Major retailers come to market for cash
2020 could go down in history as probably the most challenging year in SA as listed big guns plan to raise equity
THE economic fallout due to the Covid19 pandemic is expected to result in further equity injections among listed non-food retailers, while private companies are likely going bust, Meryl Pick, head of research at Old Mutual Equities, warned yesterday.
Pick said 2020 would go down in history as probably the most challenging year in South Africa for retailers as listed retailers – including The Foschini Group (TFG), Mr Price and Pepcor – planned to raise equity, while Massmart received a R4 billion loan from parent company Walmart to cushion the blow of the pandemic.
“Among the smaller retailers, where they don’t have that option, maybe they are held by private equity players, we may see bankruptcies or more possible deals, like in the case of Jet, barring bankruptcy.
“We might see the likes of Mr Price expressly raising capital to make opportunistic acquisitions. I am not sure if we’ll see outright bankruptcies, but we may see changes in ownership. We will see ongoing calls for equity injections. Most big listed players have already come to the market so that trend is already in motion,” said Pick.
TFG, the owner of 29 brands, including Foschini, on Monday unveiled plans for 371 Jet stores for R480 million, citing it was a unique opportunity which previously was not possible at an attractive price.
Edcon’s business rescue practitioners are selling Edgars, Jet and Edcon’s rewards programme, Thank U, after the company failed to attract a capital injection from investors and went bust.
Pick said the acquisition would give Foschini space expansion, at quite a good entry price.
“Edcon’s business rescue team has been renegotiating many of Jet’s leases. So Foschini is going to inherit agreements that are very favourable and in some cases more favourable than TFG’s existing contracts. So that is a positive,” Pick said, adding Jet was a good match for TFG.
“Over the past five years, they have been focusing more on building up their market share in the value fashion segment; for example, they rebranded Fashion Express brand as The Fix. That strategy was aimed at taking on Mr Price in the fast fashion value youth consumer market. Also, they have the brand Exact, which is perhaps more of a competitor to Ackermans,” said
Pick, adding Jet was complementary to those two brands while there might be a slight overlap with Exact, but it did not have much of an overlap with The Fix.
“This segment is somewhat less competitive than the middle market fashion space where more traditional brands like Foschini and Donna Claire compete. So I think it is a good fit and they will now have to figure out exactly how they position the Jet brand versus Exact,” said Pick.
The acquisition came as a major surprise as Anthony Thunström, TFG’s chief executive, made the market believe last month that the company was not interested in acquiring Edcon or any part of it.
“I think previously Foschini was not interested in Edgars and Jet because they expected to have spent a huge amount on so-called ‘untangling’ the two companies from each other.”