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.
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.
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.