The high capital costs of opening new stores in search of market share gains by West Pack Lifestyle has put the company in dire straits, resorting to voluntary business rescue processes to keep the group afloat and save more than 1,000 jobs.
The retailer, which has 52 stores across SA, Lesotho, eSwatini and Namibia, said in its business rescue application it was unlikely to pay its debts when they fall due for payment in the next six months.
Over the past four years the company has been on an aggressive new-store opening programme, which it now admits put a strain on cash flow and led to high inventory levels due to an “incorrect product mix”.
“Financial systems and procedures that have not managed to mature and develop at the same speed as the group has grown and have thus not been able to support the complexities of such a large group of businesses, with various interdependencies,” CEO Jose Da Silva said in a sworn statement kick-starting the process.
“The company’s turnover has steadily declined over the past number of months. It has not been able to achieve its budgeted turnovers. The company has, as a consequence, been trading at a loss, which has put considerable pressure on its cash reserves.”
Da Silva also flagged SA’s low economic growth and load-shedding as some of the factors that led to the financial woes.
The company has appointed Matuson & Associates, whose most recent high-profile job was rescuing SAA.
Some of the options the business rescue practitioners (BRPs) will pursue in a bid to keep the company afloat are the sale of noncore assets, reduction of overhead expenses, streamlining the company’s procurement processes and aiming to getting the product mix right.
“A business rescue process will afford the company breathing space to allow its BRPs to explore the above initiatives and/or engage with new potential investors and/or purchasers, all with the view to restructuring the company to tender it solvent,” Da Silva said. “Failing that, to wind down its assets or business to achieve a better return from the company’s creditors and/or shareholders than would result from the immediate liquidation of the company.”
The company was founded by the Da Silva family in 1996. The family is the sole shareholder in the group. The lion’s share of the group’s stores are in Gauteng, while it also has a sizeable presence in Mpumalanga, Limpopo and KwaZulu-Natal.
The BRPs told the group’s creditors at the first meeting last week that the company had a valuable brand and market position, which could be preserved through a successful business rescue process. The success of the process would depend on, among other things, the availability of post-commencement finance, they said.
“We believe that the business rescue process will provide a reasonable prospect in achieving a better outcome for all stakeholders than an immediate liquidation,” they said.
The BRPs are expected to produce a business rescue plan by end-August.
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