The July 2021 unrest, which wreaked havoc in Gauteng and KwaZulu-Natal, deepened the financial woes of family-owned Frame Leisure Trading, which owns Cross Trainer, Xkids and Xtrend, landing the group into business rescue.
The company said this, together with reduced consumer spending and a weak economy, brought the company to its knees, forcing it to seek business rescue.
In a sworn statement requesting the company be placed in business rescue, CEO Mark Frame said the group’s finances were hurt by the outbreak of Covid-19 and its key creditors changing payment terms from 90 days to 60 days, and in some instances to 30 days.
He said this led to a situation where the company, which operates about 70 stores across the country, had reduced working capital, leading it to being unable to manage its operational expenses effectively.
“The financial situation was further exacerbated when key suppliers invalidated previously agreed-upon rebates and opened ‘mono brands’, which directly competed with Frame Leisure Trading. Brands also changed their strategy to a direct-to-consumer model, which reduced the amount of product and certain styles to retailers like Frame Leisure Trading. This strategic shift by suppliers eroded the company’s market share and profitability,” Frame said.
“The mass lootings in 2021 had a devastating impact on Frame Leisure Trading, affecting 50 stores and leading to closure of six. The compensation from Sasria was insufficient to cover the losses, and the company received no relief or redemption from landlords, further deepening its financial woes.”
The unrest that took place in KwaZulu-Natal and Gauteng in July 2022 claimed more than 300 lives and saw the economy bleed in excess of R50bn and countless jobs lost as the two economic hubs saw unprecedented looting and destruction to property.
The unrest was sparked by the jailing of former president Jacob Zuma.
Frame Leisure Trading has appointed George Nell and Gideon Slabbert as joint business rescue practitioners, who will go about trying to save the group, which employs about 400 people.
“The significant increase in exchange rates and interest rates in SA, coupled with a sharp decline in local spending power, added further pressure on Frame Leisure Trading. These economic challenges increased operational costs and reduced consumer demand, worsening the company’s financial distress,” Frame said.
“Long-standing lease agreements with annual escalations resulted in high leasing costs that were not necessarily market-related. These escalating leases further strained Frame Leisure Trading’s financial resources, making it difficult to sustain profitability.”
Family-owned businesses in the retail industry have come under significant pressure as consumers cut back on spending due to high interest rates that have eaten into disposable incomes.
In June, Business Day reported that the high capital costs of opening new stores in search of market share gains by West Pack Lifestyle had 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 that it was unlikely to pay its debts when they fell due for payment in the next six months.
West Pack 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, as its business-rescue practitioners.
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