South Africa’s Second Largest Clothing Retailer Is Being Torn Apart

South Africa’s economy was effectively shut for over a month by a national lockdown targeted at curbing the spread of the coronavirus. The impact of the lockdown on businesses and the country’s working population is significant and the situation seems to have taken its toll on one of South Africa’s leading clothing companies, Edcon Holding.

One of South Africa’s leading clothing retailers, Edcon Holding Ltd, is going through a purge that is both connected and unconnected to the COVID-19 pandemic.

The company’s Administrators, led by Piers Marsden and Lance Schapiro, are fast-tracking a plan to sell all or parts of the business to keep South Africa’s second-largest clothing retailer in operation amid the COVID-19 pandemic.

The Administrators came to the agreement after their effort to secure an investor was rendered futile. Willing buyers are welcomed in the exercise and they are to be timely to ensure the deal is done by the end of June 2020.

According to the rebuilding plan released on Tuesday, June 2020, remunerations have been paid through this month and remain the priority. Edcon has at least 18,000 employees with suppliers employing thousands more.

The Edgar and Jet chains owner filed for administration in the month of  May 2020 after losing approximately ZAR 2 Bn (USD 119 M) in sales as the outcome of South Africa’s lockdown. Clothing stores were among the affected businesses in South Africa, shut for almost 5 weeks from the month of April.

The company had been on its knee even before the pandemic and lockdown, they were able to secure ZAR 2.7 Bn from lenders, landlords, and public investment corporations in the 2019 rebuilding plan that released all interest-bearing debt.

The impact of the sale would lead to more than 10,000 people employed according to Edcon retail. In a meeting held, the administrators said “the proposed plan will lead to an efficient rescue of the company and will balance the rights and interest of all stakeholders.”

South Africa’s economy was already in a tough position before the pandemic’s arrival, Hence, cutting down the spending spree of many South Africans.

The combination of public sector debt, particularly among major state-owned enterprises, ongoing load-shedding that inhibits productivity of major economic sectors such as mining and manufacturing, and an already-low growth rate, have created a precarious situation that demanded urgent remedies.

This is not the time for complacency. Boards must review their business plans, business models, and business continuity strategies. COVID-19 is not an event with a defined beginning or end, it’s likely to remain an ongoing threat and require different responses at different times. For Edcon to sail through this tough position, they must work in order to stay afloat.

Organizations must look at what will ensure their financial sustainability during these periods of uncertainty. Those that adopt a wait-and-see attitude or assume that the crisis will resolve itself are in the biggest danger.

The epidemic demands direct and clear plans. At the least, organizations must develop 12-18-month plans to navigate the near future of the crisis.

According to the administrators, they decided to sell after failing to find a willing investor in the business. A successful handover of ownership is expected to save some Edcon jobs.

Featured Image Courtesy: Reuters