Edcon: Tragic job losses on the cards

No doubt the 100 000 lost jobs will be just a part of the enormous but unknown price to be paid, largely by the poor and vulnerable.
The grim reality is that this retail group had a ‘pre-existing condition’. Image: Waldo Swiegers, Bloomberg

The chilling prospect of more than 100 000 people losing their jobs was grimly tagged by a conference call between Edcon CEO Grant Pattison and suppliers just hours before the country entered an unprecedented lockdown.

Unusually for a conference call of this nature, it went viral. For 55 million jittery South Africans, it was quickly deemed to encapsulate all the nightmarish forebodings presented by a lockdown that could last three weeks or, who knows.

No doubt the 100 000 job losses will be just a part of the enormous but unknown price that will be paid, largely by the poor and vulnerable, in the coming months.

Read: Edcon – Third time lucky?

But the grim reality is that Edcon was a case of dead man walking into the coronavirus lockdown; like so many of the unfortunate thousands of Covid-19 victims across the globe with ‘pre-existing conditions’, Edcon was in no condition to survive even the very early stages of the virus.

During the conference call Pattison told suppliers Edcon only had sufficient liquidity to pay salaries which were deemed a priority and that the company was unable to honour any other accounts during the lockdown period.

“By the end of today [Thursday, March 26] we’ll be about R400 million below forecast sales and cash for the month,” said Pattison.

For a credit retailer the situation is aggravated by the fact that with stores closed credit customers will be unable to make any payments during the lockdown.

Read: Edcon aims to change its fortunes by driving credit sales

The dramatic statements confirm speculation that the 90-year old retailer has seen little improvement in operations since the headlining grabbing “rescue” that was bedded down less than one year ago. “How is it possible they’ve almost run out of cash?” asked one analyst. “Didn’t they convert most of their debt to equity as part of the restructuring and didn’t they get generous discounts on their rents?”

In June 2019 Edcon put to bed a R2.7 billion rescue package funded to the tune of R1.2 billion by the Public Investment Corporation, with the bulk of the remainder in the form of rent reductions and cash commitments. It is unclear how much of the R2.7 billion was used to shore up any losses that might have been on the books.

The restructuring was part of a joint effort by multiple stakeholders, including Cosatu, to keep the company afloat and prevent the loss of over 140 000 jobs across the value chain.

While no one questioned the need to protect jobs, not everyone agreed with the refinancing; at least one leading banker questioned the value of keeping a chronically weak operator alive, pointing out that such a move tended to weaken all around it.

Customer buy-in missing

The latest shocking development gives credence to this scepticism and to market speculation that while Edcon had managed to persuade funders and property owners to provide support, it was unable to get the crucial buy-in from customers.

A few stores have been upgraded to an enticing degree but by and large Edcon management has failed to implement the sort of retail strategy needed to attract customers in sufficient numbers. This is over a decade-long failure.

The group has not published figures for a few years, but before it went dark, like-for-like sales were regularly showing declines of 15-20%.

Speculation is that the restructuring did nothing to mitigate this pace of decline and that the subsequent tougher economic conditions have helped to aggravate it.

Pattison, who has undertaken not to draw a salary until the business is open and stable again, told suppliers that management is continuing to look at all options. “And there may be some tough recommendations to be made to the board after the lockdown, including considering business rescue.”

He referred to business support packages offered by government and other agencies and funders, but cautioned: “For your own planning it would be prudent to consider that orders already placed with you may be cancelled.”

The prospect of 100 000 jobs being lost is a tragedy but it is not of Covid-19’s making. We will have enough of those to contend with in the weeks and months ahead.

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So it will go into business rescue and it will be dragged out for a few years while the bones are picked over by the SA legal and accounting profession.

Meaning that it will still operate or closing the doors?

100% Mmmm, and when the vultures are finished, there won’t be a cent in the rand for the honest creditors, who are going to take a massive bath here!

Rent is not only a killer to the Edgars chain. All businesses in shopping centres and big malls are deep in this quagmire, this goes down to the high prices being charged to consumers… We have for too long been sold the pipe dream that a food or clothing chain business has no business owning the property it operates from, that is 20th century thinking. It is time that these businesses start to own part if not at least 70% of the brick and mortar structures they operate from. The most feasible and sensible business ownership model they can look into for the 21st century business could be the SECTIONAL TITLE route. This will control the over proliferation of outlets in the country… Why do you have 10 outlets in an area covering a 30km radius. Sectional title will be heavy on the balance sheet so it will not be used willy-nilly at the disadvantage of the consumer and the shareholders. Chain-stores, Pension-funds,REITS, Landlords and investors should change their thinking towards rental approach. The current system is a failed value proposition, and has no place in today’s complex and fast changing consumer shifts.

There is way to much brick and mortar retail for the population densities in SA urban areas (most of it way over finished and way to inconvenient to get into and out of).

The brick and mortar is also way to overpriced in terms of the rent and utilities being charged which gets passed onto consumers – who are not going to be there for a while.

Also the malls are far to dependent on the cross subsidiasion on anchors by line shops many of who sell goods that are completely unnecessary and who’s balance sheets do not permit more than 30 days if contingency.

Agreed with AP, waaay too much retail real estate in SA. Supply side is flooded and demand is limp to dead. They both are suffering accordingly. However, sure the REIT directors still get fat bonuses, as they synthetically prop up the carrying value of their assets!

The ever-increasing property taxes, most of which get stolen by cadres, are not helping matters either.

…..nothing of real value in Malls anymore
The same stores, whether you are in a Mall in P.E or Tzaneen
I go, I try on, I order on superbalist and save
Else …I purchase on Aliexpress.com, choose ZAR and wait a month or so
Perfect…

This article is completely on-point. Edgars lost its way years ago, probably from the time of the private equity buyout. It has failed to compete in a changing retail world and probably should have gone into business rescue rather than waste state pensioners money. Its terrible for the employees, but it is a complete failure of management to understand the environment and to adapt.

It must roll over with every other zombie company now so the strong ones still standing can continue producing. These directors dont care about planning only filling their wallets.

Over a Decade Ago I was operating in small Business .My expirance during that time taught me
few lessons , cash flow is vital camponent in any Business. i wasforced to quit the business.
factors were2008 GFC, OUR LOCAL labour unrest, demanding worker,govt dept burocracy, crime.
Current crisis faced by large corporation in present time,spending power dropped due to
high infation like rate&tax , high energy cost, rand depriciation. global crisis. jobs are few,
over traded self employed business with limited resources.less money to buy.less cash flow.

Don’t worry. Another retailer like Woolworths, Zara or H&M will buy the business just to get the leases in the malls and they will take over the employees. One thing Edgars does have in their favour is prime locations in all the big malls. The useless socks imported from China which had holes after I wore them only once was part of its undoing.

Definitely. They need to buy more PROUDLY South African goods of high quality!

Excuse me, everyone missing the point…answer the analysts questions!!? What happened to the PIC bailout money? Already all gone? Edcon as a going concern was never the case, just another attempt to milk cash like many SA inc. Everyone in the biz knows and is not falling for your fake tears.

Edcon employees who lose their jobs MUST form a group and protest outside the ANC, SACP and COSATU headquarters every day because it is this evil quartet that is putting people like you out of jobs. In my view ANC public servants, unions and the communists – a more destructive system the world has yet to see – don’t want anything to change. It is nice and cosy for them while the country burns.

This has nothing to do with with the ANC, SACP and COSATU – this has everything to do with incompetent capitalist management who didn’t see Woolworths, H&M, Cotton On, Zara, Mr Price, etc stealing their customers on a daily basis. The other lot may have plenty to answer for, but not this.

Even the ANC is finally getting worried. You don’t see Mr A M grandstanding…for now.

Perhaps the arrogant are being humbled ever so slightly?

Covid-19 is perhaps the great leveler?

Pay your suppliers 50% and pay staff 50%!

Everybody needs to still eat. Suppliers need to survive the crisis. Don’t be such a short sighted thinker!

Of all the 18 above comments i notice nothing mentioned about the slapgat and badly trained staff in Edgars and other stores in SA .
I always find staff huddling together in far off corners talking to one another totally ignoring body language of potential customers.
Institute a stronger hire n fire culture and businesses will become more profitable

All SA corporations had a 2 month window from Jan to March to assess potential of Corona virus on their business. They could all see what happened in China and what it would look like in SA.

They also knew the risks were significant that it would find its way here.

The fact that they didn’t take precautions (shorting futures, buying put options etc) is their own fault. They could have hedged at least part or all of the risk away.

End of comments.

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