There appears to be little, if any, progress regarding a retail charter. From a black economic empowerment (BEE) regulatory point of view, there does not seem to be any compelling reason to implement one. Retailers are not large suppliers to the state, and consumers will shop wherever they get the best product at the best price, irrespective of who owns the stores.
Nevertheless, black consumers are becoming an ever-increasing percentage of customers of all established retailers, so it makes sense to incorporate BEE principles as soon as possible.
As it is, most retailers are working on their own empowerment programmes. Areas being addressed are the scorecard factors that have come to define transformation: employment equity; corporate social investment; procurement; and equity ownership. It is probable that a charter will materialise at some point in the future.
Listed retail companies have challenges in terms of equity ownership because generally the equity is widely held by both individual and institutional investors, which creates complications when selling to BEE entities at affordable prices.
The recent delisting of Pepkor illustrates how much easier it is to achieve BEE in unlisted entities. A consortium consisting of black-owned and managed Medu Capital and J&J Private Equity Fund recently purchased a 7,5% equity interest in Pepkor for R208m in cash. The consortium financed the purchase from private equity funds, mainly Old Mutual and Brait, and other third-party funds.
The ability to make an equity stake available for BEE investors was cited as one of the reasons for supporting the transaction and Pepkor's subsequent delisting. Old Mutual and Brait undertook to make 7,5% of the equity in Pepkor available for empowerment investors.
Pepkor chairman Christo Wiese says the board of Pepkor went through a rigorous process to select the appropriate BEE consortium.
He adds that Pepkor was pleased with the commitment of the consortium to broad-based BEE. He says: "We chose this consortium because they committed themselves to share their economic interests with the Pepkor Workers' Trust. In this manner, our loyal employees will also benefit from this transaction."
Medu Capital, founded by Nhlanganiso Mkwanazi and Ernest January, has R250m in private equity capital, and invests between R30m and R70m in established businesses. To date, Medu Capital has made investments in Ampaglas, Capital Outsourcing Group, VitalAire and Zest.
January, Medu Capital executive director, says Pepkor represents an attractive investment opportunity for the consortium. Pepkor is a significant retailer with turnover of more than R8bn/year and staff of about 17 000. It has leading brands and a vast store network in SA and Australia. Offshore assets will also be included in the BEE stake.
J&J Group is a diversified investment and management company led by Jay Naidoo and Jayendra Naidoo. Its subsidiary, J&J Private Equity Fund, was established with a R300m funding commitment from Old Mutual. Its stake in Pepkor represents its first big investment.
Another challenge facing retail is its variety, so retailers of clothing are likely to have different requirements from retailers of furniture.
