Magazines, airlines and retailers aren’t ‘failing’ just because of Covid-19

Exogenous factors are an easy out. The truth is a lot more nuanced.
The fate of many, many businesses hangs in the balance. Rental relief may be the make-or-break factor. Image: Paul Thomas, Bloomberg

There is a temptation, especially in a time of crisis when not much makes obvious sense, to lump together events that seem similar.

Shallow or simplistic ‘analysis’ is then used to ‘prove’ that these were all caused by some exogenous shock or event. These patterns are recursive in every crisis (or indeed boom); the global financial crisis in 2008 – the most recent of these – was blamed for all manner of things.

This time is no different, even as countries grapple with a global pandemic on a scale never seen before. In recent days, the commentariat has decided that a number of high-profile businesses closing or filing for business rescue can all be blamed on the lockdown. Of course, a hard shutting down of the economy for over a month will have substantial consequences; this column does not deride that impact.

But for many of the recent companies making headlines – such as Comair, SA Express, South African Airways (SAA), Associated Media Publishing, Caxton Magazines and Edcon – the seeds of their demise have long been in place, in some cases for years.

Some are operating in industries in long-term structural decline. Others have been technically insolvent for longer than we care to remember. Businesses, large and small, with weak balance sheets operating in a stagnant economy will fail easily. Economic growth last year was just 0.2%! This is certainly not a fertile environment for easy money to be made.

Comair is not SA Express is not SAA

Comair is the rare example of a company using business rescue for the purpose it was intended. Too often, an application is made for business rescue far too late. Sometimes, as in the case of suspect failed property syndication schemes, the process is abused outright.

It’s also astonishing how many people misunderstand business rescue entirely. Once a business enters the process, it has not ‘failed’ or gone ‘bankrupt. But precisely because it is abused, many never emerge and do fail.

For Comair, business rescue gives the airline room over the coming months to make the necessary decisions to ensure its long-term survival.

Given that the business is not operating currently (all flights are grounded), it is therefore impossible to do this without protection from creditors. The headlines screaming about a R564 million headline loss in the last six months of 2019 don’t tell you that this was largely an accounting loss as it had to reverse a R450 million portion of the SAA damages settlement.

On an operating basis, the airline was profitable.

It did not enter this crisis in a weak position. There was R416 million cash on hand at the end of the year, and a strong minority shareholder in Bidvest (with 26.91%).

SA Express is a sub-scale feeder airline that was mismanaged and looted for years until it was grounded by the Civil Aviation Authority last year. It made stuttered attempts at restarting operations but ended up grounding itself a few times as it juggled a mountain of outstanding payments. The airline was placed under provisional liquidation last month. Contrast this with private operator Airlink, which flies many of the same routes profitably and sustainably.

SAA’s business rescue process has been a farce due to the fact that the airline was already too broken and too insolvent to fix. The amounts needed to sustain operations became eye-wateringly large – emergency funding of R3.5 billion raised from the Development Bank of Southern Africa in January lasted just months. In April, business rescue practitioners requested an additional R10 billion in funding. This was clearly completely unsustainable.

Despite government’s dreams of starting a new flag carrier from “the ashes” of SAA, there is simply no money to do so. Neither SAA nor SA Express failed because of the Covid-19 pandemic. All the lockdown did was to allow political cover (or a convenient excuse) for them to finally hit the wall.


For Associated Media Publishing and Caxton Magazines at least, the causes of their failure are similar. Both are operating in print media, a market that has been in decline for over a decade already. There is an oversupply of similar content (think recipes, gardening tips, gift ideas and so on) available online for free.

In general, magazine circulations have been decimated since 2009.

It is uncommon to find a niche magazine that ‘sells’ more than 20 000 copies in this country, and even those with more mass appeal are struggling to sell more than 40 000. Sure, there are outliers, but the production, printing and distribution of magazines has gone up over time.

Circulation 2009 Q4 2019 Q4 Change
Cosmopolitan 97 892 34 915 -64%
House and Leisure 35 682 21 034 -41%
Good Housekeeping 33 933
Bona 82 710 50 148 -39%
Country Life 34 901 25 582 -27%
Essentials 38 687 18 620 -52%
Food & Home 36 820 17 828 -52%
Garden & Home 54 587 37 126 -32%
People 85 450 32 303 -62%
Rooi Rose 105 298 58 532 -44%
Vrouekeur 77 481 38 623 -50%
Woman & Home 97 524 64 934 -33%
Your Family 63 799 23 771 -63%

Source: Audit Bureau of Circulation (ABC)

The circulation figures only tell half the story. Management accounts for each title will be revealing. All manner of tricks have been tried by publishers to keep these titles viable. Frequency is the easy one, where many magazines have been cut to 10 issues a year from monthly. Others published in alternate months. Some rely on free issues or sales at just above 50% of cover price (where titles are bundled together) to boost numbers.

Many publishers have shifted to building digital audiences, but the revenue streams that have come with those cannot replace declining print advertising revenue. Some have pursued a well-established strategy of monetising audiences through events, but Covid-19 put paid to that. This was surely the straw that broke the camel’s back for Associated.

For Caxton, the decision to “withdraw” from magazine publishing is a lot more complicated. The magazine arm provides print volumes (at good margins) for its commercial printing operations. It won some Media24 printing work from Novus, but management will be asking difficult questions about the long-term viability of some of its printing assets.

A nonsensical ‘ban’ on the sale of magazines during the first weeks of the lockdown by most retailers obviously did not help matters. But the lockdown didn’t kill these titles, just as previous magazine closures couldn’t really be blamed on some or other event. Failure to innovate quickly enough did.

The pain in retail is just beginning

The situation where clothing retailers were not allowed to trade for the entire month of April is entirely unprecedented.

Edcon CEO Grant Pattison – who draws no salary – told suppliers last month that sales for March (prior to lockdown) were R400 million below forecasts, and that it expected to lose R800 million in sales in April because stores were shut. In the announcement that it was to file for business rescue, the retailer said “lost sales” totalled R2 billion.

That Edcon was in a weak position before Covid-19 is undeniable. This was a business that had finally been pulled from the brink following one flawed strategy after the next. The debt load was cleared and then cleared again, it was slimmed down and was on an unambiguous path to sustainability.

As with Comair, filing for business rescue now gives Edcon the best (or only) possible chance of survival. Everything now depends on how it trades over the coming months.


Edcon may not reopen after lockdown

Edcon to file for voluntary business rescue

For the most part, the larger retailers will be fine. Some are in better shape than others, but you can expect banks and shareholders to be ‘accommodative’ of those in weaker positions.

We are likely to see high-profile outright failures in certain sectors like entertainment and hospitality. Already, thousands of smaller enterprises in these sectors are in dire straits. Some have closed permanently. How landlords navigate the coming months, mainly in the form of rental relief, will determine the fate of many, many businesses.

As the impact of the Covid-19 pandemic and the lockdown rattle and reverberate through the economy in the weeks, months and years ahead, appreciate that things are seldom as simple as they first seem. Why did one business succeed when another in the same sector failed? That’s a far more useful question to be asking.

Listen to Nompu Siziba’s interview with Anton Harber, professor of journalism at Wits:




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A useful and thoughtful article – thank you.

Well noted. Sectors were declining but mostly due to the economy which was declining mostly due to ANCcorruption and mismanagement and policies.

I would still not want to put capital in Comair.

Good article. Helps explain the real situation- every business failure is going to try the covid ruse. A strong balance sheet and innovative management is what will determine the winners.

Great with cosmopolitan gone under I no longer have to worry about my young daughter turning into a slut.

Hahahahha!! Can I buy you a bottle of Bells whisky after the locky!!??

Sure pal…. If u in cape Town we break open a bottle on my balcony down at llandudno after this whole cluster f is finnished..

My brother-in-law’s firm, an architectural company, has had to retrench 60% of its staff due to this lockdown due to the prevention of any construction activity. This is a company he started and built from scratch until it provided income for around 50 people.

A South African success story, now in tatters. And a story that’s going to be repeated countless times. And yet what exactly is the government doing while it ‘buys time’ to fight the onset of Covid-19? Does anyone know? Where is all the hospital facilities? All I see are hospitals closing because they’ve had outbreaks of positive infections among staff.

This lockdown will come at an incalculable cost to the economy and what exactly have we gained from it? Every time Ramaphosa comes on the TV he tells us what WE have to do, but when does he ever tell us what government has accomplished during this quarantine? How many beds? How many tests?

What are they doing with this precious time that is costing so much? It’s a totally one-sided affair, where all the responsibilities are being placed on our shoulders and as usual government accounts for nothing.

Looks like Caxton total value destruction is now well on track to match Novus.

End of comments.



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