Against all odds, Edcon looks set to mark its 90th anniversary in September, brought back from the brink by last-minute financial life support from banks, landlords and the Public Investment Corporation (PIC).
The group was set to run out of cash at the end of February, but the latest recapitalisation injects R2.7bn into the country's largest nonfood retailer, its second in two years and third in total.
Edcon CEO Grant Pattison said he believed the group had a fighting chance "but it's not a slam dunk".
What sets this recapitalisation apart from those that came before is that it leaves the group debt-free, so earnings can go towards operations. Pattison said that in the first two recapitalisation deals the businesses underperformed in terms of the business plans.
Will a turnaround happen this time?
"I think there's a chance it will happen. It requires management to implement well and it requires the economy and consumer economy to stabilise.
"People are excited. They think Edgars and Jet are sleeping giants," he said.
Edcon was the first apparel retailer to introduce credit, but when it sold its credit book to Absa in 2012 for R10bn, it lost more than 1-million customers after the bank applied tighter lending criteria. This was after the leveraged buyout to Bain Capital in 2007 had effectively choked the group with debt.
In the latest rescue plan, investors wanted certainty the group was well on its way to recovery before they would inject money.
The group has a five-year plan covering property, costs and contracts and there is early evidence it's paying off.
CNA's sales, with 18% less space, are up 10%-15% on last year, and so far Edcon has made more of a profit in the past four months than in the same period in the year before.
Stock, staff, fixtures and fittings will be moved from downsized and closed stores to others outlets, but the staff complement will be retained at current levels.
Landlords had four options: close stores, retain them, relocate or shrink. Melrose Arch was the largest loss-making store from day one, and it's now closed. The Mall of Africa store has been reduced from two floors to one.
Landlords will hold about 5% of the retailer in exchange for amending the terms of rental contracts, improving stores and terminating leases.
What can consumers expect?
Shoppers can expect refreshed stores, "but there's no big bang coming", said Pattison. The group's private-label offering accounts for 55% of sales, and they're looking to grow this to 60% over three years.
"It's about needing to fix the fashion product and get service right. We've forgotten some of the retail disciplines," said Pattison.
It was too early to talk of a possible listing, he said, but the next target is to become cash self-sufficient and make a profit three to four years down the road.
Independent retail expert Syd Vianello said Edcon needed to get its product right. "To get it right he probably needs another year and a half for good results and another season to perfect it. It's not a quick fix."
Vianello said if all the metrics were sorted — such as attracting foot traffic, ensuring customers don't migrate from stores that are closed to other brands, and improving densities — the turnaround could happen.
"It's still a battle against time, but it's not a monetary problem. The one risk — running out of money — that's over for now. You're not going to be able to pass judgment for about a year."
Daniel King, an analyst at Avior Capital Markets, said the negative impact of vacancies and rental reductions would be more acutely felt among landlords, with a concentrated exposure to the retailer sector such as at Hyprop, Liberty 2 Degrees, Resilient, Rebosis, Vukile, Attacq and Accelerate.
"However, we are also concerned by the potential impact on the broader retail centre market." Competing retailers may become more emboldened to bargain aggressively when leases come up for renewal, "which could play out over the next few years".
Edcon's difficulties have historically allowed competing fashion retailers to grow despite weak economic growth through growing their market share. If growth does not recover materially from current levels, "Edcon's survival may well be at the expense of competitors going forward", said King.
Keillen Ndlovu, head of listed property funds at Stanlib, said the risk for the sector was that listed property distribution growth would decline by about 1% after factoring in rent reductions.
"As a result, we have revised down our distribution growth to 3% for the sector over the year," said Ndlovu.
Unions were supportive of the deal.
Etienne Vlok, national industrial policy officer at the Southern African Clothing and Textile Workers Union, said Edcon more than any other retailer bought locally made product and much of Edcon's sourcing is done in KwaZulu-Natal. Some towns in that region would have been badly hit if Edcon had gone under, such as Port Shepstone, Ladysmith and Isithebe.
Morne Wilken, CEO of Hyprop, one of Edcon's biggest landlords, said that given the potential impact on SA, he believed it was the most favourable outcome and reasonable transaction in terms of risk and reward, given the time constraint and involvement of all the stakeholders...