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Edcon survival partially dependent on sales post lockdown

The embattled company should be able to pay May salaries as long as it opens on May 1, reckons chief executive Grant Pattison.

NOMPU SIZIBA: Earlier today [Wednesday, April 29] Edcon announced that it’s to go into voluntary business rescue. My colleague, Ryk van Niekerk, caught up with the CEO of Edcon, Grant Pattison.

RYK VAN NIEKERK: The board of the embattles clothing retailer, Edcon, intends to put the company into business rescue after suffering a massive R2 billion loss in sales due to the Covid-19 lockdown. Edcon owns around 730 Edgars and Jet stores around the country, and employs more than 20 000 people. The company has experienced financial difficulties for a while, and in March last year secured R2.7 billion from the Public Investment Corporation to recapitalise the company.

On the line is Grant Pattison, the chief executive of Edcon. Grant, thank you so much for joining me. We spoke at the end of last year and it seemed as if Edcon was about to turn the corner. Is Covid-19 the main reason for this change in fortune?

GRANT PATTISON: I think without doubt Edcon would not be filing for business rescue as it has now had Covid-19 not happened. I think the point is that we were weakened by it being in the middle of a turnaround before Covid-19 arrived. Now that Covid-19 comes, it has cost us R2 billion of sales, which ultimately is R2 billion of cash, and [with this] we are unable to pay our accounts.

Read: Major malls will still be hit hard if Edcon business rescue fails

RYK VAN NIEKERK: R2 billion is a large amount. Can you put that into context for us? What is a “normal” month for Edcon?

GRANT PATTISON: We do somewhere between R1.5 billion and R2 billion a month.

RYK VAN NIEKERK: So that is pretty much a full month of lost sales – and a good month at that?

GRANT PATTISON: Yes, it was just over a month, because of course the two weeks prior to the lockdown really hurt the company as well.

RYK VAN NIEKERK: How many employees will be affected – not only at Edcon, but also throughout the supply chain?

GRANT PATTISON: The numbers are that we’ve got about 17.5  thousand permanent employees at Edcon. Sometimes I’ve read analysis that says you take three times that out of the supply chain. However, I must note that Edcon has been in this mode for some time now, and we’ve encouraged our suppliers to de-risk from Edcon over time. So I don’t think with the impact a potentially failed Edcon would be quite a lot smaller than it was three years ago.

NOMPU SIZIBA: How many suppliers are totally dependent on Edcon?

GRANT PATTISON: I can’t give you the exact number, but it’s definitely in the hundreds.

RYK VAN NIEKERK: Yes, the knock-on effect can be immense. Lots of supply chains will be affected. But, of course, business rescue means you get some time to try and reorganise, for the business to survive. Do you think it is possible?

GRANT PATTISON: Certainly I think it’s possible. I think it’s somewhat dependent on what sales are like once we are allowed to open up, and we start relaxing the lockdown. So I think that piece of information will determine whether or not it survives. I think it certainly is in good enough shape, and it’s a good enough asset – but it certainly deserves to survive.

RYK VAN NIEKERK: Of course, Edcon will be able to open stores from May 1, but there won’t be a rush of customers running to buy the latest fashions. There will still be, I think, a depressed demand. What do you expect to see on May 1?

GRANT PATTISON: I think we expect to see in a first couple of days perhaps some brisk trade. Thereafter it’s difficult to know. But before the lockdown we went down to about 50% of sales. So we would be positive if it was anywhere above 50% of last year’s sales.

RYK VAN NIEKERK: Will there be anything different for customers when they walk through the doors and Edcon now is in business rescue? Will there be anything different from a customer perspective?

GRANT PATTISON: I don’t actually think there will be. So, for a matter of weeks, maybe one month or two months worth of weeks. It probably will run really normally, but we need to have a solution in that time.

RYK VAN NIEKERK: Of course, most retailers have been hit very, very hard with the lockdown, especially those who could not open and do business. But do you think government could have treated the retail sector differently during the lockdown to limit this significantly negative impact?

GRANT PATTISON: I wouldn’t necessarily conclude or base all my assumptions on the fact that the lockdown itself caused the sales loss. I do think that at some point we’re all going to start not trusting each other, and customers would stay at home and spend less. So we would go through some problems anyway. I don’t think it’s necessarily, though, all on the lockdown.

RYK VAN NIEKERK: Would it have made a difference if you were allowed to continue trading online?

GRANT PATTISON: No, that wouldn’t have of made a difference to us, but it might have made a difference to customers who would have enjoyed the service. I think our online still is probably about our 50th biggest store, so it wouldn’t have moved the needle.

RYK VAN NIEKERK: But it’s an interesting time, and I’ve just seen the impact of the Covid-19 virus and the lockdown in the US on the US economy. They’ve had a dreadful first quarter. I think we will see a dreadful first quarter in South Africa too, as well as even a worse quarter in the second quarter.

Do you think, if special things happen, with proper support from government to assist especially retailers, that many retailers such as Edcon can actually survive these very extraordinary circumstances we find ourselves in?

GRANT PATTISON: Certainly government can play a leading role. I think what’s more important is the various parts of the supply chain need to work together, so bankers with retailers, with landlords, with suppliers. We’ve almost all got to come to an agreement on how to get the thing going again. So sure, it must be government-led. But I think business can also play a big role.

RYK VAN NIEKERK: Are you involved in those discussions with the other partners in your supply chain, apart from government?

GRANT PATTISON: Because of Edcon’s particular situation, I haven’t been.

RYK VAN NIEKERK: So, what now? What are the things that need to happen for Edcon to stay in business?

GRANT PATTISON: Well, first of all we’ve got to open on Friday, and we’ve got to have to have a reasonable amount of sales. Then we need a lot of help from suppliers and landlords. I know they’ve already given help, but still more help is needed. And then we need to work with the business rescue practitioners, whose job it is to put together plans and negotiate deals, and hopefully rescue the company.

RYK VAN NIEKERK: Will you be able to pay salaries in May?

GRANT PATTISON: As long as we open on May 1, yes.

RYK VAN NIEKERK: Well, it will be an interesting period, Grant, and all the best for the future. Hopefully you can pull this one through.

GRANT PATTISON: Pleasure. Thanks very much.

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So, as per Mr. Patterson’s own words above,

“And then we need to work with the business rescue practitioners, whose job it is to put together plans and negotiate deals, and hopefully rescue the company”,

then there is NO use or need to have a Board of executives at Edcon.

R1.5 – R2 billion in sales monthly…… LOL

End of comments.

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