According to a report by the Financial Mail, Edgars may “effectively run out capital towards the end of 2019”.
After Bain Capital paid R25-billion for the company, the retailer’s balance sheet saw debt of R17.3-billion – an amount that nearly sank the company as the 2008 financial crisis hit.
Since 2012, Edcon has lost an estimated 22% of its clothing and footwear market share where it once held more than 50% of the sector, according to Financial Mail.
Edcon still owes an estimated R7-billion to its lenders.
On a positive note, Stats SA reported that retail sales grew 2.5% for the year to August — almost twice the 1.4% annualised growth reported in July.
The problem is, says the Financial Mail, that Edcon is making a loss, and “someone has to fund the loss”. This falls to the shareholders and the problem under discussion is “how long will they fund these losses”?
Edcon’s most recent set of accounts, for the year to March 2018, saw sales down 4.8% to R24.1-billion. Trading losses ballooned to R1.36-billion from R373-million in 2017. Even though R20-billion in debt was written off in 2016, Edcon incurred R1.53-billion in “financing costs” to repay remaining debt. The three months to June were no better: sales were down 8.8%, and the quarter saw trading losses of R225-million.
The lack of customers are evident at even flagship Edgars stores. “At Melrose Arch, most of the initial space Edgars occupied is boarded up, reinforcing the impression of a gradually disintegrating department store,” reports Financial Mail.
As many as one in five South Africans used to shop at one of the 1 350 stores owned by Edcon. Despite the downward trend, Edgars has remained SA’s largest nonfood retailer, accounting for nearly a third of the clothing and footwear market.
The company employs more than 27 000 staff members, with an indirect effect on a further 100 000 people.
Edcon Holdings said on Thursday that it will be closing three of their chains: Boardmans, Red Square and La Senza lingerie.
This is the latest strategy to save the company after dwindling sales and profits.
By shutting down the other chains they hope to attract more customers to their flagship Edgars stores.
The decision to shut down certain chains comes from the newly appointed CEO Grant Pattison who took over the position fro Bernie Brookes. Edcon is South Africa’s largest non-food retailer.
The Johannesburg company has had a hard time staying afloat amid weak consumer spending and economic growth and in 2016, the company had to be taken over by banks and bank holders to stop it from collapsing.
Under Pattison’s plan, Edgars will cut down on more than 1 300 stores’ footprints as well as reduce floor space by 17% over the next five years to increase profitability.
They will also be focusing on Edgars mainly, which sells most of the of the items that are available in the stores that are being shut down.
Other stores that have made the cut include CNA and Jet.
Pattison said that he thinks that the company can turn. He said, “The quicker we can do this, the better”.
The urgency to make changes comes after Edcon retail sales dropped by 9,4% in three months through December 23 while adjusted earnings before tax, taxes depreciation and amortisation declining by 25%.
The owners of Edcon Holdings are Frank Templeton Sanford C. Bernstein & Co. LLC and Harvard University Pension Fund. They took over when Edcon was struggling under foreign-currency debt that was used to finance the takeover by Bain Capital Private Equity LP in 2007.
The 89-year-old company also employs 14 000 permanent a significant number in a country where more than 1 in 4 people are unemployed.
At the of last year, the company’s net debt was R4,2 billion. Some of the other attempts to revive the company include increasing the workforce, decreasing prices and bringing in international brands.
Edcon said earlier this year that they were in talks with creditors about refinancing debt to strengthen the balance sheet. Edcon also has liquidity facilities and credit facilities that will be maturing towards the end of 2018.
By Roy Cokayne for IOL
Redefine Properties is to reduce its exposure to Edcon as South Africa’s biggest clothing retailer seeks to cut its total retail space from about 1.5-million square metres to about 1-million through a rationalisation process.
Redefine chief operating officer David Rice yesterday said that the group would reduce its Edcon exposure by about 20 000m² this calendar year.
Rice said Redefine planned to fill the space vacated by Edcon. At Boulders Shopping Centre in Midrand, for instance, the retailer would reduce the number of outlets from three to one.
But Rice said one of these outlets had been re-let and it had interest from tenants for the third outlet.
Rice said retail vacancies in the market and Redefine’s portfolio had been increasing, particularly in the larger shopping centres, and lease negotiations were “tougher than they have ever been.”
He said there had been a significant push back from retailers on rental escalations, specifically from national retailers, and on parking fees.
“National retailers are far more clear about the space that they want in terms of their strategies and they are not scared to give up space whereas previously they may have kept more space,” he said.
However, Rice said international retailers were still coming into the South African market.
Rice said Redefine had secured two deals for 17 000m² stores with French-based Leroy Merlin, a DIY and homes company that would be competition to the likes of Builders Warehouse.
Rice added that Redefine had also done two deals with Decathlon, a sporting goods retailer that was a sister company to Leroy Merlin, that would also be big competition for local traders.
He said the office market was “very weak” and it was “musical chairs” with vacancy levels in many areas probably increasing beyond where they were.
Rice said Redefine’s focus in the industrial sector was on development, because its vacancy levels were low at 2.7%.
Redefine yesterday reported a 5.5% increase in distributions a share to 47.30 cents for the six months to February and expects to maintain this growth rate for its full financial year. It reported an operating margin of 82.7%, with the property cost ratio stable at 33.9%.
The overall occupancy rate improved to 95.8% and tenant retention to 94.7% from 86% in the prior period.
Leon Kok, the financial director at Redefine, said the company’s loan to value ratio declined to 40.1% and they would look to reduce it further to below 40% over time.
Redefine’s total assets were valued at R93.4-billion at end-February, an increase of R1.9bn since end-August, following the acquisition of a strategic 25% stake in Chariot Top Group in the reporting period for R907.9-million to give it direct access to a retail portfolio in Poland.
Redefine’s overall portfolio remains biased towards retail at 41% of its sectoral spread by value, with its offshore footprint contributing 25% of distributable income.
Redefine rose 0.89% on the JSE yesterday to close at R11.78.
According to an article published in the Sunday Times at the weekend, former Exclusive Books CEO Benjamin Trisk is willing to re-engineer Edcon’s flailing CNA brand.
This follows his recent departure from the book retailer after a breakdown with the company’s shareholders. Hired in 2013, he spent the past five years in charge of a turn-around strategy after the store had experienced a series of failures.
Trisk told Business Times this week that he would only consider joining CNA if approached. “I would probably look at it very seriously. However, I must make it clear that I have not been approached.”
“But I’m not leaping into anything. I’ve had one approach from overseas which I can’t talk about at the moment. Locally I’ve also had approaches, but I think it’s quite early in the cycle,” he said.
CNA: Edcon’s white elephant
CNA has long been in the doldrums. In 1997, Wooltru bought CNA out of CNA-Gallo for R447-million.
A turnaround plan was implemented but failed dismally and in 2001, the company was sold to Gordon Kay & Associates for R192-million. By the following year, CNA was in liquidation.
Edcon, under the leadership of US retailer Steve Ross, snapped up CNA for R141-million, but 16 years later the retail brand continues to make losses.
CNA is part of Edcon’s speciality division, that once housed Legit, Edgars Shoe Gallery and the group’s non-profitable brands.
According to The Sunday Times, Chris Gilmour, an investment analyst, said: “They tried hard, but couldn’t win. They [Edcon] are thinking about getting out anyway, they can’t keep on putting more money into it. [CNA] is a pile of unadulterated rubbish that should have died 20 years ago.”
Gilmour said South Africa didn’t have a high-street retail culture anymore, making it difficult for brands such as CNA to have a market “and as a result the model is completely shot”.
Meanwhile, Alec Abraham, a senior equity analyst at Sasfin Wealth, told The Sunday Times: “I don’t know what they [CNA] are and I don’t know if they know what they are.”
He said there was a likelihood that CNA would end up in a similar situation to that of Musica, where “they can’t find a buyer because no one wants to buy this unfit business and they are running with the idea as long as they are not losing money on it. And if they are going to be the last man standing, then so be it.”
An Edcon spokesperson has confirmed that CNA is not for sale.
According to Edcon’s latest financial results, for the 13 weeks to December 23 last year, CNA has 196 stores, including 11 Samsung stores, positioning its offering in electronics, stationery, gaming and the limited book retail offering.
Original article by Palesa Vuyolwethu Tshandu for The Sunday Times
According to a recent article by Business Day, Edcon is considering closing its flagship Edgars store in the Johannesburg CBD.
This will form part of the ailing retailer’s turnaround strategy, as the company determines whether the Edgars brand is still a viable one to CBD commuters.
Edcon CEO Grant Pattison told Business Day that part of the idea was to have Edgars located in regional malls where it could take advantage of the traffic density.
“We are probably going to end up with one store in the CBD and it’s likely to be Jet.”
The Johannesburg CBD is home to three Edcon stores: an Edgars department store, a Jet store and a Jet Mart.
The 89-year-old retailer opened its first Edgars store in Joubert Street, Johannesburg, and has grown to have more than 1 300 shops across Southern Africa with nearly 12-million customers.
Edcon first alluded to the downsizing of space in a recent quarterly statement and has already closed more than 200 stores.
“I am a cynic about whether retail is changing, but what is fundamentally changing is the retail customer,” Pattison said.
Edcon reported a 9.4% decline in group retail sales to R7.6-billion for the third quarter of 2018, which ended on December 23. Total group revenue declined 8% to R8.187-billion.
Edcon’s flagship store, Edgars, has been struggling to find its place among modern South African consumers, who are enjoying shopping at international stores like H&M and Zara.
Earlier this month the company reported a quarterly sales decline. According to an article published by the Sunday Times, Edcon decided a few years ago to go with more fashionable expensive assortments and they forgot about their heartland customer, which is at the very centre of the business.
“If they are not selling the merchandise they have in their stores then they have to change their strategy, and Edcon appears to have been through some major changes,” Andrew Jennings, former president of Saks Fifth Avenue, GM of Harrods and MD of Woolworths, and author of Almost is Not Good Enough – How to Win or Lose in Retail, is quoted as saying.
Over the past decade, Edcon has struggled with leadership as its three CEOs have made some notable strategic blunders. The company has been in operation for 89 years. As of March 2017, Edgars had 1 343 stores including 187 stores in eight countries outside of South Africa.
Edcon has been selling off stores – the Legit store chains, with the exception of those operating in Botswana, were sold effective 29 January 2017 and the Edgars Shoe Gallery store chains closed during the 2017 financial year.
In addition, Edcon has closed 253 stores – but this has left the retailer with too many leases in malls and no brands to fill the empty space
According to The Sunday Times, the store has been trying to find a solution to this empty floor space and as such has introduced a coffee shop into its Eastgate Mall store called Made Café . This serves both to use up empty space and to act as a drawcard to the store, following the modern consumer trends.
Unlisted retail group Edcon reported on Tuesday that its net profit improved by 3.8% to R2bn, although sales declined in the September quarter from the matching period in 2016.
Edcon said its overall retail sales suffered from “fierce price competition through ongoing promotions by competitors” and its decision to close unprofitable stores.
In its flagship Edgars clothing chain, sales declined 0.9% to R2.46bn during the three months to September 23. Sister clothing chain Jet’s retail sales declined 1% to R2.28bn.
Edcon’s “speciality” division, which houses news agency CNA and Edgars Shoe Gallery, reported a 41.5% decrease in sales to R463m because the comparative period included Legit, which was sold in January. Excluding Legit, the speciality division suffered an 11.4% decline in sales. CNA’s sales fell 12.1%.
“Our trading environment remains challenging as consumer demand is weak on the back of tight credit conditions, low growth in consumer disposable income, political uncertainty and restrictive fiscal policy,” Edcon CEO Bernie Brookes said.
“Despite this, it is pleasing that the group’s strategic transformation is delivering positive retail sales growth in certain merchandise categories, such as ladieswear in both Edgars and Jet, as well as cellular in Jet, while childrenswear, footwear, cosmetics and cellular within Edgars are also starting to show signs of change.”
By Robert Laing for Business Live
South Africa’s troubled retailer, Edcon Group, has said that it would appoint Grant Pattison, the former Massmart boss, as its new chief executive next February in a vote of confidence for home grown talent.
South African-born Pattison has been tasked with implementing the group’s strategy, revitalising CNA, growing Edcon’s cellular business and growing the company in South Africa and the rest of the African continent.
Speaking to journalists at the company’s headquarters in Johannesburg yesterday, Pattison said he planned to step up to the challenge of restoring the Edcon’s image.
“The challenge of restoring Edcon to its former glory is both a privilege and a massive challenge,” he said.
Edcon has lost significant market share from local and international competitors, and was trying to claw back its diminishing customer base.
Pattison said he was not fazed by challenges in the retail sector.
“I am a professional chief executive and someone has to step and help the company through these times,” Pattison said.
Pattison, who is currently a non-executive director, will replace Bernie Brookes. Brookes will step down following a two-year tenure at Edcon.
Brookes, the former managing director of the Myer Group, is set to extend his contract, which was due to run until January next year.
To ensure a smooth transition, Pattison will be appointed as Edcon’s chief executive and chief operations officer designate on June 5, joining the executive management of the group and reporting to Brookes.
Brookes said that CNA had lost its path and the company would need to spend R100 million to revitalise the stores’ brand image.
“CNA fiddled in far too many categories. When you fiddle, you fail. We will take CNA back to its roots of being a stationery store. For example we were selling DVDs,” he said.
Brookes said that the company would eliminate the sale of items like toys at CNA.
“We will limit the sale of toys to peak periods like Christmas and Valentine’s Day,” he said.
Edcon is the largest clothing, footwear and general merchandise retailer in South Africa, completed by the sale of its Legit business for R637 million.
It operates more than 1400 stores with nine store formats and annual revenues of R25.2 billion.
The company said it had put the brakes on opening new stores and that there were 120 less stores this year compared with last year as part of the company’s plan to consolidate struggling operations.
“We have more space than any other retailer in South Africa. In some cases we have stores in the central business districts and we have stores in rural areas which are struggling because of the drought.
“We are planning to close struggling stores, and we will change labels in favour of more profitable ones,” he said.
Edcon, whose division includes Edgars, Boardmans, Red Square and mono-branded stores, has decided to exit international brands in favour of local brands.
By Dineo Faku for www.iol.co.za
Edcon returned to profit in the second quarter after debt repayment costs eased following the exit of US private equity firm Bain Capital, while the retailer cleared unwanted stock to boost sales over the busy festive period.
Net income for the three months through September was R163m, the Johannesburg-based owner of the Edgars and Jet chains said in an emailed statement on Tuesday. That compares with a R2.1bn loss a year earlier.
Cash sales increased 0.8%, although a slump in purchases on credit meant total revenue declined 6.8%.
“Within each of the Edgars, Jet and Specialty divisions, there is significant momentum underway of internal change,” CEO Bernie Brookes says. “While we still have some way to go, progress is pleasing.”
Under Brookes, Edcon is battling to turn around the business after Bain’s exit in September eased the debt burden from the US firm’s 2007 takeover to R6bn from R26.7bn.
The company needs to boost sales and profit at the same time as South African consumer confidence is struggling amid the weakest economic growth since 2009 and unemployment of 27%.
“The difficult consumer environment, led largely by challenging macro-economic factors, continued to weigh on the group’s share of profits,” Brookes says.
“To improve the aged stock profile ahead of the third quarter, we undertook increased and focused clearance during the quarter, specifically in the Edgars division.”
Franklin Templeton, a fund based in San Mateo, California, became Edcon’s single largest shareholder after Bain’s exit, Brookes says.
By John Bowker for Fin24
There’s JM Coetzee’s Disgrace depressing, and then there’s the CNA. You’d be hard-pressed to find a store that evokes starker feelings of gloom and desperation than Edcon’s centenarian stationery and bookshop chain.
Back in 1896 when it first opened its doors, a decade after Jo’burg was founded, CNA was probably on trend. It was WHSmith for the tip of Africa — all papers and periodicals, pots of ink and slide rules.
Today, it’s another story.
Spend five minutes in any of its 198 stores, amid its shemozzle of harsh strip-lighting, deeply impractical white floor tiles and rows of ring binders and packets of elastic bands, and you’ll reassess your life choices. Who, you wonder, is the market for their endless range of serial killer paperbacks and scrapbooking paper?
Customers clearly feel the same way, which is probably why CNA’s sales plunged 7.2% for its financial year to March, after falling 5.6% the year before.
It’s still making a profit, but the graph is only going one way.
Perhaps underplaying the problem, owners Edcon said tersely in a presentation last month that the business “requires new strategy and engineering”. The problem is, the modern CNA is an anachronism.
Bar an impressive stock of Mills & Boon (One Week With the French Tycoon, anyone?), there isn’t much you could need from CNA that you couldn’t find elsewhere.
There’s Exclusive Books for books, Incredible Connection for gadgets, Waltons for the boring stationery and Typo for the cool stationery.
And, most pertinently, there’s the Internet and takealot.com for all of the above.
Even in the 1990s, CNA was a relatively pleasing place to spend your money.
Its Formica shelves (very en vogue at the time) were lined with paper dolls and imported magazines, wrapping paper and the indisputable crack of newsagents — those collectable series that came out every fortnight.
Their “back to school” campaigns were a winner. The scramble to secure rolls of brown paper, exam pads and Space Cases, if you are my vintage, from your local store must be etched in the minds of generations of customers.
But 20 years on, nothing has changed. Today, those shelves seemed jaded. The stock is undercurated and underwhelming.
Edcon CEO Bernie Brookes, who aptly describes CNA as “broken”, has big plans to fix the company.
Quite how remains to be seen.
What’s clear is that in 2016, it’s going to take a whole lot more than sticky tape and overpriced get-well-soon cards to mend this damaged business.
By Sarah Buitendach for Financial Mail