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  I have always wodered what Edgars target market is. They are perhaps trying to be all things to all people. My family generally avoids their stores and only go there as a last resort. And they pay cas...  

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Edcon’s losses widen

As tepid credit retail sales bite.

Retailer Edcon Holdings continues to see faltering credit sales weigh on its earnings, as its losses widen.

Edcon, the operator of Edgars, Jet and CNA stores, says its net losses were R828 million for the three months to June 2015 compared with losses of R499 million for the previous year.

Despite the retailer’s cash sales growing by 7.4%, its credit sales declined by a further 10.5%, bringing Edcon’s overall retail sales to decline by nearly 1%.

Credit sales contributed 42.0% of total sales in the period under review, down from 46.5%.

Edcon’s credit sales have been under pressure, as retail counters like Woolworths and Mr Price have been aggressive in growing overall sales and market share.

“The overall trading environment remains soft as lower economic growth combined with higher inflation, power outages and currency weakness continue to weigh on the consumer and the overall macro environment,” says outgoing CEO Jürgen Schreiber. 

When Edcon was acquired by US private equity firm Bain Capital Partners at the top of the retail boom in 2007, credit sales were 60%. Schreiber says as credit sales declined, the group had to “show better stores and convince customers to buy from us”.

“The lower the credit sales the less vulnerable the group is. But we are not happy with credit sales. We would like to see more growth in credit sales and also drive cash sales,” he says.

Schreiber adds that there are no targets in the preferred split between credit and cash sales.

Edcon is also battling with its underperforming retail stores. The Edgars division was the star performer, as retail sales increased by 1.8%. Total cash sales increased by 10.9%, however, credit sales growth declined by 6.4%.

Average store space increased 6.8%, as Edcon rolled out more Edgars, Edgars Active, Boardmans and Red Square stores. It also embarked on five store closures, bringing the number of stores in the division to 549.

Its Discount division, with brands like Jet, Jet Mart and Legit, saw total sales decline by 3.1%. The division was hit by credit sales which declined by 17.8%, while cash sales grew by 7.1%.

Sasfin Securities senior retail analyst Alec Abraham says to amass market share Edcon is betting on the performance of Edgars to focus on consumers in the upper income segment. The retailer in recent months has launched a slew of foreign brands such as Dune, Topshop, Top Man, Mango and Forever New.

“They have tried to move up the market to the upper segment. But many consumers cannot afford these brands. Rather Edcon should focus on the discount division as they have a good footprint in rural South Africa,” Abraham explains.

He adds the discount division would enable Edcon to compete with other competitor brands in its price and income category.

The laggard among Edcon’s stores is CNA, as sales decreased by 12.9%. Edcon since 2014 has embarked on store closures and reducing store space to create efficiencies. The total number of CNA stores at the end of the period was 197 while the average space of stores decreased by 4.7%.

“The next step is focusing on optimising operations and we are looking at the sale of non-core assets,” Schreiber says.

CNA and Boardmans have been tipped as the targeted assets for potential sale by industry players, but Schreiber dismisses this.

The biggest pressure point for Edcon has been its crippling debt pile of R20.7 billion. In June, 97.3% of holders of Edcon’s €425 million (R5.9 billion) 2019 bonds accepted an exchange offer, as it looks to address liquidity issues and stabilise its capital structure.

The results of the exchange offer will decrease the group’s net cash interest payment obligations “by more than R1 billion a year”. The group’s cash indebtedness will decrease by R5.9 billion.

Despite this, Abraham says Edcon’s debt is big especially when pitted against its retail sales.

“If they continue at this rate [in terms of its retail sales], the debt issue is going to be big. Something drastic has to be done to change the fortunes of this company,” he says.

Another strategy to repay its debt was to cut costs by slashing jobs at its head office. The company has no intention of cutting further jobs, as “we are not in any restructuring efforts,” Schreiber says.

Edcon has appointed Bernard Brookes as CEO to replace Schreiber, effective from September. It has also appointed Roanne Daniels and Urin Ferndale as joint interim chief executive officers until Brookes takes over the reins of the company.

 

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Whoever sanctioned the Edcon LBO at Bain Capital must pay back the money. R25 bn of investor’s money wiped out

The modus operandi of Bain Capital is to engage in highly leveraged buyouts, pile up the acquired company with debt, force the company to assume more debt to pay didvidends, milk the company as much as possible in fees and other “marketing/etc.” expenses (charged before normal operating expenses) and then leave the company to implode. They have a history of acquiring financially stable companies and saddling them with debt. Edcon was no exception. It’s hardly suprising how things have turned out for Edcon – just look to Bain Capital’s way of doing business. It’s equally not suprising that the original founders of Bain Capital are now extremely wealthy, does the name Mitt Romney ring a bell?

R828M/90 days is on average R9.2M being flushed daily.
That Red Square is symbolic of the blood being splattered by this basket case of a business.

It’s one thing to have a pile of debt linger over your head,
It’s another to have a ton of debt on your books, whist you are operationally loss-making.

This is one already battered can being kicked down an even more treacherous road, the net result of which, eventually, will not be a pretty sight.

I wonder if these numbers are losses or failure to meet sales target…. Business language is confusing at times.

Hey ‘BoomBang’

Depending on which angle you look at it from, you are partly right.

The losses stem from operational inefficiencies, which basically means that, due to the difficult environment they operate in, they are making less money than it costs them to run the business, which, yes, in a way, could be interpreted as them not reaching the required sales levels or targets needed to be profitable.

In addition, and excuse the pun here, they (over-capitalized) borrowed a lot of money during the ‘boom’ years to fund expansion, pay off debt etc.. but have now been brought back to earth with a ‘bang’ as those good times are over, the business is in decline, and there’s just no money to re-pay the debt.

Hope that is of some help…

Perhaps Edgars should conduct a customer survey asking customers what they think is wrong in terms of its products, service & staff at their retail outlet’s

I have always wodered what Edgars target market is. They are perhaps trying to be all things to all people. My family generally avoids their stores and only go there as a last resort. And they pay cash.

Getting clothes on credit is so yesteryear…. wake up Edcon.

The interest-income, commission on insurance sales etc. generated from credit sales, and most importantly, the loyalty and long-term customer relationships they get from selling on credit is worth it’s weight in gold to retailers, it’s absolutely priceless.

So, defaults aside, credit sales is very much the ‘bread and butter’ of these guys, hence them desperately clinging on to trying to get you and I to buy on credit.
But yes, it is very yesteryear.

Good perspective helped indeed, thanks.

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