Edcon urged to cut CNA and Boardmans to suit needs

Image source: BDlive

Responding to media reports that Edcon has asked its bondholders for a deferral in interest repayments, analysts said on Tuesday that Edcon should start trimming some of its noncore retail brands.

Edcon said on Tuesday that it was still in talks with bondholders, and would announce its plans in due course. This was after Bloomberg reported that a postponement in interest payments to bondholders would give the group’s owner, Bain Capital Partners, time to explore options including the sale of all or some of the business.

The country’s leading clothing and footwear retailer, which owns Edgars, Red Square, Legit, Jet, CNA, Jet Mart, and Boardmans, was loaded with debt when Bain bought Edcon in 2007.

Abri du Plessis, a portfolio manager at Gryphon Asset Management, said if Edcon decided to sell some brands, it should sell Boardmans or CNA.

"I think it is better if they just simplify their business and get rid of noncore operations," Du Plessis said, adding that neither brand fitted in with the group’s core apparel business.

Boardmans, which sells homeware, has 33 outlets. Stationery and book retailer CNA operates 193 stores across the country.

However, CNA and Boardmans may not be attractive buys.

Du Plessis said Edcon would probably get a buyer for Boardmans rather than CNA, which faced a lot of competition from other retailers.

Ron Klipin, a portfolio manager at Cratos Wealth, said: "Depending on price, the noncore division (CNA and Boardmans) should be the first to be given the chop, because these do not fit into the core apparel business."

Klipin added that getting rid of a part or all of the discount stores would be another option.

"Pricing for any of these divisions would be a difficult task seeing that consumers are also under pressure. Especially because offerings from a store such as Boardmans are seen as (a) luxury.

"On the other hand, CNA is facing competition from other retailers and the niche they had in this market is no longer that viable," Klipin said.

There are still opportunities for the group’s flagship brand, Edgars, which has more than 200 stores.

Du Plessis said Edgars could still steal some market share from Mr Price and Woolworths, because these competitors had lost focus on basic clothing items.

But for now, Edcon needed investors in at least 75% of the $950m of notes due in March 2018 to support the moratorium to make it binding on all bondholders, Bloomberg reported, quoting two people familiar with the matter who declined to be named.