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Edcon to use R2.7bn lifeline to restructure business

IOL - COMPANIES / 20 MAY 2019 - 06:30 / DINEO FAKU

JOHANNESBURG - Edcon chief executive Grant Patttison has said that the group would use the R2.7 billion lifeline it received from lenders, landlords and the Public Investment Corporation (PIC) to restructure its business model in order to its competitiveness.

Pattison said the restructuring would include the resizing of some of its units into operations that worked better.

EDCON chief executive Grant Patttison has said that the group would use the R2.7 billion lifeline it received from lenders. Picture: SImphiwe Mbokazi African News Agency (ANA).

“We have committed to an Edgars as a department store where big stores work better than small stores,” Pattison told analysts, suppliers and students and the Gordon Institute of Business. “We will have fewer bigger Edgars stores. In terms of Jet the small stores and medium stores work better than big stores. We will have more medium size Jet stores and less stores over all.”

Edcon, whose brands include Edgars, CNA and Jet, is a major tenant in shopping malls including occupying s 66 781m2 of space at South Africa’s largest listed specialised shopping centre Real Estate Investment Trust’s malls is reducing its footprint. It has closed unprofitable stores including Red Square and La Senza lingerie and also downsized others.

Last week the Competition Tribunal approved Edcon’s acquisition by New HoldCo in a deal that analysts said avoided the total collapse of the company.

The tribunal approved the transaction on condition that it promoted black economic empowerment, local procurement and preserved jobs.

The funding includes equity for landlords in exchange for little or no rentals and cash from the PIC through the Unemployment Insurance Fund.

Pattison said the Johannesburg-based retailer's wanted to claw back the market its lost to competitors following the onslaught of international brands by focusing on private labels.

"History will show that Mr Price, Truworths, and Foschini got the response to the arrival of international retailers right by focusing more on local brands. We have switched to that. We are undoing all of that," Pattison said.

Etienne Vlok, the national industrial policy officer for Southern African Clothing and Textile Workers Union (Sactwu) welcomed the approval of the acquisition, adding that the union would monitor that Edcon adhered to the conditions going forward.

“We will monitor the company to ensure that it continues to support the local textile industry. This deal puts pressure on Edcon because workers money was used to save it,” said Vlok. Around 140 000 jobs have been saved following the Tribunal’s approval.

“This is an important deal which will not only save jobs at Jet, CNA and Edgars but also support Edcon’s entire supply value chain. If deal did not go through it would have meant South Africa’s factory workers would have lost their jobs. Edcon buys more locally made clothing than any other retailer in South Africa,”said Vlok.

Edcon adopted a strategy to shrink the business including absorbing Boardmans stores into Edgars after a restructuring that included the selling the Legit business and exiting unprofitable international brands after years of burning cash.

Pattison said the strategy because opening stores did not work.

Ron Klipin, an analyst at Cratos Wealth said the approval gives Edcon breathing space, adding South Africa’s faltering economy would put pressure on the retailer.

“It (the approval) is a short term solution. Consumers are under pressure and people do not have money to spend,”he said citing Statistics South Africa’s retail sales figures released this week which showed growth of just 0.2 percent.

“Edcon aims to focus on its own brands and will move away from the more expensive international brands. It has also closed some of its stores, as well as downsizing others It will take time to see the results of the strategy,” Klipin said.



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