Edcon aiming to change its fortunes
DEAL: RCS BUYS DEBTORS’ BOOK FROM ABSA
Retail giant hopes to bolster credit sales after sale of debtors’ book.
Group also in talks to acquire parts of its internal credit book.
Retail giant Edcon hopes to significantly bolster credit sales, following Absa’s announcement of the sale of its Edcon store card debtors’ book to RCS, the home-grown consumer finance group. The RCS deal with Absa is subject to regulatory approvals.
Edcon CEO Grant Pattison said the sale was part of a bigger agreement that would see the retailer boosting its credit sales – a crucial part of its turnaround strategy.
Edcon sold its debtors’ book to Absa in 2012 for R10 billion. Today it is reportedly valued at about R4.5 billion, as the number of active card accounts on the book have fallen by more than two-thirds to about 1.2 million.
According to Edcon, credit sales on its store account cards accounted for some 60% of its sales in 2010, with around 4 million active cardholders.
Today, about 30% of group sales come via its store cards.
The group has, in the past, complained about Absa’s conservative lending on the Edcon debtors’ book and in 2016 launched a second credit book internally to revive its credit sales. Pattison says Edcon’s own secondary credit book has about 1.2 million account card holders so, together with the Absa book, the retailer effectively has about 2.4 million store card holders between its Edgars, Jet and CNA retail chains.
Cash injection
“While RCS will acquire the Absa Edcon debtors’ book, we are also in talks with them to acquire parts of our own internal credit book, which is valued at about R1.6 billion. As part of the first tranche, we are looking at selling about half a billion rand of our own credit book to RCS, which will serve as a cash injection for Edcon,” says Pattison.
The deal with RCS is part of Edcon’s overall restructuring plan and was negotiated before the retailer secured R2.7 billion to recapitalise the business in March, Pattison says.
Loyal customer base
Commenting on the deal, RCS CEO Regan Adams said it had always been part of the group’s ambition to become the preferred provider of financial solutions to Edcon. “They are one of the largest nonfood retailers in South Africa, boasting a loyal customer base of around 10 million. As part of this deal, we have also secured the right to provide consumer finance products to Edcon customers, including credit cards, store cards and personal loans.”
Adams notes that the deal with Absa and Edcon will also boost the RCS group’s client base and business in South Africa.
In an e-mailed statement, Absa confirmed the sale of the Edcon store card debtors’ book to RCS. It said the transaction included the sale of Edcon’s store card debtors’ books in both South Africa and Namibia.
“The sale is positive for Absa as it will free up capital and management time to focus on executing against the strategy that Absa announced last year,” says Arrie Rautenbach, CEO of retail and business banking at the banking group. “In terms of the strategy, our priority is to regain our leadership in core areas.”