Rental deal gives Edcon critical breathing room

Retailer battling to save 40,000 direct jobs because of bad strategic decisions and competition

SA’s largest non-food retailer, Edcon, which is battling to save 40,000 direct jobs because of bad strategic decisions and mounting competition from newer retailers, has now managed to sign a rental savings deal with a fifth of its landlords.

The saving on rent had given the company two years of breathing room as it restructured to become profitable and more relevant, having lost about 30% of its market share over a decade, CEO Grant Pattison said on Thursday.

In a presentation given to a contingent of listed property fund managers and analysts at Eastgate mall on Thursday, where the group has one of its largest stores, Pattison said Edcon had approached 30 out of about 100 landlords from which it rents space. As many as 21 of those approached had agreed to reduce rent for two years for Edcon stores in exchange for stakes in the group.

Other landlords had injected cash in exchange for equity. Landlords would effectively hold about 5% of Edcon.

Pattison became group CEO in February 2018, having been appointed to lead the mammoth turnaround of the iconic retailer. Since then he and his team have managed to clinch a recapitalisation deal worth R2.7bn at the end of February. These funds were raised by some of SA’s biggest landlords, banks and the Public Investment Corporation.

He said other landlords might agree to rental reductions in the future, but those already in place, on top of the recapitalisation deal, meant Edcon’s selfinflicted retail errors of the past could be rectified as the group had been restructured into four focused businesses.

These were headed by four CEOs, who reported to Pattison.

He declined to reveal how much Edcon, an unlisted group, was paying on average in rent at its stores and how much would be saved in rent over the next two years, but said nobody had been retrenched following the closure of 200 stores over the past 12 months.

Pattison said one of the

biggest errors made by previous executives had been structuring operations in such a way that only one CEO effectively oversaw all operations.

Edcon started to become unwieldy in the 2000s because management was eager to launch brands and run risky strategies, while SA enjoyed a run of consistent economic and credit spend growth before the 2008/2009 recession.

These gung-ho tactics then unravelled in the 2010s.

“One guy was running the show and soon the group had about 30 brands and things like IT costs were out of control. We have completely restructured the group such that now Edcon is made up of four businesses; Edgars, Jet, Thank U and CNA. Now we only care about these,” Pattison said.

Management had ascertained which businesses strategies had steered Edcon to the brink of failure, including its Red Square concept, which took beauty products out of its core stores and put them in badly positioned beauty shops; overspending on IT costs; and the reckless number of markeddown sales the group ran for years. Edcon lost about R10bn of its market share in a decade, having gone from having close to 40% of the country’s apparel market to 8%.

Edcon was unlikely to open any new stores over the next two years, while management worked to make all four of its core businesses profitable.

Thank U, which includes the group’s loyalty programme and financial lending services, had become its most profitable business, while Edgars and Jet were running at a loss.

Pattison said CNA was the least important of the four businesses but it had performed better since the bulk of its merchandise had become stationery and education books.

He said that while the business was not for sale, Edcon would consider selling it if an attractive offer was made.