Ray Mahlaka
3 minute read
18 May 2017
7:56 am

Stuttafords shuts stores as rescue prospects grow dim

Ray Mahlaka

Its survival hinges on another amended rescue plan.

Stuttafords has shut three of its department stores as the struggling retailer puts up a fight to keep the lights on and fend off liquidation.

The 159-year-old retailer begun the process to shut its stores last week at Johannesburg’s Clearwater Mall and Rosebank Mall and Canal Walk Shopping Centre in Cape Town, reducing the department store footprint from nine to six.

Along with the department stores, Stuttafords shut two of its 14 mono-brand stores (brands with own stand-alone stores) – and still maintained its three stores outside SA (two in Botswana and one in Namibia).

It’s unclear how many job losses will be incurred from the closures, but since Stuttafords placed itself into voluntary business rescue on October 28, it cut its staff complement by more than 50. The department chain employs 763 people.

In preparation for the store closures, Stuttafords launched a slew of promotions – a mix of 50% discounts and three-for-two promotions – in order to raise money to purchase merchandise for the winter season.

Read more here:  Stuttafords begins discounting deluge.

Stuttafords CEO Robert Amoils said the store closures were required in order to accommodate the retailer’s infrastructure and store footprint. He said Stuttafords landlords and suppliers supported the closures.

SA’s furniture family Ellerine Brothers, which co-owns Canal Walk with JSE-listed property company Hyprop Investments, has repeatedly revealed during business rescue proceedings that it found a “better tenant” that would pay higher rentals for Stuttafords’ prime retail space.

Sources have told Moneyweb that Canal Walk management have attempted to evict Stuttafords from the shopping mall for several months to replace it with Swedish fashion retailer H&M, the “better tenant”.

Ellerines, which currently owns a 26.4% stake in Stuttafords Stores (Stuttafords’ parent company), recently aborted a plan to feed R12 million into the retailer citing difficulties in accessing its financial records to determine whether it’s capable of rescue. This derailed Stuttafords’ rescue.

Read more here: New standoff delays Stuttafords’ rescue plan.

It emerged in heated letter exchanges between attorneys representing rescue practitioners Neil Miller and John Evans, and Ellerines, that the latter advocated for Stuttafords to be liquidated.

The store closures come at a time when a new rescue plan was submitted to creditors and shareholders on Friday. Creditors which include Levi Strauss, L’Oréal SA, Tommy Hilfiger, Polo, Puma, Adidas, Estée Lauder and many others are collectively owed R836 million.

The new rescue plan (amended for the fourth time) proposes that creditors would only get 4 cents for every R1 and an additional 21 cents over a period of 18 months. This means that creditors would take an estimated 75% write-off on their debt.

The payout to creditors will be funded from new debt facilities from Nedbank and other institutions and proceeds from buyers that will sign up for new equity. If the new rescue plan is not objected to by shareholders and creditors by May 31 it will be adopted.

An alternative rescue plan has been proposed if the new plan is not adopted. In the alternative plan, Stuttafords’ assets would be sold and some creditors will only be paid 3 cents for every R1 and won’t qualify for an additional payout (21 cents). Creditors, whose debt is secured against Stuttafords’ assets like Nedbank, would qualify for a 90 cents payout for every R1 owed.

The rescue practitioners said the alternative plan would benefit creditors more than the worst case scenario of liquidation. In liquidation, the South African Revenue Service would be the first to receive all money due to it (R28 million) as well as creditors with secured debt and other shareholders including Ellerines and Vestacor (management company of Stuttafords). Employees would be the last to be paid.

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