If you walk through the doors of department chain Stuttafords at the trendy Rosebank Mall in Johannesburg, staff, from the beauty to apparel section, are standing idle.
A closer look will reveal that there are often more security guards at the store than shoppers and tills have been ringing less in recent years.
As a staffer puts it: “It’s so quiet because there are no customers. It’s as if we are not heading to the busy festive season.”
This partly underscores the problems that the 158-year-old retailer is facing as it prepares for business rescue proceedings.
Stuttafords was once the go-to department store in the country, much like Bloomingdale’s in New York and Selfridges in London. But its star began to wane in at the turn of the century, along with other department store formats.
Stuttafords’ problems were exacerbated in 2008 when management, led by former CEO Marco Cicoria, repositioned the high-end retailer from its profitable house brands to showcasing international brands including Gap, Ben Sherman, Ted Baker, Banana Republic and Tommy Hilfiger at its large format stores at Sandton City in Johannesburg, Durban’s Gateway Mall and Cape Town’s Canal Walk.
At the time, market conditions were favourable as retailers fervently dished out credit to consumers, the domestic economy pulled in growth of more than 4%, and the rand was trading at between R7 and R9 to the dollar. The relative strength of the rand supported the business as Stuttafords imports most of its merchandise.
Then the global financial crisis hit, darkening Stuttafords’ fortunes with cash-strapped consumers trading down to lower-priced goods.
Stuttafords was bought from commercial insolvency in 2006 from the main shareholder Charles Fox by a consortium led by the Ellerine brothers and venture capitalist firm Vestacor and other shareholders.
The push of international brands at Stuttafords has since flopped and market share has been lost to its peers Woolworths, The Foschini Group and international counters Zara, Cotton On and H&M. The retailer has burnt a lot of cash importing international brands given high input costs spurred on by the wild rand.
SA’s tough retail market has also hit the country’s largest retail group (by floor space) Edcon, the operator of Edgars, Jet, Red Square and CNA. The 87-year-old retail group bounced back from a near-death experience after part of its crippling R26.7 billion debt was converted to equity.
Business rescue and shareholder ructions
To save Stuttafords, top business rescue practitioners Neil Miller from Mazars and RS Advisors’ John Evans have been appointed and the rescue plan will be presented in February 2017. Stuttafords will now enter into negotiations with its suppliers, creditors, bankers and landlords to buy it time on its financial obligations.
Market rumours are that Stuttafords’ shareholders have lost patience with the retailer as they have pumped millions (loan and buy-out capital) into the struggling retailer over the past ten years.
Stuttafords CEO Robert Amoils, who is the fourth CEO at the retailer in ten years, tells Moneyweb: “Shareholders’ investment priorities have changed which has resulted in them taking a different view on their Stuttafords investment moving forward.”
As to whether Stuttafords would survive, Amoils says: “Upon the approval and the terms of business rescue plan next year, we believe we will have a viable and commercially solvent business that is profitable over the next few months.”
If its business rescue efforts fail, the retailer might be forced into liquidation.
Old and new turnaround plans
To turn its fortunes around, underperforming stores were shut– from having 21 department stores in SA and elsewhere in Africa in 2005 to now operating eight department stores (two in Botswana and one in Namibia) and 16 mono-brand stores (brands with their stand-alone stores). A loyalty programme was introduced and existing stores were refurbished.
But its efforts have been futile.
It has been pushed into a corner since February when turnover and margins fell, attributed to the aggressive promotional activity by its competitors. “As a result, all surplus cash flow has been eliminated in a short space of time. We went through to the summer and winter season of 2016 exposed.”
Stuttafords would typically discount its merchandise by 15% to 20% but was forced to accelerate discounts by more than 35% over the past seven months. Sales at various stores were declining by 20%.
The renewed turnaround strategy will see it revive house-brands such as Oaktree and Stephen Cole, but the priority will still be on its “most profitable” international brands Ted Baker, Tommy Hilfiger and Banana Republic. Management expects house brands to constitute 10% to 15% of sales in the next 12 to 24 months.
Another radical step will see it cut investments on American clothing brand Gap, which Stuttafords has been reliant on for sales over the past eight years. “By 2017, we will no longer be purveying that brand in our stores,” Amoils says.
New retail formats are being tested including the recently opened Stuttafords Boutique (a smaller format store) at Brooklyn Mall in Pretoria and the first “The Outlet” store which sells last season discounted merchandise in Johannesburg’s Woodmead.
Success of business rescue proceedings
The head of the financial restructuring and insolvency practice at Norton Rose Fulbright, Haroon Laher says the success of the business rescue process is if Stuttafords carries on as a going concern. “The plan must be beneficial to all the rights and interest of all stakeholders [including its 950 employees] put together,” says Laher.
Market watchers have questioned the timing of Stuttafords’ bombshell given the looming and crucial festive season. Independent retail analyst Syd Vianello says he wouldn’t be surprised if Stuttafords heavily discounts its merchandise during the festive season, makes a profit to pay its expenses in January and “close their doors after.”
“The party is over for Stuttafords. It requires more cash to survive and shareholders are not prepared to put in more money,” he adds.
Landlords are preparing themselves for any eventuality. CEO of shopping mall owner Hyprop Investments, Pieter Prinsloo says Stuttafords’ stores are well located and contingency plans are already in place should its business rescue be unsuccessful.
Stuttafords currently occupies 11 000m² of retail space at Hyprop’s Rosebank Mall, Clearwater Mall and Canal Walk – equating to approximately 1% of its income on its South African property portfolio. “Stuttafords has undertaken to honour their rental obligations during their business rescue process,” says Prinsloo.
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