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Edcon files for ‘inevitable’ business rescue

by Louise Burgers. The 90-year-old Edcon Group which includes fashion, homeware and stationery brands Edgars, Jet and CNA, is filing for business rescue.

by Louise Burgers. The 90-year-old Edcon Group which includes fashion, homeware and stationery brands Edgars, Jet and CNA, will file for business rescue in the next few days. This affects over 1000 stores and over 40 000 employees. It was an inevitable conclusion for the struggling group, hastened by the global pandemic which forced stores to close under lockdown.

Just over a month ago, ahead of lockdown in South Africa due to the COVID-19 pandemic, Edcon CEO Grant Pattison made the news after he broke down in an emotional call to suppliers, saying the group only had enough cashflow to pay employees. In a March 26, 2020, statement, the Edcon Group announced that its turnover had declined 45% and that it would be R400 million below forecast for sales and cash for March, as the impact of COVID-19 began to bite business. It projected losses of a further R800 million in turnover by end of April.

The Edcon business statement released today, April 29, 2020, states: “The Edcon group announced today, that the Board of Edcon has passed a resolution authorising it to file for business rescue in the course of the next few days. Following the coronavirus outbreak in South Africa, and the President’s first announcement on Sunday, 15 March, Edcon has lost R2 billion in sales. The sales miss, and the decline in collections of the debtor’s book has meant that Edcon is unable to pay its suppliers for both the March and April month-ends. Paying April salaries will require assistance from the UIF Covid-19 TERS programme.”

Collapse

Dave Nemeth, MD of Trend Forward and Retailing Africa’s retail analyst, said he believed it was the end for the group and that business rescue was just a formality as the collapse of the retail group had been coming for some time and was not just due to the pandemic sweeping the globe, which has placed millions under lockdown and closed retailers such as those within the Edcon Group. “I have yet to see a company in South Africa, especially the size of Edgars that has gone into voluntary business rescue and made it out the other end or been able to survive in any way. This was certainly a long time coming, but it wasn’t just COVID-19 that has destroyed them – they had a massive bailout last year. What did they do with those funds? The only reports I saw, was that they were ‘going back to basics’.

“That is not going to take a business from the position they were in, further. So, I think it was due to complete lack of direction and a complete lack of innovation. A business that size should have looked at their ‘basics’ way before they realised they were in trouble. That is the first thing any big retailer should look at. It is very very sad for the staff, very sad for all the people they owe heaps of money to. But at the end of the day, I’m afraid, I put it down to total lack of quality management and foresight. I really know the ins and outs of that business and it has been fueled by a lot of arrogance. They did not want to listen, they did not want advice.

“It wasn’t that long ago, in August 2019, when they opened up their new flagship store in Fourways Mall, spending millions on the store, and for what? They should have been fixing the basics in the stores that were surviving and employing staff at that point in time. It was things like this, all the way along. Just look at SAA and Stuttafords – they were also in business rescue. I think this is just a means to an end to see what creditors can be paid and what to do with staff. A very sad day indeed. That’s the nuts and bolts of it.”

Recapitalisation

In the March 26 statement, Edcon CEO Pattison said his turnaround strategy had faced “strong headwinds” due to South Africa’s economic and political challenges, constrained consumer spending and competitive markets. The lockdown due to COVID-19 it seemed was the last straw for the business. Only three months prior, in December 2019, the group had announced that it would be partnering with Accenture on its turnaround strategy after Edcon embarked on the recapitalisation of the business in early 2019.

This is what Pattison said March 26, 2020: “It goes without saying that we find ourselves in uncharted waters and in a time of great uncertainty. The safety and wellbeing of our employees, customers and partner employees is our priority. What we are experiencing at Edcon is an early indicator of the challenge that both government and many other businesses will have to face after the lockdown. The transformation journey has been a tough one for Edcon, starting in February 2019 when we recapitalised the business. We believe that we have a sound and robust strategic plan; focused on store rationalisation, realignment of our property portfolio, tight cost management; and – most importantly – a customer-centric approach by focusing on product, instore customer experience, and growing the credit business and customer base.”

 

Louise Burgers (previously Marsland) is the Publisher and Editor and Co-Founder of RetailingAfrica.com. She has spent over 20 years writing about the FMCG retailing, marketing, media and advertising industry in South Africa and on the African continent. She has specialised in local and Africa consumer trends and is a passionate Afro-optimist who believes it is Africa’s time to rise again and that the Africa Continental Free Trade Agreement (AfCFTA) will be a global gamechanger in the next decade.

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