Trade union federation Cosatu wants the Public Investment Corporation (PIC) to pressure landlords to provide a rental holiday for Edcon in a bid to save the retailer.
The PIC put up R1.2bn in cash, using Unemployment Insurance Fund (UIF) funds, to save Edcon at the end of 2018, reportedly at the strong urging of Cosatu. The PIC is also a big shareholder in property companies that own shopping malls.
Edcon CEO Grant Pattison told suppliers on Thursday that the fashion retailer could not pay them due to a 45% reduction in cash flow, after shoppers stayed away in the wake of the coronavirus pandemic.
Edgars and Jet stores will lose a minimum of R800m in sales during the lockdown with Pattison unsure if the shops will be able reopen.
Cosatu spokesperson Matthew Parks said as the PIC is a shareholder in many property companies that own malls, it has influence to negotiate further reduced rental rates for Edcon.
The PIC, Africa’s biggest asset manager, oversees just more than R2-trillion in assets under management — mostly on behalf of the Government Employees Pension Fund and other state employees. The PIC was recently under intense scrutiny in a judicial inquiry into its governance that also highlighted a number of investment deals in which the value of the capital invested was severely eroded.
The PIC has not yet responded to a request for comment on Edcon’s uncertain future and the PIC investment on Thursday.
Fashion sales
Parks said that Cosatu also wants banks to provide a payment holiday to consumers who have home, credit card and car loans to help them cope with constrained finances due to companies shutting during lockdown.
A payment holiday would allow shoppers to have cash to spend if and when Edcon reopens. Sales of fashion are expected to be minimal when the lockdown ends.
Pattison has vowed to do everything he can to save Edcon.
Etienne Vlok, industrial policy officer of the Southern African Clothing and Textile Workers’ Union (Sactwu), said the union will fight to save the retailer.
Sactwu represents textile factory workers who work for Edcon suppliers.
But analysts say many companies will be competing for bridging finance by banks after lockdown.
Evan Robins, listed property manager of Old Mutual Investment Group’s macro solutions boutique, said: “My base case is it’s game over for Edcon…. They have tried an array of options, but their balance sheet was just too weak and now being unable to pay suppliers puts those suppliers at risk too.”
Robins said banks have to be selective about where they put their capital.
“Other retailers will come under pressure now. Banks will likely choose to help those retailers that they think will have viable businesses after the pandemic than those that they [think] don’t.
Reduced reliance
“I have spoken with landlords, investors and other people in the industry over the past couple of years. They have made it clear that Edcon’s demise has taken time and they weren’t prepared to risk too much on its fairly unlikely survival,” Robins said.
He added that property companies have already reduced reliance on Edcon as a tenant.
“We have seen landlords decrease their exposure to Edcon, so if the retailer fell, a landlord may lose 2% of its income which is bad, but it isn’t a wipeout.”
Vlok said clothing suppliers have mostly diversified from only selling to Edcon because of its risky position.
“The impact of the possible closure of Edcon is significant, but may have less impact than a year-and-a-half ago.”
Edcon is not the only retailer who will delay paying clothing suppliers or cancel orders as sales dry up, he said. “We are expecting other retailers might have to do the same.”
Parks said the clothing industry has a firm social contract between the government, business and textile workers.
“We work hand in glove. It is how the bailout came about in the first place,” he said referring to the December 2018 rescue by landlords and the PIC that saved Edcon from collapse.
“If anything will save Edcon, it will be the social compact.”
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