The R2.7bn deal that clothing retailer Edcon reached with its banks, landlords and the Public Investment Corporation (PIC) on Friday will free it up to push through with its survival plan, says CEO Grant Pattison.
The deal, which will free it of all interest-bearing debt, marked a second refinancing deal in two years for the owner of Edgars, Jet and CNA chains that has been battered by competition from global brands that entered SA in recent years.
The company employs about 40,000 people, 14,000 of whom are full-time.
Competitiveness
With that out of the way, it could now move on and seek to improve its competitiveness, Pattison said.
"We can now focus on fixing the business," Pattison, a former CEO of Massmart who was brought in to turn around the ailing retailer a year ago, said in an interview.
Private equity company Bain Capital, which acquired Edcon in 2007, just before the outbreak of the global financial crisis, ceded control of the company to its creditors three years ago.
They converted R26.7bn owed to them into equity.
Bain borrowed R25bn to buy out Edcon, loading that debt to the company, a burden it has struggled with ever since.
The scale of Edcon’s latest problems came to light when the company wrote to its landlords in December asking them for a two-year "rent holiday" of 41% for all its stores, in exchange for a 5% stake.
The restructuring will see its banks, several of its landlords and the PIC — which manages more than R2-trillion in assets mainly on behalf of the Government Employees Pension Fund — become shareholders.
Pattison said now that Edcon had been refinanced, it could focus on its restructuring, which would see it cut its retail space and the number of its stores by about a third over the next
two years. The hope was that the space reduction and its move to sell more profitable ranges of clothing would lay the foundation for its turnaround, Pattison said.
He said the group had already made some progress, having reduced the number of the smaller stores it operates. That has seen the number of stores drop by 150 to 1,350 over the past 12 months.
Pattison said while Edcon was going to reduce its headcount, there were no plans for large-scale retrenchments. As many of its stores had too few employees, the plan was to move its staff to other outlets when stores were shut down.
He said the move away from selling branded imported clothing to sourcing the bulk
of its products from local producers was part of its
business plan which would increase its profitability.
Investment analyst Chris Gilmour said that although Pattison was a "canny operator" it would not be easy to turn the group around.
Management had to come up with creative approaches when it came to taking on local competitors such as Mr Price and recent international arrivals such as Spanish-owned Zara, Swedish retailer H&M, and the Australian-based Cotton On.
"People have been taking market share from them with impunity," Gilmour said.
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