South Africa’s biggest retailer, Edcon, has stood by its club fees programme charged to credit customers and will go as far as the Constitutional Court to defend it.
This follows the Competition Tribunal’s ruling which found that the monthly club fees charged to credit customers were unlawful and contravened the National Credit Act (NCA), which Edcon has appealed in the high court.
Speaking to the media during the company’s results presentation for the year ended March, Edcon chief executive Bernie Brookes said on Thursday that the company maintained it had not violated the NCA, and was confident it would be vindicated in due course.
Brookes said the tribunal did not find that selling of a club product was unlawful but rather that the inclusion of the club fee in the credit agreement was contrary to the NCA.
He also said the tribunal’s ruling had not affected the appetite for the club card.
“We have no plans to pay back customers the club fees because we believe the ruling by the tribunal will be reversed. We have approached the court and will go to the constitutional court if necessary,” he said.
Benefits
He said no consumer had been disadvantaged by the club membership and that customers received up to R17 000 worth of benefits after paying monthly fees of up to R60 and the benefits included discount airfares and funeral benefits.
Brookes said that Edcon had grappled with a retail sales and credit sales crunch in the year to March amid low consumer confidence.
Retail sales were 6.7 percent down to R25.3 million, while cash and credit sales declined 2.4 percent and 13.4 percent respectively, compared to last year. Brookes said credit sales contributed 36 percent of total retail sales compared with 38 percent last year.
“We have heavy consumer headwinds, with low consumer confidence, high inflation and little gross domestic product growth,” Brookes said.
In the year under review, Edcon implemented a number of restructuring activities including allocating R300 million to clear stock that was three years old in a bid to improve competitiveness.
Read also: Edcon may be unable to repay club fees
It also exited international brands and cut the number of its suppliers 20 percent to 800. It would now spend R1.5 billion to revive its infrastructure as IT at its stores was 20 years old, Brookes said.
The company said it cut its debt to R6.2 billion from R27 billion in March last year. The net income with interest, taxes, depreciation and amortisation (Ebitda) which can be used to analyse and compare profitability between companies, was down 45 percent to R1.3 billion.
The company struck a deal with Absa in which the bank agreed to take 80 percent of all new credit card applications for Edcon’s in-house second credit book. “This agreement has contributed positively to stronger new credit sales in the second half of the financial period and as a result our in-house book as grown in excess of 150 percent when compared to this time last year,” said Brookes.
The company has been taken over by its creditors following a $1.5 billion (R21 billion) debt-to-equity swop that has seen it lose a significant chunk of its debt.