Stuttafords runs out of options

Stuttafords faces an uncertain future after it closed three of its nine department stores this week, and it is not clear how it will operate the rest of its business sustainably without further investment.

The retailer has emerged from a round of aggressive promotions, leaving some stores nearly depleted of certain stock. The group did this to raise money to buy merchandise for winter.

This week the stores in the Rosebank Mall in Johannesburg, Clearwater Mall in Roodepoort and Canal Walk in Cape Town were closed, and there could be more closures. Stuttafords also closed two of its 16 Bobbi Brown stores.

Consumers seeking specialisation have increasingly migrated to buying online.

The business placed itself in voluntary business rescue on October 28 last year, as the directors recognised they were unlikely to be able to repay debts when they fell due in the following six months. Some creditors have said the closures should have occurred sooner, as the business had been in a dire position, but management disagrees.

The three centres in which Stuttafords has closed stores are owned by Hyprop, in which Ellerine Bros has a stake. Reports have suggested that Ellerines wants Stuttafords replaced by bigger international brands and the demise of Stuttafords is the only way to get out of long-term leases.

Meetings began in August last year to avert a business rescue as the relationship between shareholders and suppliers grew increasingly acrimonious. In March, about 85% of creditors, including Nedbank, voted for a business plan — which was not implemented — in which Ellerines would inject R12-million for a 76% stake in Stuttafords. Stuttafords CEO Robert Amoils was to step down and Ellerines was to find a retail expert to run the business until it found a buyer.

Ellerines was to act as a default sponsor should a new buyer not be found. But Ellerine Bros walked away from this commitment as it does not believe Stuttafords can be rescued, and does not have faith in Stuttafords management.

It said it had received insufficient financial information when it came to the rescue.

Ellerines owns a 26.4% stake, while venture capitalist Vestacor owns just more than 21%.

A revised rescue plan was circulated on Friday last week by business rescue practitioners, and if no objections are received by May 26 the amended plan will be adopted, allowing for the winding down of the company.

The plan estimates that concurrent creditors would get 3c in the rand, as opposed to nothing if the company were liquidated. They had already approved an estimated 75% write-off on their debt . According to the rescue plan the creditors are owed R836-million and include Nedbank, Estée Lauder, L'Oréal, Tommy Hilfiger, Polo and Levi Strauss.

"Any further store closures are dependent entirely on the support we receive from suppliers and landlords," said Amoils. Management and the business rescue practitioners were doing everything to avoid liquidation, he said.

The group, including the Namibian and Botswana subsidiaries, has about 950 staff.

Gareth Cremen, a partner at Hogan Lovells, which represents some of the creditors, said: "They say winding down is cheaper than liquidation, but a liquidation would be far more suitable so it will allow for an inquiry into the affairs of the company."