding agreement.
“Before we decided to sign the term sheet with African Bank, we had multiple companies that we negotiated with. Now we are back at the negotiating table with all those parties,” Schreiber said. He declined to divulge the identity of the other parties.
“The likelihood that we will go with another provider (other than African Bank) is very high… Our focus at the moment has shifted to other credit providers than African Bank.”
Independent retail analyst, Syd Vianello, said now that Edcon had a deal with Absa, no other big bank would want to get involved. “Why would any of the other commercial banks take on a customer that Absa has declined?”
He said Edcon was “kind of stuck” and predicted that it would take the retailer a long time to find an alternative credit provider.
Despite its credit woes, Edcon’s adjusted earnings before interest, tax, depreciation and amortisation rose 1 percent to R486 million. Retail sales were up 2.9 percent to R6.2bn from R6bn last quarter.