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Stuttafords Saga: How Nenegate brought down the store

Jul 24 2017 13:23
Lameez Omarjee

Johannesburg- It all came tumbling down for Stuttafords the day former finance minister Nhlahla Nene was fired. The rand's decline in the days that followed the shock axing signalled the end of a 150-year-old empire, chief executive Robert Amoils explained to Fin24.

Stuttafords International Fashion Company is set to officially close its doors on July 31 2017 if a bid for its two remaining stores is not successful. Amoils blamed this on the economic downturn, starting the day Nene had to pack his bags. 

The famous department store officially went into business rescue in October 2016. But that plan collapsed after the default sponsor, Ellerine Brothers, decided to pull out of a commitment to fund the business in the absence of a successful bidder.

The creditors eventually voted in favour of a winding down process, which will see a 3c to the rand distribution to creditors and the 950 employees will be paid their full retirement packages, Amoils explained to Fin24 in June.

READ: Silver lining for Stuttafords staff

The store’s potential continued existence, under new ownership, depends on the success of a bid for its final two stores, Sandton and Eastgate, which will be subject to conditions, said Amoils. On Monday morning, Amoils confirmed to Fin24 that the final bidding process, concluded on Friday at 12:00, received three bidders.

Meetings are to be held with Liberty, the landlord of both stores, to determine if the bids are acceptable. This process will be concluded on Wednesday. If successful, the remaining stores will continue to operate under new ownership. 

Nenegate, which dates back to December 9 2015, saw the rand plummet from around a R14.50/$ close to R16/$ in the days following President Jacob Zuma replacing Nene with weekend special Des van Rooyen. Some analysts now refer to the reshuffle as “9/12”, and many economists believe the SA economy is still reeling from the aftermath. 

ALSO READ: SA economy its own worst enemy – analysts

Amoils explained that up until December 2015, the group had been performing consistently with and possibly ahead of expectations. But the business deteriorated following the devaluation of the rand.

“Every retailer has had to deal with the material devaluation of the rand,” said Amoils. The rand’s devaluation made it challenging for Stuttafords, which sells brands and ranges that take years to plan and order.

“We had to be more reactive when it came to the types of products that we were buying whether it was the knit quality, whether it was the design, whether it was the fabrication,” he said.

“Given where we are, we did not adapt quick enough and or efficiently enough.”

Being located in the southern hemisphere, the group did not have the luxury, as its northern hemisphere competitors, to buy stock three months in advance. The retailer had to commit to buying stock up to a year ahead. This meant that costs associated with products went up between 20% and 25%. Stuttafords had to balance this with a market where consumers had less discretionary income to spend.

Stuttafords could not cancel these commitments. “Unfortunately we were buying at a time when sentiment was at its worst, and was getting worse every day.”

Sections of the Sandton store have been taped off and stock has been regrouped in a separate selling area. Now a shell of its former self, the Sandton store used to be the best performing, says chief executive Robert Amoils. (Photo: Yolandi Groenewald)

Amoils told Fin24 that these international players own and control their brands while Stuttafords is a purveyor of several brands. These international players had the advantage of controlling the product and the timing of the brands entering the country. The onerous import duty of 45% on apparel impacted cost efficiency.

“If you are a vertically integrated international retailer that has manufacturing bases and or plants around the world, you can appropriately allocate costs to manage,” he said. These retailers also have the advantage of being able to react to changes in the market more speedily, and this includes rand devaluation.

The impact was seen on its turnover results between February 2016 and July 2016, when the group saw a “dramatic downturn” in a short space of time. Despite discounts and promotions, turnover was still not at the level it was expected to be.

Further, other competitors were having promotions and consumers were bombarded with options. Stuttafords also had a thinly capitalised balance sheet, making it difficult to weather the storm.

Right path

Amoils believes the retailer was following the right strategy for a mall-dominated society. Being a large-box retailer was more profitable.

“I believe the large-box spaces we had, needed to be converted from the stigma of a department store to either line store, emporium-based shopping environments or what we classify as theatres of shopping,” he said. This would attract consumers through the experience or theatre of shopping which would justify the higher prices.

“I believe the path we set was correct. I believe the repositioning we did was consistent with what international trends have shown to work.” These initiatives had been working and were very profitable, but the group simply did not have time on its side, said Amoils. Stuttafords also thought that its higher LSM targeted groups would be more resilient to the economic shocks.

"Simply we ran out of runway, we ran out of time. The market downturn was so swift, so severe and was paralleled with significant [rand] devaluation and political uncertainty.”

Amoils said that securing customer loyalty is also harder. Younger customers particularly are more migratory. “It means that if you do not have the right product for them now and at the right price, they will find either an alternative or substitute, or they will find the product at the right price somewhere else.”

Creating the shopping experience associated with Stuttafords stores needed to be even better to secure and maintain customers, he explained.

Remaining stock at the Eastgate store is being sold off at promotional prices ahead of closure. (Photo: Lameez Omarjee).

Corniel Van Niekerk, Deloitte consulting senior manager of strategy and operations, explained that consumer expectations are constantly changing. The “winners” in retail will be those which respond quicker and innovate constantly. Retailers really have to understand the customer, he said.

When it comes to staying relevant retailers must consider changing customers, the changing competition which has been the entry of international players in the market and changing technology. “To ensure sustainability, retailers must find functional strategies that includes digital strategies,” he explained.

Global competitors

Derek Engelbrecht, partner at EY Africa and consumer products and retail sector leader, is of the view that retailers underestimate how quickly buying patterns of consumers change. Engelbrecht said that global brands such as H&M and Cotton On are doing a better job of reading consumers.

“I think the global brands that have made a big impact in the South African market came here with a very different way in which to plan and buy and merchandise. They brought with them a sense of urgency on how frequently they do that.”

Engelbrecht said in terms of “good old department store planning” shelves are stocked as seasons change, while global brands manage to turnover items on shelves every four to six weeks. Their ability to do things at a faster pace has disrupted the business model of most of the South African clothing retailers, which take a more measured approach to merchandising.

But South African retailers have the ability to compete with global players, he believed. Stuttafords simply had limited time and were “on the back of a dying business model”. 

Amoils concluded that the decision to wind down the business after the unsuccessful rescue was not the desired result. 

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