Johannesburg – Although disappointed that Stuttafords is in a winding down process, chief executive Robert Amoils said he is glad the retailer could at least pay staff their full retirement packages.
Amoils spoke to Fin24 by phone on Monday, where he shared on the business rescue process which has eventually led to the winding down of the business.
In October 2016 the South African retailer, which was founded in 1858, announced it would apply for business rescue, following a dramatic downturn in sales and margins in February 2016. At the time, Amoils told Fin24 that liquidation would be avoided. The business had a total of R836m outstanding to creditors.
“The business rescue plan has been subjected to various adoptions and approvals over the course of the last seven months,” he said. In March 2017, amendments to the business rescue plan were adopted.
A bidding process was incorporated in which a third-party could bid to buy the business, or parts of the business, Amoils explained. However the bid process was not successful as bidders were not forthcoming to the conclusive offer, he said.
“Without a third party bidder, the default sponsor or bidder fell to the Ellerine brothers and the Ellerine brothers pulled out of their commitment to fund the business in the future.”
As a result at a vote last week creditors agreed to a wind down of the business.
Of these, 61% of independent creditors were in favour of the wind down, between R450m and R500m of the debt was owed to these creditors, Amoils explained.
“Over the course of the next few months, should a third party not come forward to buy one or more of the stores, it will mean that by July or August our entire store base would have closed,” said Amoils. So far four department stores have been closed and five still operate.
Amoils explained that in a case of liquidation; which would have arisen if the amendments of the business rescue plan were not adopted by creditors, the retrenchment packages paid to staff would be capped.
For Stuttafords 950 staff members, their years of long service would have “been for nothing”, said Amoils. But with the wind down, the full retrenchment packages will be payable.
“Full retrenchment packages will be paid out in full without any limitation,” he said.
“The reality is I am pleased that the staff were able to get their full retrenchment package given the long service many of them have. But the business is closing down.”
“In the absence of someone coming to buy one or more parts of the business, which to date we have not had, the business will be closed,” he added.
Amoils said given the pressures consumers are facing in a low economic growth environment, he is doubtful that new retailers could fill the spaces very soon.
Stuttafords management team will assist with the business rescue programme. Thereafter, Amoils said individuals will be able to pursue other opportunities and “explore other avenues”.
Besides the difficult local economic environment, Amoils said that the arrival of international players like H&M, Zara and Cotton On had cut into their customer base. Consumers had migrated to different retailers to spend less.
Consumers would buy down, less often and in smaller basket sizes. “Someone who used to buy three or four units a month and spend R5 000 to R10 000 in store would start spending a quarter or half of that,” he said. “We thought we would be more resilient in a higher LSM segment but from February 2016 that was not the case at all.”
Amoils said that in fashion it is key to have a flexible supply chain to react to changing demand in the market. If that is not possible, retailers should have high input margins. This is seen as moreclothing retailers are migrating from international brands to in-house brands because of the costs associated with stocking international brands.
He added that in business it is important to consider the value proposition offered to customers. If a customer does not see or believe the value offered by a product or service then there will be no demand, he said. “Customer loyalty is becoming more difficult.”
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