Suppliers of footwear and clothing took another hard knock when Edcon CEO Grant Pattison announced last week that the chain will apply for voluntary business rescue as they were making arrangements to re-open under Level 4. This means that creditors (i.e. suppliers of footwear and clothing) may not make claims during the period that the business is being reorganised by the nominated business rescue pracitioners (BRP) Piers Marsden and Lance Schapiro.
Footwear and clothing suppliers to Jet and Edgars will especially be affected.
The tearful prediction made by Edcon CEO Grant Pattison the day before the countrywide lockdown started, has therefore come true. He was also correct when he predicted that the retail chain would go into business rescue once it is allowed to start trading again, not during lockdown.
Edcon is unable to pay its suppliers for both the March and April month-ends due to missed sales and a decline in collections of the debtor’s book, the chain said in a press release the day before it was due to open under Level 4.
In March Pattison had already told suppliers in a conference call that they only had sufficient funds to pay salaries, which was their priority, but were unable to pay any other accounts. In order to pay April salaries they will apply for assistance from the UIF COVID-19 TERS program – as Minister of Employment and Labour Thulas Nxesi has been urging companies to do.
Pattison predicted that they will apply for business rescue following a tightening of consumer purses over the previous few months that had put a severe strain on all retail and wholesale (distributors and manufacturing) companies – big and small. In March, Edcon was trading at about R400-m below predicted sales and cash for the month. During the lockdown they lost R2-bn, according to the press release.
The failure of such a dominant retailer to pay suppliers will have a domino-effect in the distressed footwear and clothing industry. They are, however, not alone: in the recent Sports Trader survey to determine the need for petitioning Government to open trade, 79% of the retail respondents said that they had not been able to pay their suppliers – but the bulk of them were micro and small enterprises.
SMEs (small and micro enterprises) are going out of business daily, warns Mike Anderson, CEO of the National Small Business Council (NSBC). A recent NSBC survey showed that late payments are at an all-time high – with more than half of all small businesses in South Africa burdened with late payments. Furthermore, the average amount owed to each small business is now at its highest level.
Intentional late or non-payment is totally unacceptable, he says. “In most cases, when a small business goes out of business, a family goes out of business. Procurement policies urgently need to be changed to accommodate for early payments.”
For any business, the amount of money flowing in or out is critical to its success. When money is tight, paying basic bills can get challenging, he adds. “Small businesses need to pay their workers, their rent, suppliers and other key operating expenses, and survive as a family. What they don’t need right now, or at any time in fact, is that additional burden of not receiving payment on outstanding invoices.
We have limited control over how long the pandemic will disrupt our nation, but we are in control how quickly we can pay our business suppliers, he concludes.