Edcon’s hopes wrapped up in consumers now
● Edcon, owner of Edgars and Jet, has bought itself a bit of time by filing for business rescue, but the survival of SA’s largest clothing retailer after the Covid-19 lockdown depends on the country’s consumers flocking back to shops.
CEO Grant Pattison said it is “far too early” to say how the staff of 17,500 permanent employees and 5,000 seasonal casuals will be affected by the business rescue process, but he acknowledges that they will be.
“All of those people will be affected somehow, either by changing employer [if parts of the Edcon business are sold] or other ways. That is what is at risk,” Pattison told Business Times this week.
“We estimate that the jobs that are exposed to Edcon are three times the total number in the supply chain. What has changed from three years ago, though, is that suppliers have been derisking themselves from Edcon, so the risk we faced three years ago up the supply chain has been dramatically reduced.”
The muted response from shoppers in a post-lockdown China does not augur well for South African retail or Edcon.
Asked whether Edcon, which opened for trading on Friday, can survive, Pattison said: “I can only answer once I see — because no one can predict this — what turnover looks like. The first signs are that Chinese retailers are trading at 50% of their turnovers. You can survive like this for two, three or even five months, but not indefinitely. This is a broader problem than just Edcon. What does consumer behaviour look like post the risk-adjusted lockdown?”
Pattison said before President Cyril Ramaphosa’s state of national disaster address on March 15, “we were still not out of the woods, but it could have been saved”.
“Now it depends on what the economy looks like post-Covid. And if turnover is at 50% of what it usually is for an extended period, even if we were in good shape before we started, we would still fail.”
Providing a rundown of events leading up to the board’s decision to file for business rescue, Pattison said given the loss of R2bn in sales during the lockdown it was “no longer a case of being between the borderline of business rescue and no business rescue — it became a choice between business rescue and liquidation”.
In a letter to suppliers on Wednesday, Edcon explained the R2.7bn rescue funding it received from the Public Investment Corporation (PIC), shopping centre owners and creditors a year ago had been used to cover debt and pay bills up until March this year.
“Since the lockdown, we’ve been in communication with our shareholders including the PIC, all the banks and the landlords and we put a plan together and made it clear in that plan what was required [in terms of funding] to avoid business rescue, but no support was offered from anyone.”
Pattison said business rescue “essentially gives you a period during which your creditors can’t put you into liquidation” and forces all stakeholders — from creditors to landlords, employees and trade unions — to come to an agreement about what to do, “and if they can’t, it automatically progresses to a liquidation”.
He said in essence what it does is “stop the chaos”. He added that one scenario is that Edcon as we know it may not survive, but some parts of it — such as Edgars, Jet and Thank U — may.
The PIC, which confirmed it had invested R1.2bn in Edcon on behalf of the Unemployment Insurance Fund, said the business rescue announcement was “unfortunate”.
Independent investment analyst Chris Gilmour said Covid-19 has “killed” what had been a good plan to turn Edcon around.
Edcon’s problems started in March, before the lockdown, as a lot of consumers diverted money from clothing to essential foods, he said.
“Grant Pattison has worked incredibly hard. There was a good roadmap ahead,” said Gilmour.
We’ve been in communication with our shareholders … but no support was offered from anyone