Ellerines: The Tale of a Retail-Credit Business Model in an Emerging Market
Ellerines was a leading South African furniture retailer, with more than 1,270 stores; it was a household name in the country for 45 years and the main target market was the bottom of the pyramid, which was mainly driven by credit sales. In January 2008, African Bank Investments Limited (ABIL), a holding company of African Bank Limited (ABL), bought the Ellerines business with the aim of exploiting its credit customer base of a million names. ABL was one of the leading micro-financing banks in South Africa. The ABIL offer was the perfect opportunity for Ellerines to address the growing burden of regulatory compliance required under the new National Credit Act (NCA) and to possibly source capital at a lower cost, passing this on in part to customers through lower credit costs. ABIL set about implementing new strategic initiatives, mostly around centralizing the credit business with ABL credit unit and consolidating the brands across market segments. But these strategic initiatives proved disastrous for investors, employees and customers, with Ellerines and ABIL quickly showing abysmal results. On 7 August 2014, the iconic furniture retailer shocked the market by filing a business rescue process with the South African Regulator. On 10 August, ABIL itself was placed under curatorship by the South African Reserve Bank. How could these two reputable and profitable companies have failed so dramatically? Was this really a case of customers buying the credit terms more than the product?