Financial Mail - - BOARDROOM TAILS BY ANN CROTTY - Adele Shevel and Rob Rose shevela@sun­day­ and

Grand old Stuttafords, once the Har­rods of SA, will be shut­ting up shop on Au­gust 1, rep­re­sent­ing per­haps SA’S largest cor­po­rate fail­ure in re­cent years. The tragedy is that its demise could have been avoided had it not been for the ap­par­ent bad blood be­tween the two main share­hold­ers, the El­ler­ines and the Ruben­steins

Stuttafords, the 159-year-old de­part­ment store syn­ony­mous with SA’S re­tail glory years, will shut its doors per­ma­nently on Au­gust 1. This makes it the largest ca­su­alty of the slow demise of the coun­try’s con­sumer spend­ing. Founded by English im­mi­grant Sam­son Rickard Stuttaford, who mod­elled it on Lon­don’s swish de­part­ment stores, it be­came the grande dame of early 20th cen­tury SA re­tail. The first store opened at 5 Har­ring­ton Street, just be­hind the Cas­tle in Cape Town in 1858 and it be­came an in­sti­tu­tion – the tem­plate for im­i­ta­tors like Greater­mans, Gar­licks and John Orr’s.

“Stuttafords was the epit­ome of Jo­han­nes­burg fash­ion and cul­ture,” says Ger­ald Garner, who runs tour com­pany Joburg Places. “It was like Har­rods is to Lon­don — some­thing of an iconic store. Peo­ple would come by bus or train to Park Sta­tion, walk down Eloff Street, which was the glitzi­est re­tail street in the coun­try, if not the con­ti­nent. (They) would typ­i­cally go to Stuttafords to shop and have tea, many of the ladies in white gloves.”

The de­part­ment store’s col­lapse is the largest cor­po­rate fail­ure in SA’S frag­ile, post-nenegate busi­ness world. But per­haps the most tragic el­e­ment of this saga is that the demise was en­tirely avoid­able.

Stuttafords found it­self the ca­su­alty of a bit­ter fall­out be­tween its largest share­hold­ers, who hap­pened to be among SA’S weath­ier fam­i­lies — the El­ler­ines and the Ruben­steins.

The clo­sure is a blow for its 280 cred­i­tors — who in­clude large brands like Es­tee Lauder, L’oréal, Tommy Hil­figer, Polo and Levi Strauss. But it’s a far more crip­pling blow for the 950 staff who, bar­ring a mir­a­cle, will find them­selves on the streets in a few weeks.

In the past few weeks Stuttafords closed a num­ber of stores, in­clud­ing those in Rose­bank and Clear­wa­ter in Gaut­eng and four in Cape Town. Within weeks, its Namib­ian and Botswana stores will close, fol­lowed by the one in Men­lyn Park, Pre­to­ria, and Gate­way and Pav­il­ion in Dur­ban. Fi­nally, its East­gate and Sand­ton stores will shut their doors.

“Within weeks we’ll all be search­ing for jobs,” Stuttafords CEO Robert Amoils told the Fi­nan­cial Mail in an in­ter­view on Mon­day.

But it didn’t have to be this way, Amoils added. “Not at all. I be­lieve Stuttafords could have been saved very elo­quently, very eas­ily. Busi­ness res­cue it­self could have been avoided had agen­das (of the share­hold­ers) been aligned. I’d love to say I did every­thing right, but cer­tain mis­takes were made and hind­sight is a per­fect sci­ence.”

Amoils says that had he known how bad the econ­omy would get for con­sumers, he’d have done things dif­fer­ently — specif­i­cally, in­vested less in some stores and closed un­der­per­form­ing ones ear­lier. “Af­ter Nenegate in De­cem­ber 2015, we saw a dra­matic de­cline in con­sumer spend­ing. We ex­pe­ri­enced a no­tice­able loss in con­sumer con­fi­dence; we had the rand de­valu­ing at an astro­nom­i­cal rate and we saw 2016 start with a ma­te­rial and no­tice­able lack of de­mand from our cus­tomers. We lost, rel­a­tive to our bud­get, in the first six months, R100m in pro­jected turnover,” he says.

It was a tough en­vi­ron­ment for the Stuttafords busi­ness model, which was to stock well-known brands, cre­at­ing a de­part­ment store-style “theatre of shop­ping”. But when the rand tanked, the prices of th­ese im­ported brands spiked, just as peo­ple’s dis­cre­tionary in­come was falling.

All re­tail­ers, in­clud­ing Ed­con and Mr Price, felt the heat. So in Fe­bru­ary 2016, Stuttafords share­hold­ers El­ler­ine Bros (with an ef­fec­tive 35% stake) and the Ruben­steins’ Ves­ta­cor (an ef­fec­tive 32%), ploughed R50m into the com­pany to give it fire­power to up­grade stores.

But there were al­ready ten­sions be­tween the two fam­i­lies, and Stuttafords at Canal Walk was the fi­nal straw.

The Ruben­steins wanted to keep the store, be­liev­ing it should be Stuttafords’ main en­try point to the Cape even though it was los­ing money, partly due to deeply dis­counted pro­mo­tions aimed at hit­ting a turnover tar­get.

The El­ler­ines, on the other hand, be­lieved Stuttafords should shut the store. It was com­pli­cated by the fact that the El­ler­ines also had a direct stake in Canal Walk of 20% and an­other in­di­rect stake in the shop­ping cen­tre through its share­hold­ing in prop­erty com­pany Hyprop. And Swedish chain H&M was ea­ger to take over Stuttafords space.

“Un­for­tu­nately for the busi­ness, the agen­das of the share­hold­ers were not aligned to the agen­das of the busi­ness,” Amoils says. The

El­ler­ines, he says, had a con­flict of in­ter­est: to do what was best for Stuttafords or best for Hyprop?

“As the CEO of Stuttafords, my job was not to pro­tect the share­hold­ers; my job was to pro­tect my com­pany, and my com­pany needed that par­tic­u­lar lo­ca­tion,” says Amoils.

It was a stand­off, he says, that felled the com­pany. “That dis­agree­ment cer­tainly didn’t get bet­ter; it got worse and as a re­sult of that it was dif­fi­cult for the man­age­ment team to rely on ei­ther one of the share­hold­ers.”

What it means: Stuttafords might have had a fu­ture had the main par­ties sac­ri­ficed a lit­tle. Now jobs will be lost and cred­i­tors may sue

Things came to a head in Septem­ber 2016 when, the Fi­nan­cial Mail can re­veal, a fam­ily-owned pri­vate eq­uity fund tabled a bind­ing let­ter of in­tent, seek­ing to in­vest R130m in ex­change for 75.1% of Stuttafords.

Amoils says that be­cause of the ten­sion be­tween share­hold­ers, the El­ler­ines were sim­ply “not will­ing to en­ter­tain the of­fer with­out any form of ex­pla­na­tion”.

It was a turn­ing point. Had a white knight res­cued Stuttafords at that stage, it might have es­caped its even­tual col­lapse. “It would have not only saved the busi­ness, it would have given us the nec­es­sary cap­i­tal to ex­pand,” says Amoils.

Things got worse. A month later, on Oc­to­ber 28, Stuttafords was put into “busi­ness res­cue” af­ter the credit in­sur­ers with­drew their cover. This left sup­pli­ers ex­posed, un­sure they wanted to keep sup­ply­ing cloth­ing to the re­tailer.

At the time, Stuttafords owed a huge R836m in debts: R400m to share­hold­ers, R147m to Ned­bank and the rest to var­i­ous sup­pli­ers like Adi­das (owed R1.34m), Es­tee Lauder (R29m) and Tommy Hil­figer (R14.6m).

Even then, it wasn’t nec­es­sar­ily a death knell. Busi­ness res­cue would give Stuttafords a breather from hav­ing to pay sup­pli­ers and time to fig­ure out a new plan.

It could still have been saved.

John Evans, the busi­ness res­cue prac­ti­tioner, slogged for four months to put to­gether a plan to save the com­pany, be­liev­ing that Stuttafords was “prof­itable and res­cuable”.

On Fe­bru­ary 20, Evans un­veiled his first “busi­ness res­cue plan”: the Ruben­steins’ Ves­ta­cor and Stuttaford’s man­age­ment team would put in R10.3m, in ex­change for 76% of the busi­ness.

It was a hard sell for sup­pli­ers, who would be paid 5c for ev­ery rand they were owed, then an­other 18c over the next yearand-a-half — only if they agreed to keep sup­ply­ing Stuttafords. In other words, they had to forgo 77% of what they were owed.

Some sup­pli­ers grum­bled, irked that they were tak­ing all the pain while Amoils’ man­age­ment team weren’t be­ing fired and the bank wouldn’t lose a cent.

The El­ler­ine brothers didn’t like the plan one bit — per­haps ob­ject­ing to hand­ing over con­trol to the Ruben­steins. So they and Ned­bank ab­stained from the vote, en­sur­ing that it didn’t get the 75% ap­proval from cred­i­tors needed to pass. In­stead, on March 8 the El­ler­ines pitched their own res­cue plan — to in­ject R12m into the busi­ness in ex­change for 76% of Stuttafords.

As the El­ler­ines’ lawyer Peter Leven­berg put it: “We don’t want to see cred­i­tors left high and dry . . . this pro­posal ac­tu­ally of­fers em­ploy­ees and, re­ally, most of ex­ist­ing man­age­ment, their best chance of liv­ing to fight an­other day.”

The pro­posal in­cluded re­plac­ing Amoils’ man­age­ment team, run­ning a bid­ding process to find a buyer, and as­sem­bling a “dream team” of top re­tail tal­ent to save the com­pany. Names bandied about in­cluded Steve Ross, Ed­con’s for­mer CEO.

With the clock tick­ing, cred­i­tors (in­clud- ing Ned­bank, this time) gave it the green light. A bid­ding process started and the El­ler­ines put in their own pro­posal to buy and re­vive Stuttafords.

But in a fi­nal dev­as­tat­ing twist, the El­ler­ine brothers then pulled out. From left field on

April 18, El­ler­ine Brothers sent a le­gal let­ter to Evans’ busi­ness res­cue team to say they weren’t go­ing ahead.

They said cer­tain con­di­tions hadn’t been met, and didn’t be­lieve Stuttafords was “able to ob­tain the new fa­cil­i­ties with Ned­bank or any other fi­nan­cial in­sti­tu­tion”.

This shocked Evans, whose lawyers wrote back the next day say­ing they were “as­tounded” at El­ler­ines’ ef­fort to “es­cape or re­pu­di­ate” its role as the would-be cham­pion of Stuttafords’ res­cue.

“It has pro­found con­se­quences for (Stuttafords), and all af­fected par­ties to whom (El­ler­ines) has promised a suc­cess­ful out­come and res­cue. Em­ploy­ees and cred­i­tors will then be left high and dry,” he said.

In the let­ter, Evans de­scribed some of El­ler­ines’ jus­ti­fi­ca­tion for pulling out as “ut­ter non­sense and rub­bish”, say­ing the way it had acted would “most likely lead to the liq­ui­da­tion” of the com­pany.

An ur­gent meet­ing of all those owed money by Stuttafords was called for May 12 at the Kil­lar­ney Coun­try Club. There, de­press­ingly, Evans told them the bad news — Stuttafords would have to be wound up, its doors closed for good.

In this sce­nario, cred­i­tors will prob­a­bly get 3c for ev­ery rand they’re owed. If they’re lucky, this could rise to 10c to the rand. It sounds aw­ful, but it’s bet­ter than an ac­tual liq­ui­da­tion, which would have given them zero.

Evans told the Fi­nan­cial Mail this week that he was deeply dis­ap­pointed by the El­ler­ines’ ac­tions. “I feel they led me, Stuttafords and its em­ploy­ees and cred­i­tors down a dark al­ley and aban­doned us at the end, with no route out. The busi­ness res­cue plan cre­ated a bind­ing obli­ga­tion on the El­ler­ines brothers to im­ple­ment the plan they pro­posed. But they didn’t,” he said.

In the end, Evans says, it seemed like they were “look­ing for ex­cuses” why they shouldn't ful­fil their obli­ga­tions and hon­our their com­mit­ments to cred­i­tors and em­ploy­ees.

Evans says that but for the El­ler­ines’ in­ter­ven­tion, Stuttafords could def­i­nitely have been saved. “Had we got go­ing in Fe­bru­ary we might have been okay. We could have filled stores with win­ter stock, and had a rea­son­able win­ter trad­ing pe­riod. Stuttafords would then have had time to get its ducks in a row. But the de­lays in wait­ing for the El­ler­ines of­fer meant that when they pulled out, it was too late,” he says.

Amoils agrees, say­ing that for El­ler­ines to re­nege was “just flab­ber­gast­ing”.

“They did not abide by the obli­ga­tions or com­mit­ments of their plan. They re­fused to even meet Ned­bank to get the bank to agree to a bail-out,” he says.

Worse: once El­ler­ines bailed out, it was too late to find an al­ter­na­tive. Ev­ery day that passed meant more money was needed to save Stuttafords, as the shelves be­came emp­tier and emp­tier.

“By the time the El­ler­ines plan was adopted, the amount of money that was needed was well in ex­cess of R100m. To­day what is needed is well in ex­cess of R250m,” says Amoils.

In an e-mail to the Fi­nan­cial Mail, El­ler­ines’ lawyer Jane An­dropou­los said her clients al­ways wanted to res­cue Stuttafords but the busi­ness res­cue prac­ti­tion­ers didn’t come to the party by im­ple­ment­ing the plan.

She said El­ler­ines only had an obli­ga­tion to act once the res­cue plan had been “sub­stan­tially im­ple­mented” by Evans.

“[They] did not pro­vide the con­fir­ma­tion nec­es­sary that the com­pany had ful­filled the con­di­tions,” she wrote.

An­dropou­los said Stuttafords hadn’t pro­vided enough in­for­ma­tion for them to prop­erly as­sess whether a “sus­tain­able busi­ness model was vi­able”. She said Evans’ claim that El­ler­ines “had some ul­te­rior mo­tive is ill­founded and mis­con­strued”.

“At the end of the day the only par­ties that have made money out of this process are the busi­ness res­cue prac­ti­tion­ers and the lawyers. El­ler­ines re­mains li­able for its guar­an­tee to Ned­bank in an amount of R40m. There are no win­ners, only losers,” she said.

Though it looks for all the world as if the game is up, Evans says there is still a scram­ble for some “in­ter­ested par­ties” to save one or two of the most prof­itable stores — Sand­ton or East­gate, or both. But with trust at a record low and an econ­omy in re­ces­sion it’s a hard sell. Says Amoils: “Un­for­tu­nately for us as a busi­ness, the neg­a­tiv­ity shroud­ing the busi­ness be­came so great that the ul­ti­mate fi­nale be­came in­evitable.”

As is com­mon in a grand cor­po­rate col­lapse, the race to blame some­one is hot­ting

up. Some sup­pli­ers grum­ble that Stuttafords must have known it was on the verge of col­lapse back in Oc­to­ber, but kept or­der­ing new stock any­way — sail­ing close to the wind of the reck­less trad­ing laws.

“Ev­ery cred­i­tor had their own ver­sion, but you have this mas­sive amount of stock com­ing in just be­fore busi­ness res­cue, and you file for res­cue on Oc­to­ber 28,” says Gareth Cre­men, a lawyer at Ho­gan Lovells who rep­re­sented cer­tain cred­i­tors. Cre­men says or­ders went up by 300% against the same time the pre­vi­ous year.

Alex Eliott, who is also a Ho­gan Lovells lawyer, says Stuttafords’ fi­nan­cials show it made a R35m loss for June and July last year, a few months be­fore it was put into busi­ness res­cue .

“The lawyers rep­re­sent­ing the cred­i­tors are say­ing at the very least they should have been placed in busi­ness res­cue in June or July and they were trad­ing reck­lessly,” says Eliott.

This is why some cred­i­tors pre­ferred a liq­ui­da­tion to a wind­ing-up un­der the busi­ness res­cue rules, as it would have al­lowed for a sec­tion 417 in­quiry into what went wrong. Says Cre­men: “Your cred­i­tors may not get money out, but at least they could find out what hap­pened”.

On this point, Amoils ar­gues that the busi­ness res­cue plan did al­low for an in­ves­ti­ga­tion any­way — and no ev­i­dence of shady be­hav­iour has yet been brought for­ward.

For staff, how­ever, a wind­ing down is a bet­ter route, as it means they’ll get a re­trench­ment pack­age, which they wouldn’t have got in a liq­ui­da­tion. It’s a col­lapse that will be felt all the way down the re­tail sup­ply chain, with some of the smaller sup­pli­ers of shoes and clothes, who re­lied on Stuttafords, set to strug­gle the most.

“There are small fam­ily-owned busi­nesses and for some this is their only dis­tri­bu­tion point. They don’t sup­ply their prod­ucts to any­one else. They ef­fec­tively haven’t been paid for eight or nine months,” says Cre­men.

As it stands, they’ll now get only 3c of ev­ery R1 they’re owed. If all goes par­tic­u­larly well, they could get up to 10c/r1. Equally, land­lords will strug­gle to re­place Stuttafords, given that it typ­i­cally rented stores of up to 6,299 m².

But with an un­em­ploy­ment rate at 27.7% (the high­est in 14 years) and a re­ces­sion wors­en­ing the chances of find­ing new jobs, the big­gest losers will be the staff.

Stuttafords in Sand­ton has a fu­ne­real air about it and “50% off” signs are ev­ery­where. Shelves seem empty and sales staff jit­tery.

“We’re not sure,” says Ganono Bvuma, a sales as­sis­tant who has worked at Stuttafords for a year while com­plet­ing a Bcom de­gree. “We had the busi­ness prac­ti­tion­ers dealing with the busi­ness res­cue here. They promised to come back and tell us what was hap­pen­ing with the feed­back but they never did.”

An­other as­sis­tant says: “All I know is that I have a job un­til the end of the month.”

In the men’s fra­grances sec­tion, there is no stock: no Paco Ra­banne, Dolce & Gab­bana, Bul­gari or Gucci. As the shelves slowly empty, Bvuma says peo­ple are still com­ing in ev­ery day “hop­ing for a clearance sale”.

But if the 950 staff are clearly the losers, the banks won’t fall into this cat­e­gory. Ned­bank, owed R147m, won’t lose a cent be­cause it had se­cu­rity for its loans.

In a rather prissy re­sponse, Ned­bank said it “does not, as a mat­ter of pol­icy, pro­vide de­tails of its bank­ing re­la­tion­ships with any of its clients”.

The lawyers have been even big­ger win­ners. Many law firms had some horse in the race. Colin Strime of Flux­mans rep­re­sented the busi­ness res­cue prac­ti­tion­ers; Phillip Val­let of Flux­mans rep­re­sented Ves­ta­cor; Bow­mans rep­re­sented El­ler­ine Bros; Werks­mans rep­re­sented Ned­bank; and Ho­gan Lovells rep­re­sented some of the cred­i­tors.

With some big egos to mas­sage, there was never any short­age of work. Sus­pi­cion all around didn’t help.

Amoils says: “This wasn’t a guise to try to steal money — it was sim­ply the re­sult of many fac­tors that were be­yond man­age­ment’s con­trol . . . we wanted to save the busi­ness.”

Had ev­ery­one agreed to take a hair­cut, Stuttafords might have had a fu­ture, he says. “We could have had a bet­ter con­clu­sion. But if you have share­hold­ers that are fight­ing, whether it’s be­tween them­selves or [with] man­age­ment, no­body wins,” he says.

Evans is still hold­ing out hope that “some­thing” can be done to save the Sand­ton or East­gate stores.

“There are a few in­ter­ested par­ties, but I’ve told them they need to get crack­ing in se­cur­ing fund­ing and mak­ing an of­fer. But it’s tough: the econ­omy is in re­ces­sion, there’s an un­cer­tain po­lit­i­cal en­vi­ron­ment too. But we’re hold­ing thumbs,” he says.

Freddy Mavunda

Bleak house: Stuttafords in the Rose­bank Mall

2 014 2 015 2016

Robert Amoils: Stuttafords could have been saved very elo­quently, very eas­ily

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