Edgars needs buyers to make binding offers by the end of June to prevent the start of wind-up proceedings, putting at risk the future of a South African clothing chain that has traded for almost a century.
Administrators for parent Edcon Holdings Ltd. put the retailer up for sale alongside sister companies Jet and Thank U after measures to contain the coronavirus cut off sources of revenue.
Fifteen parties have expressed interest in one or other of the companies, although it remains to be seen how many will follow through on their proposals.
The sale process is the culmination of years of struggle at Edgars, which was founded in central Johannesburg in 1929 and sells clothes, shoes and cosmetics from just over 200 stores.
As part of Edcon, Edgars was included in an ill-fated buyout by U.S. private equity firm Bain Capital Private Equity LP in 2007, which burdened the parent company with debt just as the economy hit a downturn following the global financial crisis.
“It would make a good case study of how a darling can fall from grace,” said Rella Suskin, head of research at Benguela Global Fund Managers in Johannesburg.
“Cash flows have been used to service the interest burden, leaving little to be invested in maintaining the strength of the brand and keeping up with retail trends.”
Edgars, Jet and Thank U employ 17,292 permanent workers between them and hire about 5,000 more on a seasonal basis, according to a rescue plan compiled by a team led by business-recovery specialists Lance Schapiro and Piers Marsden.
Thousands more are dependent on the shops through supplier networks. South Africa’s jobless rate was at 29% even before the arrival of Covid-19 forced untold thousands out of work.
Goldman Sachs Group Inc. and hedge fund Apollo Global Asset Management Inc. are among secured creditors with claims of 3.73 billion rand ($218 million), while the list of suppliers and other service providers owed money runs to 100 pages.
Schapiro and Marsden initially tried to find a buyer or investor in the whole of Edcon, but none was forthcoming. That enables interested parties to target Jet, which has more outlets than Edgars and specializes in cheaper clothing, and Thank U, a finance unit and loyalty plan with about 14 million account holders.
“Jet is the business worth buying,” said Lulama Qongqo, an analyst at Mergence Investment Managers in Cape Town.
“Jet is affordable for the South African consumer and has the potential to be defensive considering that the kidswear category is generally more resilient than womenswear.”
Given the country’s entire retail sector has been hammered by various forms of coronavirus lockdowns, a private-equity firm may be the most likely saviour, she said.
Mr Price Group Ltd., a mid-range seller of clothing, sports and homeware that said last month it plans to sell shares to pursue growth opportunities, swiftly quashed speculation it was interested in Jet or Edgars.
“Over the past few years, Edcon has been assessed by several domestic retailers,” said Ntombiyombuso Zulu, a senior equity analyst at Johannesburg-based Sentio Capital.
“However, due to various concerns, including but not limited to I.T. systems and supply-chain issues, none of the retailers progressed with further discussions.”
Edcon was eventually handed over to creditors by Bain in 2017, before securing R2.7 billion from lenders, landlords and the state-owned Public Investment Corp. two years later.
Under Chief Executive Officer Grant Pattison, who previously ran Walmart Inc.-owned Massmart Holdings Ltd., the company was able to start a turnaround plan that included the sale of newsagent chain CNA.
But it didn’t take long for Edcon to wave the white flag after South African President Cyril Ramaphosa announced the start of a strict lockdown to contain the coronavirus. Pattison wrote to suppliers in late March saying the company may not be able to reopen when the initial three-week closure was due to end on 16 April.
That first phase of lockdown was extended to the end of the month, and retailers were only allowed to open in May for the sale of specific items, such as winter clothing. Edcon was handed over to administrators on 29 April, having lost R2 billion of sales up until that point.
“With shrinking disposable incomes the intensity at which retailers have been competing – across the board – over the last few years has only amplified,” said Suskin at Benguela. “The lockdown was just the last straw.”