Retail giant Edcon hopes to significantly bolster credit sales, following Absa’s announcement on Monday of the sale of its Edcon store card debtors’ book to RCS – the home-grown consumer finance group now owned by French banking conglomerate BNP Paribas.
BNP Paribas’s personal finance division bought RCS in 2014 from Edcon rival The Foschini Group and Standard Bank, which originally launched RCS as a joint venture some 20 years ago. The RCS deal with Absa is subject to regulatory approvals.
Speaking during a joint RCS/Edcon media briefing on the deal in Johannesburg on Tuesday, Edcon CEO Grant Pattison said the sale is part of a bigger agreement between RCS and Edcon that will see the retailer boosting its credit sales – a crucial part of its turnaround strategy.
Edcon sold its debtors’ book to Absa back in 2012 for R10 billion. Today it is reportedly valued at around R4.5 billion, as the number of active card accounts on the book have fallen by more than two-thirds to around 1.2 million.
According to Edcon, credit sales on its store account cards accounted for some 60% of its sales in 2010, with around 4 million active cardholders. Today, around 30% of group sales come via its store cards.
The group has in the past complained about Absa’s conservative lending on the Edcon debtors’ book and in 2016 launched a second credit book internally to revive its credit sales. Pattison says Edcon’s own secondary credit book has around 1.2 million account card holders, so together with the Absa book the retailer effectively has around 2.4 million store card holders between its Edgars, Jet and CNA retail chains.
“We are really excited by the partnership with RCS and will be working together to grow both our credit businesses in SA,” says Pattison.
“While RCS will acquire the Absa Edcon debtors’ book, we are also in talks with them to acquire parts of our own internal credit book, which is valued at about R1.6 billion. As part of the first tranche, we are looking at selling about half a billion rand of our own credit book to RCS, which will serve as a cash injection for Edcon,” he explains.
Pattison adds that the deal with RCS is part of Edcon’s overall restructuring plan and was negotiated before the retailer secured R2.7 billion to recapitalise the business in March. The funding lifeline – from the Public Investment Corporation, existing lenders and several of Edcon’s landlords – has kept Edcon in business.
“This deal with RCS is part of the process,” says Pattison. “We had to secure the R2.7 billion funding before this deal could be finalised. It will allow us to grow our credit sales, which is a key part of turning around our business. Edcon has 10 million Thank U rewards customers, so there is huge potential to grow credit sales together with RCS.”
Loyal customer base
Commenting on the deal, RCS CEO Regan Adams says it has always been part of the group’s ambition to become the preferred provider of financial solutions to Edcon. “They are one of the largest non-food retailers in South Africa, boasting a loyal customer base of around 10 million. As part of this deal, we have also secured the right to provide consumer finance products to Edcon customers, including credit cards, store cards and personal loans.”
Adams notes that the deal with Absa and Edcon will also boost the RCS group’s client base and business in South Africa.
He says RCS has some 1.3 million customers in the country and works with many of the major retailers, including The Foschini Group, Massmart, Pick n Pay and even international retailers like Cotton On.
“RCS is the largest provider of outsourced store card services in South Africa and we have assets of around R11 billion,” he says. “We have a very good understanding of the different consumer credit segments in the country….”
In an emailed statement Absa confirmed the sale of the Edcon store card debtors’ book to RCS. It said the transaction includes the sale of Edcon’s store card debtors’ books in both South Africa and Namibia.
“The sale is positive for Absa as it will free up capital and management time to focus on executing against the strategy that Absa announced last year,” says Arrie Rautenbach, CEO of retail and business banking at the banking group. “In terms of the strategy, our priority is to regain our leadership in core areas.”