Three big South African shopping brands in deep trouble
Three big South African retailers, Petzone, AutoZone, and West Pack, are in business rescue and face an uncertain future.
This month, many South African car lovers were surprised to learn that AutoZone entered business rescue proceedings after landing in financial trouble.
AutoZone is one of South Africa’s top automotive parts retailers and wholesalers, with over 200 shops nationwide.
The AutoZone business rescue announcement followed news that Petzone and West Pack were in financial distress and entered business rescue.
Petzone and West Pack have already started closing distressed shops as part of the business rescue proceedings.
These closures were quick, upsetting many shoppers who loved and trusted these retail brands for their products.
Bela-Bela residents, for example, expressed unhappiness when the West Pack and Petzone stores in Bela Mall shut down unexpectedly.
Although Petzone, AutoZone, and West Pack are the most recent announcements, they are not the only well-known businesses which have fallen on hard times.
Pick n Pay, one of South Africa’s largest and best-known retailers, has become technically insolvent and is raising capital to stay afloat.
The retailer has launched a rights offer to raise R4 billion from existing shareholders and will list Boxer separately on the JSE.
The Boxer initial public offering (IPO), which is set for later in the year, is expected to raise between R6 billion and R8 billion.
Pick n Pay CEO Sean Summers has also revealed that 112 Pick n Pay stores will be closed or converted to Boxer franchised stores.
These interventions are needed to strengthen Pick n Pay’s balance sheet by reducing its unsustainable debt burden.
Another strong South African brand, Ellies, entered business rescue proceedings in January 2024.
Its financial situation was so dire that its business rescue practitioner said the company could not be saved, and they placed it into liquidation.
Some consolation is that SMD Technologies announced that it had acquired the Ellies electrical brand and intellectual property.
SMD said the sale of the Ellies electrical brand would ensure that the trusted name remains available to its loyal customers.
SMD Technologies highlighted that it only acquired the Ellies brand and intellectual property, not the operating units.
Most of these companies blamed the challenging South African business environment for their struggles.
They highlighted that poor economic growth, load-shedding, high interest rates, and high unemployment hurt their businesses.
However, some, like West Pack, admitted that poor business decisions and taking on too much debt also played a role.
The sections below provide an overview of the companies currently in business rescue and what to expect.
West Pack
In May 2024, West Pack Lifestyle entered voluntary business rescue proceedings. It includes West Pack Lifestyle, West Pack Lifestyle Distribution Centre, and West Pack Franchise.
Other retail brands affected by the business rescue process are Café Estreito, Café Estreito Franchise, and Beija Flor Investments.
The company was financially distressed and was unlikely to pay its debts when they became due over the next six months.
West Pack said there was a reasonable prospect of the company being saved and is executing initiatives to restructure the business and drive its turnaround.
These initiatives include exploring offers to acquire some of West Pack’s assets or the full business.
It also considers a corporate finance transaction and selling non-core assets to improve its financial position.
Petzone
On 15 May 2024, Petzone and Petzone Franchise were placed under business rescue. Petzone has 21 stores and employs 104 staff members. Petzone Franchise has 34 stores.
Like its holding company, West Pack, Petzone is in financial distress and will not be able to pay its debt when it is due.
They have already closed non-performing stores and started discussions and processes to sell non-core assets.
The business rescue plan, which was set to be published on 24 June, has been delayed until 30 August.
AutoZone
AutoZone is the largest privately owned automotive parts retailer and wholesaler in Southern Africa with a presence in South Africa, Namibia, Swaziland, and Botswana
The company has 214 wholly-owned retail branches and 33 member-owned franchise branches.
AutoZone said its financial distress dates back to 2014, following a private equity transaction funded by debt.
AutoZone’s performance did not meet expectations, and it faced increasingly burdensome debt service obligations.
It was forced to divert cash from operations to meet funding needs, and by 2021, it had fallen into a cycle of negative operating leverage.
The company is confident it can recover, given its strong national brand and branded products in South Africa.
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