Edcon of South Africa Plans to Close Chains in Recovery Plan

(Bloomberg) -- Edcon Holdings Ltd.'s latest recovery plan includes closing chains including Red Square cosmetics and Boardmans homeware and attempting to lure their customers to its flagship Edgars clothing stores.

The move is the brainchild of new Chief Executive Officer Grant Pattison, who replaced Bernie Brookes at the helm of South Africa's biggest non-food retailer in February. The 89 year-old Johannesburg-based company has long struggled to stay afloat amid weak consumer spending and economic growth, and had to be taken over by banks and bondholders in 2016 to avoid collapse.

Under Pattison's strategy, Edcon will reduce its more than 1,300-store footprint and cut floor space by 17 percent over five years to boost profitability, the CEO said Wednesday. The retailer will focus its attention primarily on Edgars, which already sells ranges such as La Senza lingerie that have also been in standalone stores. Edcon will retain discount clothing specialist Jet and its CNA chain of stationery stores as well as Edgars.

“I do think the company can turn,” Pattison said. “The quicker we can do this, the better.”

Suffocating Debt

The urgency comes as Edcon's retail sales fell 9.4 percent in the three months through Dec. 23 and adjusted earnings before interest, taxes, depreciation and amortization slumped 25 percent. The company's owners include Franklin Templeton, Sanford C. Bernstein & Co. LLC and Harvard University Pension Fund, which took over Edcon when it was suffocating under foreign-currency debt used to finance its 2007 takeover by Boston-based Bain Capital Private Equity LP.

With more than 14,000 permanent employees, Edcon is a significant employer in a country where more than one in four people are out of work. The reduction in stores and floor space is not expected to result in significant job losses, as many positions can be moved to under-serviced outlets, Pattison said.

Net debt at the end of 2017 was 4.2 billion rand ($306 million), compared with 24.7 billion rand the previous year. Earlier attempts at reviving Edcon included increasing the workforce, slashing prices and introducing international brands. The latter policy was reversed by Brookes, who led the company for a little over two years.

Edcon said in March it was in discussions with creditors about refinancing debt to strengthen the balance sheet. The company has a liquidity facility and credit facilities maturing at the end of September.

Pattison is a former CEO of Massmart Holdings Ltd., and is best known for selling a majority stake in the general goods retailer to Wal-Mart Stores Inc. in 2011.

To contact the reporter on this story: Janice Kew in Johannesburg at jkew4@bloomberg.net

To contact the editors responsible for this story: Eric Pfanner at epfanner1@bloomberg.net, John Bowker, Liezel Hill

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