Lockdown could bring Edcon to its knees
JOHANNESBURG - The country's coronavirus lockdown could likely bring Edcon, one of South Africa’s biggest clothing, and beauty retailers to its knees after it flagged it may not be able to pay its suppliers or honour its accounts as a result of the 21-day lockdown.
The 90-year-old retailer on Thursday projected that it would lose a further R800 million in turnover during the 21 days of lockdown, and said that it was now expecting a significant shortage of cash by the end of April.
The group, whose retail chains include Edgars, CNA and Jet, said that since the state of disaster two weeks ago, turnover had declined 45 percent year-on-year. It said turnover for March diooed R400m below forecast as sales and cash suffered the Covid-19 profound impact on the South African economy.
An emotional Edcon chief executive Grant Pattison told suppliers in a conference call that the timing of the lockdown could not have been worse because March and November are traditionally months of constrained liquidity for the group.
Pattison said that Edcon only had sufficient liquidity to pay salaries which were deemed a priority and that the company was unable to honour any other accounts during the period on the missed sales targets in March and the expected drop in collections of debtor’s book.
Pattison said that the company would focus on a reopening plan once the lockdown was over, however, he doubted if it was possible.
“We have been heavily dependent on business support packages offered by the government, other agencies and funders. We can't really be sure for how long this lockdown will last. We will keep some parts of our call centre open during the lockdown as required by regulation,” said Pattison, adding that the board would have to make tough recommendations following the lockdown period including a reconsideration of business rescue.
“I am unable to make you any promises other than keep you updated of the plans that the board approves. For your own planning it would be prudent to consider that orders already placed with you may be cancelled.”
Pattison said Edcon acknowledged the devastating effect that its situation would have on the suppliers.
“We hope that we will all emerge from this and get an opportunity to repair the economic damage,” the teary Pattison said.
Edcon made headway last year after its lenders, the Public Investment Corporation (PIC) on behalf of the Unemployment fund and landlords recapitalised the company R2.7 billion in rent reductions and cash commitments. The PIC alone invested R1.2bn in Edcon. The investment was part of a joint effort by multiple stakeholders to keep the company afloat and prevent the loss of over 140 000 jobs across the value chain.
Following the recapitalisation, Edcon implemented a turnaround strategy aimed at selling non-core assets in an effort to stabilise the company.
“The Edcon turnaround strategy has, however, faced strong headwinds in terms of economic and political challenges, constrained consumer spending and competitive markets. In recent months we have had to deal with worsening trading conditions and now the unprecedented challenge that Covid-19 presents to our already constrained cash flow,” Pattison said.