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Edcon may not reopen after lockdown

Retailer can’t pay suppliers.
The nationwide shutdown will cost the retailer around R800m in lost sales. Image: Waldo Swiegers/Bloomberg

Edcon Holdings, South Africa’s second-biggest clothing retailer, said it may not be able to re-open at the end of a three-week national shutdown to combat the coronavirus outbreak.

The Johannesburg-based owner of the Edgars and Jet chains is facing a trading slump after President Cyril Ramaphosa said the pandemic merited the status of national disaster. Like-for-like sales have dropped 45% since that statement less than two weeks ago, and March revenue will be R400 million below the retailer’s forecasts, chief executive officer Grant Pattison said in a statement to suppliers sent to Bloomberg News.

Read: SA’s response to Covid-19 should be war-like

“The failure to meet the March sales targets, and the expected drop in collections of the debtor’s book, will mean that the business only has sufficient liquidity to pay salaries,” Pattison said. “Edcon is unable to honour any other accounts payable during this period.”

Ramaphosa has ordered a 21-day lockdown from Friday to curb the spread of the coronavirus as infections continue to increase. Essential services such as grocers, pharmacies, banks and gas stations will be allowed to remain open, but the bulk of Edcon’s 1 100 clothing stores will close, costing about R800 million in sales, Pattison said.

Edcon may need to consider a local form of bankruptcy and will hold talks with government about any possible state assistance, the CEO said.

“I am therefore unable to make you any promises other than to keep you updated of developments or plans the board approves,” Pattison said to the suppliers. “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.”

© 2020 Bloomberg L.P.

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One wonders how many more businesses will fail after the Lock Down? Now all the employees will be out of work for ever. Rather not pay the salaries for three weeks than go under? Hopefully the suppliers will be willing to be paid later. But, how come Edcon don’t have money in the kitty? Are they one paycheck away from bankruptcy?

I think their problems predate Covid-19. New competition in the form of clothing stores like H&M and Zara has hit Edgars hard and the fact that some of their clothing merchandise is just poor quality didn’t help either. Moreover, on the CNA side, stationery, magazines and printed media is an ever-shrinking business. These days people type, they don’t write with pens like they used to.

The problem stared in 2007 with BAIN taking over EDCON. After R25 Billion debt, it was always tough.

…can’t recall when last (in terms of which year) I received a facsimile, or sent one.

CNA was good. It would still have been good if they incremented their business model instead of trying to sell mobile phones and computer games. At once stage half of each shop was dedicated to just those two groups of products.

PNA has kept to what they have always done well and are fine. They used to be a direct competitor of CNA until CNA removed themselves from the competition and didn’t know whether they were a BT Games, Incredible Connection, or Cellucity.

CNA hasn’t been top of mind for stationary for over a decade. For a while, Walton’s was (even though I loathe their stores) but thankfully PNA has now stepped up.

Indeed. Overpriced, poor quality clothing. Like many others I preferred to look for better deals on Spree, Zando etc.

If you remember Edcon was bought by PE firm Bain who used mainly debt to finance the transaction, for better part of a decade Edcon used every last cent of free cash flow to pay interest on the debt. No investment in stores, unmotivated employees. Bondholders wrote off debt in exchange for equity stakes to allow some investment to take place, but now this hit. Leveraged buyouts are truly the evil face of capitalism, interest rate tax deductions should be scrapped. PE firms essentially use the taxpayer to finance 30% of their acquisition.

Blain had Edcon €1,180,000,000 at 3.25% and €630,000,000 at 5.50% over EURIBOR to pay for it’s own acquisition. The EDCON Board are fully complicit in this asset stripping. I guess it was a smart way to get money out of South Africa if you were in that club.

Blain had Edcon €1,180,000,000 at 3.25% and €630,000,000 at 5.50% over EURIBOR to pay for it’s own acquisition. The EDCON Board are fully complicit in this asset stripping. I guess it was a smart way to get money out of South Africa if you were in that club.

The Issuers …. The €1,180,000,000 senior secured floating rate notesdue
2014(the “Senior Secured Notes”) will be issued by Edcon
(Proprietary) Limited
(“RetailCo”). The €630,000,000 senior floating rate
notes due 2015 (the “Senior Notes”, and together with
the Senior Secured Notes, the
“Notes”) will be issued by Edcon Holdings (Proprietary)
Limited (“HoldCo” and, together with RetailCo, the
“Issuers”). The Issuers are
members of the leading clothing and footwear retailing
group in South Africa.
Use of Proceeds..We intend to use the net proceeds of this offering to
refinance the Asset Acquisition Bridge Facilities which
partially funded the Asset
Acquisition.
Maturity …… The Senior Secured Notes will mature on 15 June 2014.
The Senior Notes will mature on 15 June 2015.
Interest Rate .. We will pay interest on the Senior Secured Notes
quarterly, in cash, in arrears on 15 March, 15June, 15
September, and 15 December of each
year, commencing on 15 September 2007, at a rate of
three-month EURIBOR plus 3.25%, reset quarterly. We will
pay interest on the Senior
Notes quarterly, in cash, in arrears on 15 March, 15
June, 15 September, and 15 December of each year,
commencing on 15 September 2007,
at a rate of three-month EURIBOR plus 5.50%, reset
quarterly

Chris they are bankrupt. I posted the details on why they are bankrupt but my post was not approved. Have a look for your self at the debt they took on in 2007 that matured in 2014 and 2015.

@Stoffel, surprize surprize!? Bigger & better also means running with optimised working capital….so shareholders can benefit. With no access to credit most large buss cannot survive such schocks (little income, usua” costs) for more than a few months. With some bad luck, it scould come at time of highest stock levels (cash into stock). Eg Edcon just pre winter clothes….stock purchased, ready, g…….oops, zip sales. Happens in a flash.

Chris i think many stores/business won’t survive this period.

Having listened to experts and virologists on their subject matter, i surmise we’re going to be locked down for a tad more than 21 days. because Government will have no other choice. This virus has to be curbed

I listened to a message from a Professor in Virology and judging by the tone in her voice and what she had to say is a scary thought and it’s a far cry from fake news

Just today 1000 people died in Italy and projections are that half their Population could succumb to the virus due to their age

Secondly, and this is the scary part, is that should the virus hit the townships, our hospitals won’t be able to cope and many will die for obvious reasons

This virus is not to be taken lightly. I feel sorry for the employees who might lose their jobs due to businesses not being able to re open after the lock down

This virus is the equivalent of a war

There should be an immediate revaluation of the shopping centers where they are present.

It was only ever going to be a matter of time before this dinosaur failed. Terrible company, and has been so for years now.

Keep moving, people.

Some people can be so heartless. Any business that fails is bad for our society.

I don’t understand why Edcon employees are more important that supplier’s employees.

Why not pay 50% of Edcon employees and the remainder and part payment to suppliers??

When times are tough you look after your own.

And yourSELF

Terrible tragedy … first of many to come. So sad

….all the marginal businesses (large and small) now being killed. Very sad.

(As I said in other posts, there will be more global suicides due to financial distress at the end of 2020, than deaths directly caused by Corona infection)

I reckon maybe Game, Vida, Seattle, Wimpy, Spur, many independent shops in shopping centres, amongst others could go.

The thing is that shopping centre landlords are utterly ruthless. This time it’s going to bite them. They typically only listen to anchor tenants for negotiation, but this time if they don’t grant concessions to all their tenants they could be looking at up to 50% vacancies.

I can’t say that I feel any sympathy for those landlords at all. Not the tiniest fraction.

Yes, especially the larger ones like L2D and the other listed ones.

For them it is all about the managers polishing their marbles and their incentives and not the long term plan.

At least they didn’t have to go to the UK Nigeria or australia to be a failure. A homegrown failure for once.

…..classic one liner : ) good one

Shame on every South African that typically purchase heaps of clothes on credit, but let their account go into arrears / little intention to pay debt / using Edcon as a ‘bank’.

is that the consumer’s fault or Edcon’s? retailers offering credit facilities such as edcon price in defaults. that is probably one reason for their exorbitant pricing. if people bought cash prices would be lower… but not all do.

Good point in fact. Much of their own making….like the US “sub-prime” crisis in 2008.

All retailers have bad credit…perhaps Edcon driven it to the extreme(?) At least the branches could boast their “sales figures” to HQ management.
As the saying goes “a sale is not a sale until it is paid for”.

Look at the Board and Management members and I will see they have no experienced in true retailing…… The CEO almost destroyed Massmart, COO came from Massmart, and MD of Edgars has no clothing retail experience.

the CEO is just a “smoother talker” who got over 2 billion from the PIC one year ago and now the money has gone.

There is a saying in retail, ” Sales set you free” …

They cant do there sales, their model is old and “big boxes” don’t work anymore just like Stutterfords, Greatmans, Garlics stores .. ALL gone. They have no true product people in the business.

Reckless trading by the Board and management

I agree with the fact that Pattison’s track record isn’t something to write home about. Jumping ship from Massmart after it became clear that the Walmart investment and food venture would flop, didn’t do his reputation any good. Now with Edcon on the brink, who is going to hire him? (not that he needs the cash though)

They’ve been in trouble for a long time.

EDCON was f*cked long before the virus hit SA. Rentals in high-profile shopping centres are way too high; prices of merchandise in many clothing stores is also much too high. The ‘new SA’ under the ANC cannot afford it. It’s as simple as that

What happens to those who have accounts with edgars and jet and other clothing stores? What happens to their accounts? And also those whose accounts are in arrears or outstanding? Will it be cancelled off?

Speaking under correction here but I do not believe Edcon is the lender. ABSA bought the Edcon book a while ago, but I think they sold that to RCS or somebody similar. They will still collect I am sure

The PIC has just lost another R2 billion plus, funded out of UIF money when the UIF is about to see a surge in payouts. Who approved this EDCON facility and why. Jobs? well they are less than 1 year later probably unemployed. Proves PIC is a Cosatu, Gov pot. Dan was not even around then, so someone else had to have pushed this useless investment through.

End of comments.

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