Damon Buss, a fund manager at Electus Fund Managers, said the ruling by the tribunal came as profits for the country’s largest retailer had declined and it was trying to claw back lost market share.
Edcon, whose brands include Edgars, Jet and Boardmans, was required to refund consumers for unlawfully charging club fees between 2007 and 2016 and the National Credit Regulator (NCR) has yet to determine the number of customers to be refunded and the amount they would receive.
“Considering that Edcon’s 2016 financial year trading profit was R987 million and their operational performance has deteriorated in the first quarter of 2017, Edcon’s ability to pay the refund and administrative penalty is questionable,” Buss said.
He said Edcon’s club fees for the period had totalled R4.7 billion.
The NCR was likely to also impose an administrative fine on Edcon - the quantum of which was yet to be decided.
Buss said the ruling was good news for consumers as it meant consumers taking out credit from retailers would no longer be forced into these additional products including magazines, and therefore reducing the “cost” of the credit.
He said, however, it threatened Edcon’s plans to recover market share.
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“The ruling further damages Edcon’s brand at a time when they are trying to improve their image with the consumer to boost sales,” added Buss.
Christopher Gilmour, an investment analyst, agreed saying the ruling was a major setback for the retailer .
Bain Capital, the former owners, sold Edcon in a debt-to-equity deal last year which resulted in the reduction of Edcon’s gross debt to R6 billion from R26.7 billion.
Edcon said in a statement last week it was in the process of studying the judgment and would appeal the order.
“It is important to note that this recent judgement relates to the merits of the issue, and does not deal with any sanction, which will only be determined at a later date.
"This matter has therefore not been finalised, and we therefore can’t comment further on this particular issue,” the company said.
Edcon also said it had always contended that the club membership was a stand-alone product, which entitled voluntarily signed-up members to a number of benefits including preferential rates and savings with its partners.