Tag: Edgars

Edcon may run out of money in 2019

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.

Source: IOL 

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”.

Debt

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.

CNA and Edgars stores to sport new look

By Lauren Hartzenberg for BizCommunity 

A rebrand is on the cards for CNA and Edgars stores as part of Edcon’s turnaround strategy to win back shoppers, reported Business Day on Friday.

CNA and Edgars stores to sport new lookFormer Massmart CEO Grant Pattison replaced Bernie Brookes as Edcon chief executive at the start of this year, and has since been focusing on reconfiguring the retail group’s offerings.

While Edgars and Jet had continued to trade positively in ladieswear and footwear according to its latest quarterly performance report, overall Edcon reported a 9.4% drop in retail sales for the third quarter while total group revenues decreased 8% to R8.2bn owing to a decrease in retail sales of R795m compared with the prior period.

The departmental store retailer has been battling to maintain market share in South Africa’s increasingly competitive retail environment, with European retailers like H&M entering the local market and expanding its footprint at a rapid rate.

Despite challenges, Pattinson has stated that the company is recommitting to the departmental store model, explaining that the model “offers convenience”.

Edgars is in the process of a logo facelift, which would complement the new store layouts and the roll-out of its next-generation stores, CEO Mike Elliott told Business Day.

CNA will also be undergoing a rebrand and would be consolidating its focus on stationery, educational materials and arts and craft. “A new store layout would ensure customers could do self-service,” said CNA’s general manager, Julie Day.

Edcon may close flagship Edgars store

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.

Malls in crisis as Stuttafords shuts down

Stuttafords’ shutdown may be only the tip of the iceberg for mall owners, who are facing further tenant failures and store closures as consumer spending tightens. But it’s not necessarily all bad news.

The demise of Stuttafords and the looming closure of a number of Edcon stores will bite into the earnings of shopping mall owners, who increasingly face rising vacancies and falling rentals.

JSE-listed mall owner Hyprop Investments expects it will take six months to find new tenants for the 11,000m² of space left empty following last month’s closure of Stuttafords stores in three of its flagship shopping centres.

Hyprop CEO Pieter Prinsloo says it’s too early to say what the impact will be on the company’s bottom line.

“It will depend on how long the stores stand empty and what rental levels we can achieve on new leases.”’

However, he concedes that the Stuttafords store closures will negatively affect dividend payouts to shareholders for the year ending June 2018.

Hyprop is the JSE’s largest specialist retail-focused real estate investment trust (Reit), with a market cap of R30bn. It has in recent years consistently outperformed the sector, both in terms of income and capital growth.

In March, when the company reported results for the six months to December, Prinsloo said Hyprop was on track to achieve dividend growth of 12% for the full year ending June — well ahead of the 7% sector average. That level of growth appears unlikely to be repeated in the 2018 financial year.

Hyprop is already in talks with various retailers to fill the space vacated by Stuttafords. Prinsloo says international retailers, including Swedish fashion retailer H&M, and Zara, are still keen to expand their SA footprints. “Turkish fashion brand LC Waikiki is also interested in establishing a presence in SA.”’

The problem, says Prinsloo, is that it is likely to take six months to negotiate lease agreements with new tenants and fit out new stores. And there is a chance that Hyprop may have to let the vacant space at lower rentals than Stuttafords was paying. Says Prinsloo: “The reality is that trading conditions are tough, with retail sales under pressure across the board. So everyone wants to pay lower rentals.”

Though Stuttafords has paid its rent until the end of May, Hyprop will claim damages equal to the amount owed for the unexpired portion of the three leases. The Rosebank Mall lease was the longest and has four years remaining. But Prinsloo doesn’t expect to recover much. “Creditors are unlikely to get back more than 3c in the rand.”

Other JSE-listed mall owners that will be affected by Stuttafords store closures are sector heavyweight Growthpoint Properties and Liberty Two Degrees. The latter owns stakes in Gauteng megamalls Sandton City and Eastgate. The Stuttafords store in Growthpoint’s Brooklyn Mall in Pretoria shut its doors last month.

It’s not clear if and when its Sandton City and Eastgate stores will close. Liberty Two Degrees declined to comment on the issue.

Stuttafords’ shutdown may turn out to be only the tip of the iceberg for mall owners, who are facing further possible tenant failures and store closures. International fashion brands Mango and Nine West, which were brought to SA by House of Busby, closed their stand-alone stores in March. British retailer River Island, which has a presence in Rosebank Mall, Sandton City and Mall of Africa in Gauteng, Canal Walk in Cape Town, and elsewhere, exits SA this month.

Of particular concern are the looming store closures by the struggling Edcon group, the largest occupier of retail space in SA through its Edgars, Jet, Jet Mart, CNA and Boardmans brands.

Edcon CEO Bernie Brookes said last month the group plans to shut a number of stores when leases come up for renewal, in a bid to stem losses from falling sales and cannibalisation (when a new store lures customers away from an existing one in the same “catchment area”).

Though vacancies in the retail portfolios of larger property stocks are still relatively low at less than 3% typically of gross lettable space, vacancies are bound to tick up over the next 12 months.

Trading densities (turnover/m²), another key measure of retail performance, are already under pressure. Trading density growth in the mall portfolios of both Growthpoint and Hyprop slowed to the low single digits in the six months to December, from 7%-8% achieved 18-24 months ago.

Growthpoint head of retail Stephan le Roux says Edcon store closures will affect all mall owners, given how difficult it is becoming to replace tenants. “Everyone’s growth is flat or falling, so very few retailers are looking to expand in the current weak economy.”

To the (business) rescue
More financially distressed companies that have gone into business rescue since 2011 have been saved than have failed.
Le Roux believes there is also an increased risk of tenant failures among smaller, independent “mom and pop stores” as they often don’t have the financial resources to keep afloat amid continued pressure on retail sales.

The perfect storm has been created by developers’ and retailers’ overzealous expansion in recent years, amid dwindling consumer spending, says Le Roux. “Over the past decade the amount of new retail space added to the market grew at a much faster pace than retail sales. Until a year ago, it was mostly lower-and middle-income shoppers who were under strain. Now upper-income consumers are also tightening their belts as higher taxes and overall living costs erode disposable income.”

Property analysts say store closures by underperfoming retailers is not necessarily all bad news. Meago Asset Managers director Jay Padayatchi says Stuttafords closures could be a blessing in disguise as vacant space may be taken up by international retailers who could trade better and bring in more feet.

Stanlib head of listed property Keillen Ndlovu says the upside of tougher trading conditions is that SA landlords will be forced to improve the shopping experience for consumers. He says this is already happening in the US and UK, where mall owners have had no choice but to adapt to changing shopping patterns and the advent of online shopping.

In the US, he says, department stores seem to be a thing of the past. Landlords are converting big spaces into smaller, specialised outlets.

Ndlovu says globally the focus is increasingly shifting away from fashion/apparel to food, beverage and entertainment offerings. This has already delivered rental upside for large US-listed Reits such as Simon Property Group and General Growth Properties.

Ndlovu notes that SA retail landlords will, similarly, also have to become more innovative to stay ahead of the game. “There’s huge room for SA property owners to improve the tenant mix in local malls as well as to embrace new technology through apps, free WiFi and use of data analytics to better understand shoppers’ changing needs and preferences.”

By Joan Muller for www.businesslive.co.za

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