WHO DARES SEIZE EDGARS?

The Edcon group is dead; long live Edgars (and Jet), as clothing and food retailers are in the running to buy these chains out of business rescue

Grant Pattison’s job as CEO of Edcon effectively vanished on Monday afternoon as creditors of SA’S one-time clothing retail colossus voted to approve the business rescue plan. It meant the end of a group formed in 1965, when Sydney Press checked (who’d started at Edgars as a Christmas casual worker in 1935), bought Sales House and, soon enough, Jet. Critically for the 17,000 permanent staff, this doesn’t spell the end of the retail chains Edgars and Jet, both of which are being courted by a number of possible buyers.

But for Pattison, who joined in 2018 and still has a responsibility to assist the business rescue practitioners, this week’s vote means there’ll be no group for him to lead.

“Yes, Edcon in its current form won’t survive,” Pattison tells the FM. “When I joined in 2018, it was clear that either Edcon could survive, or it would be split up and the individual chains sold, or the whole thing would be liquidated.”

The first option became impossible due to, in short order, load-shedding (November), a recession (from last September) and Covid-19 (March, until who knows when). And the last option wasn’t great for staff or suppliers, who stood to get 4c of every rand they’re owed.

But the flicker of hope is that with any luck, the second option will work and ensure Edgars and Jet survive.

It was all a bit of blur in the lead-up to Monday’s vote. A week ago, on June 15, business rescue practitioners Piers Marsden and Lance Schapiro held a meeting with creditors that turned ugly. Suppliers, justifiably fuming that there are slim odds that they’ll get anything close to what they’re owed, ranted that they’d been “led down the garden path”.

But it was at this meeting that Marsden said a few SA retailers were bidding to buy the individual businesses of Edgars and Jet. Talks were “at a sensitive stage”, he said, but the business rescue practitioners had “received expressions of interest and are engaging with potential purchasers”.

So who are they? Marsden wouldn’t give the names, but said they “are retailers well known to all of us … they are mostly clothing retailers, some being clothing adjacent”. All are “credible and can recapitalise the business as required and will provide good homes to the trade creditors”.

Three SA retailers have ruled themselves out of the running: Mr Price said it had “no intention to acquire Edcon, in part or in whole”; TFG’S CEO, Anthony Thunström, said last week: “We have no interest in any of those businesses,” and Pepkor’s CEO, Leon Lourens, said the same thing.

On the clothing side, this leaves Truworths and Woolworths, though Woolworths, dealing with David Jones in Australia, seems unlikely. Yet the intriguing part is Marsden’s revelation that “clothing adjacent” retailers are in the running, which points to Massmart, Shoprite, Spar or Pick n Pay. Private equity firms may be lurking too.

But at this time, with few people in stores and salaries under strain, there’s a new dynamic.

First, the logic of buying a chain of stores in a corner of the market you’re already operating in is questionable. Perhaps the best option for a buyer is to expand into a market it has never really owned. So a low-cost clothes retailer might look to buy the wealthier customers at Edgars, while a higher-end company like Truworths could bid for Jet.

But there is another option too: why not just wait for Edgars and Jet to collapse, and pick up their customers without spending a cent? Marsden was asked during the creditors meeting why any bidder wouldn’t simply wait for Edcon to go into liquidation and pick up the pieces cheaply. This is a risk, he answered, which is why he “does not want to push buyers too far”.

Yet there are good enough reasons. A buyer could cherry pick the stores it wants out of business rescue, creating a portfolio of the best outlets which would be cash positive from day one. Alternatively, if Edcon went into liquidation, the stores wouldn’t trade for months, and would probably die anyway.

Either way, we’ll know soon. The putative buyers are finishing their due diligence investigations now and binding offers will have to arrive before the end of this month

Because at this point, every day counts. Two of Edcon’s suppliers, Kingsgate Clothing and Clematis Trading, both went to court at the 11th hour on Monday to interdict the vote — but they failed.

In the court papers, Schapiro said Edcon couldn’t afford any delay. “It is imperative that the accelerated sales process proposed in the business rescue plan yields a favourable result prior to the end of June, to provide sufficient lead time for supplier negotiations to be finalised and for summer stock to be purchased.”

For Pattison, it’s a case of so near, yet so far. “We’d implemented most of the turnaround plan by the end of February, so I looked at it and thought, with a little bit of economic luck, we’ll make it to at least March 2021.”

Then Covid-19 hit and the country was put into hibernation. Pattison’s plan of being able to break even, from a cash perspective, for the year to March, expired right there. So would he define his time at Edcon as a failure?

“Not at all. I’m actually reasonably happy that by the time the lockdown happened, Edgars and Jet had been strategically and structurally repositioned to what they were supposed to be,” he says. Of course, there was more work to do on its products and service, but it was a start.

In the end, says Pattison, “it was no great surprise it failed”, given the forces stacking up against it. And if Edgars and Jet find a new home, and jobs are saved, he says he’ll even chalk up his tenure at Edcon as a job well done.

I’m actually reasonably happy that by the time the lockdown happened, Edgars and Jet had been … repositioned to what they were supposed to be