South African retailer Edcon battles with Rent

Edcon which owns Edgars Stores, Jet and CNA, is asking South Africa’s big shopping Mall Owners to reduce its rent in order for it to survive.

Clothing giant Edcon has asked owners of South African malls in which it operates for a 41% reduction in rent as its seeks to secure funding to stave off liquidation

Edcon has been grappling with an over-leveraged capital structure for several years, after troubles in its credit business in 2014 coincided with an economic slowdown and weak consumer spending at home.

The retailer owns brands like Edgars Stores, Jet and CNA. The flagship brand, Edgars, operates as a major anchor, driving business to smaller retailers at many malls across the country. The retailer also accounts for 10% of occupancy in SA’s major shopping malls.

Bain Capital, which bought the 80 year old company more than a decade ago in a highly leveraged deal, gave up equity control last year to creditors that included fund manger Franklin Templeton, local lenders Standard Bank and Absa.

Citing a letter addressed to Edcon’s landlords, the Sunday Times reported that Edcon was seeking a two-year 41 percent “rent holiday” in exchange for a 5 percent share in the business.

Edcon confirmed in a statement that it was it was in talks with some shopping mall owners about a proposal to reduce rents. 

CEO Grant Pattison said on Monday that the group was negotiating new leases with its landlords as a way to cut costs.

"Edcon is very close to announcing a complete recapitalisation of the business that should endure for the next few years. We cannot comment on the details as it is not yet finalised. Speculation and sensationalism will harm, not help the company," Pattison said in a statement.

Edcon, which vies for market share with TFG , Truworths and international chains such as Zara and H&M, is one the biggest names in South African retail.

The closure of the company would affect dividend payouts to shareholders for most South African listed property groups. 

Trading analyst Lester Davids said that landlords would likely find it difficult to fill the space currently occupied by Edcon stores around the country.

But Edcon going under would be even worse, he said.

The closure would put 140,000 jobs at risk and deal a massive psychological blow to the South African economy. This would make it ‘by far the biggest single job loss ever’ in SA, said economist Mike Schussler.

The possible closure of Edcon would not only threaten the jobs of its employees, but could seriously threaten some of the country’s commercial property groups.

Meanwhile. the South African Federation of Trade Unions (Saftu) says the country cannot afford any more job losses. Saftu's Zwelinzima Vavi has urged Edcon to do all it can to ensure that workers' jobs are safe.

Mall owners Liberty Two Degrees and Hyprop Investments emerged as the biggest losers from the closure of Stuttafords Stores. The 150-year-old department store officially closed its doors last year amid tough economic challenges.

Edcon is southern Africa’s largest non-food retailer. It has been in business for nearly 90 years and operate in stores across South Africa, Namibia, Botswana, Lesotho, Swaziland, Mozambique, Ghana, Zimbabwe and Zambia.