Johannesburg - Stuttafords, once a top retailer in South Africa, said on Friday that it was seeking voluntary business rescue as it battles slowing consumer spending and fierce competition.
On Friday, the unlisted private company said in a statement: “Over the last two years, Stuttafords has embarked on an aggressive repositioning - consolidating stores by eliminating loss-making locations and investing in a narrower, more efficient brand and category assortment that resonates more effectively with the younger black market.”
Despite these improvements, the company had not been able to fully mitigate the effects of the tough economic climate and the impact of customer migration to lower-priced products.
Stuttafords chief executive Robert Amoils, says the “impact of the prevailing retail climate on the company’s turnovers and stock turns (as from January 2016) has been far more dramatic than we could ever have anticipated” .
Statistics SA announced this month that retail sales growth had slumped to a two-year low, with sales in August growing the slowest since a 0.9 percent contraction in June 2014, expanding 0.2 percent year on year in August. Sales of household goods showed the largest decline.
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Stuttafords, a high-end retailer of branded fashion, apparel, footwear, accessories and cosmetics has 12 department stores; 9 in South Africa, 1 in Namibia and 2 in Botswana in addition to its 16 stand-alone mono-brand stores trading under the likes of Banana Republic, Tommy Hilfiger and Ted Baker. It used to have GAP outlets, but these have since closed.
In 2009, Stuttafords was bought by a consortium led by Ellerine Brothers and Vestacor as it battled high debt and as South Africa tightened its credit lending criteria to customers.
Rival Edcon has narrowly avoided business rescue. Edcon was taken over by creditors earlier this year and in October, did a $1.5 billion debt-to-equity swop that entailed that Boston-based Bain Capital, Edcon owners since 2007, exiting the group to make way for creditors, including Franklin Templeton of the US.
Like, Edcon, Stuttafords has lost market share to local competitors, including Woolworths. The pressure on the retail space has intensified with the entry of lower-priced international brands such as H&M, Zara and Cotton On.
Stuttafords has tried to trim its costs and has consolidated head office infrastructures into one centralised location, invested in a comprehensive customer relationship management system and enhanced “the visual appeal of its stores”.
Stuttafords said it had entered a strategic partnership with RCS, the largest provider of outsourced retail credit programmes in South Africa in 2015 to offer accessible credit to its customers. However, takeup has been lower than expected, it says, as customer manage their other payments.
Amoils said business rescue would give the company space to streamline its operations and recapitalise its balance sheet
If adopted, a business rescue plan “will not only minimise stakeholder and supplier loses and uncertainties, but also enable a rapid and effective repositioning of the company’s operations and financial structure”, he said
He said, should a business rescue plan not be adopted, the worst-case scenario was liquidation.
Amoils said, given that a substantial amount of money that will be lost by stakeholders, including suppliers, on liquidation, it was logical and commercial that a business rescue plan be adopted.
“We strongly believe that a business rescue process is more appropriate for the Company’s stakeholders, including its suppliers and landlords, given the favourable outcome anticipated, in terms of recovery [relative to a liquidation] for all parties,” he said.
Main stakeholders who will have to vote on the plan include Nedbank, its shareholders and suppliers. The company, which has had 4 CEOs in the past decade, aims to defer presentation of the plan to stakeholders unto February, which it believes will allow it to capitalise on the festive season.
Its target group falls into living standards measures 6 to 10 and above, while the average customer age bracket is 35 to 45 and 60 percent of its customers are black. The average spend at the till per customer is R1 300. It is targeting younger, black, consumers in the 25 to 35 age range.