The plan to save struggling retailer Edcon rests equally on securing a new investor, and reaching an agreement with the retailer’s landlords and lenders, Edcon group chief executive Grant Pattison said on Thursday
“The current deal is unsustainable if they don’t all come on board,” he said. Pattison was speaking at the launch of a Johannesburg inner city regeneration project, that will see its Edgars CBD store at 55 Pritchard street revamped during the construction of a new mall by property firm SA Corporate Real Estate.
The retailer — which owns Jet, CNA and Edgars — is in the process of a major restructuring and recapitalisation effort to keep its doors open. The Public Investment Corporation (PIC) is among the investors it has approached for funding, Pattison confirmed. The PIC manages around R2-trillion in assets on behalf of entities like the Government Employees Pension Fund.
Edcon needs roughly R3-billion for its recapitalisation plan to succeed, though how much of this money will come from a new investor — such as the state owned asset manager — is not clear.
The company has also written to its landlords seeking steep rental reductions in exchange for equity in the business, according to a December report in the Sunday Times.
Pattison declined to give specifics of any discussions around the restructuring, except to say that Edcon was meeting with stakeholders, and that he remained “very encouraged”.
Edcon accounts for around 10% of shopping centre space, according to the South Africa Property Owners Association (SAPOA), and there is concern that its closure would have a negative effect on the retail property sector.
As part of its restructuring efforts Edcon has over the past 18-months closed around 115 of its stores across the country, amounting to roughly 7% of its floor space.
The company could not be fixed without shrinking Pattison told journalists, but it had to be done in a way that allowed it to meet its commitments to not retrench staff. The process also had to give the property industry “time to adjust”.
The possibility of rising mall vacancies notwithstanding, SAPOA has cautioned against the perception of special treatment for Edcon, as it may lead to other tenants seeking similar concessions.
But Pattison was confident that any discussions with landlords would remain within the bounds of competition law, and in the best interests of customers.
He countered that any argument that all retailers be treated equally by landlords, was in itself uncompetitive, as each land lord “reaches an agreement with a retailer that is on commercial terms for them”
Saving jobs central to Edcon recapitalisation
At the heart of its efforts to stay afloat is the impact a potential failure of Edcon would have on employment.
“I am here, really, to preserve as many of the jobs as possible,” said Pattison. “There happens to be a good alignment between preserving jobs, the business, the brands and our effect on the supply chain”
Edcon employs an estimated 30 000 people, but the Southern African Clothing and Textile Workers’ Union (Sactwu) has warned that the fallout of its possible closure would be felt across the wider clothing and textiles manufacturing industry. The company is the largest buyer of locally produced clothing according to a recent survey done by the union.
Although a number of stores has closed last year Edgars chief executive Mike Elliot said it had been able to accommodate 98% of their employees at other locations.
As part of its commitment to preserving jobs, there would be no job losses stemming from the temporary closure of the Pritchard Street store during construction. All staff would be accommodated at other Edcon outlets during this time.
Despite the threat of job losses, debate has raged over whether Edcon should be thrown a lifeline — particularly by the PIC. Saddled with debt since it was delisted in a private equity deal by Bain Capital over a decade ago, it has struggled to stave off local and international competitors in a rapidly changing retail market. Its circumstances have not been helped by an ailing economic growth and consumers who have come under increasing financial pressure.