No comfort for credit model as Ellerines falls

Business doyen Eric Ellerine, who opened the doors of the first Ellerines branch in Germiston, east of Joburg, in July 1950 as a 16-year-old high school dropout, has brushed off the collapse of the group that still bears his name.

"I never met the guys who [are running] it - I had no financial involvement," he said.

Ellerines listed in 1969 and the two brothers who founded it - Eric and Syd - quit the company 14 years ago and sold their shares soon after the Competition Tribunal sank Ellerines' ambitious plan to merge with rival JD Group.

The two companies have gone different ways: Ellerines was bought for R9.9-billion by African Bank, a deal that probably felled the bank, and JD Group was bought by Markus Jooste's Steinhoff.

Two months ago, Jooste described Ellerines' collapse as "very sad", telling Die Burger that "Eric Ellerine taught me what I know about the furniture industry".

Ellerines' first sale in that Germiston store was said to have been a credit transaction, but the business model of selling furniture to the poor on pricey credit has been severely tested in the past few years. This is clear from the fact that in the 11 months to September, Ellerines posted a R2-billion loss.

On Monday this week, at Sandton's Hilton hotel, creditors voted resoundingly to accept a business rescue plan to save certain stores, which entails flogging some stores to former rivals of Ellerines. About 170 people who were owed money by Ellerines voted 99% in favour of the plan, which means that they are likely to get back at least 30c out of every R1 they were owed.

For banks and other creditors, this was a no brainer: had Ellerines been liquidated, they would have got only between 0c and 13c for every rand owed.

But divvying out the pieces is a complicated business, as Ellerines' one-time rivals scavenge for what they want.

Lewis was given the go-ahead to buy 63 of Ellerines' Beares stores for about R90-million and could save about 400 jobs in the process, Coricraft has bought some of the Dial-a-Bed stores and now it has emerged that Shoprite plans to buy about 200 stores, which it wants to rebrand as OK Furniture.

A non-furniture retailer is in discussions to take 250 stores, according to people close to the process, but it is not clear who this is. A Cape-based retailer is understood to want to buy a few Wetherlys stores.

"I have a chain I want to double in size and we would be interested at looking at sites that become available either through the landlords, or through Ellerines itself," said Aubrey Karp, MD of OK Furniture. Karp said he would like at least 200 stores, and would prefer them empty, but would ask Ellerines employees to fill jobs that become available. The stores would trade under OK Furniture as opposed to its up-market brand, House & Home.

OK Furniture and Lewis are the last two furniture companies that finance purchases in-house and not through a bank. "We always believed in that model and still do, even though credit is only 30% of our business. We believe in managing our book and destiny," said Karp.

Karp is in talks with landlords and has taken about 10 former Ellerines stores directly from landlords.

It is believed Ellerines' business rescue practitioners had also received an indicative offer of about R400-million for the African subsidiaries, which would save about 1000 jobs.

But although some jobs will be saved, it is still a grim story for staff. About three-quarters of Ellerines' 6500 employees have already chosen voluntary separation agreements.