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Home » Edcon teeters on brink of collapse as coronavirus hits sales

Edcon teeters on brink of collapse as coronavirus hits sales

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Edcon says it lost R400-million in the two weeks prior to lockdown and expects to lose R800-million more during the 21-day lockdown.

The giant Edcon group, which owns the Edgars and Jet retail brands, is on the brink of business rescue and possible collapse as the state of national disaster and subsequent lockdown dries up the cash flow of the already troubled business.

CEO Grant Pattison told suppliers late last week that there was only enough money to pay salaries in March and creditors would therefore have to wait to be paid. 

He said March was always a difficult month for the company’s cash flow and this had been exacerbated by a 45% drop in sales as consumers began cutting back on non-essential purchases in the two weeks prior to the lockdown being announced.

Pattison estimated that R400 million had already been lost and a further R800 million could be lost during lockdown.

Edcon also expects a rise in customer bad debt due to the economic fallout of the coronavirus pandemic. 

Post-lockdown reopening strategy being planned – but may be unsuccessful

Edcon management will this week begin focusing on a reopening strategy for the post-lockdown period, but Pattison is on record as saying that he was unsure if this would even be possible, given the group’s long-standing woes and the general state of the economy.

“We will be heavily dependent on business support packages offered by government and other agencies and funders,” said Pattison.

According to Business Day, he noted that while the company was counting on government support, everything was happening so fast that the government also needed “breathing room” to work out how to kick-start the economy when the lockdown ended.  

Business rescue for Edcon may be on the cards once lockdown ends

Suppliers were also warned that business rescue could be on the cards once lockdown ends.

Business rescue is a procedure aimed at rehabilitating a financially distressed company and would typically involve the restructuring of the business and its finances and processes. Should this be unsuccessful, liquidation will usually follow.

“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 told suppliers. 

In an interview with Fin 24, Evan Robins of the Old Mutual Investment Group said Edcon was the weakest of the retailers and had been on life support for a long time.

“It had no safety net because it was in financial difficulty for a long time – a bit like SAA [South African Airways] in a way. When it was ‘saved’, everyone wondered how long it would last.”

In 2019, Edcon received R2.7 billion from the Public Investment Corporation and other lenders. It was also given a rent reduction by landlords in return for equity.

Source: The South African Read More

 

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