Biggest Business Collapses and Voluntary Administrations of 2018March 8th, 2019
Businesses often fail due to many reasons, including poor management, lack of leadership, poor planning, increased competition, weak consumer confidence, and lack of market insight – to name a few.
It’s normal for a business to go through ups and downs, but if any of the above factors occur without early intervention then a business can face collapse.
There have been a record number of Australian businesses failing, with the retail sector particularly doing it tough.
Here are 10 established Australian businesses who have faced voluntary administration or who have been struggling to return profit in the past year.
1. Napoleon Perdis
Well-known cosmetics brand Napoleon Perdis went into voluntary administration after 22 years of being a household name in Australian beauty. More than half of its stores were closed immediately as administrators tried to sell or restructure what was left of the failing brand.
The company was teetering on the brink of insolvency for almost a year before it collapsed, with the Australian Tax Office (ATO) being one of the creditors lined up to be paid.
The beauty brand, which had 56 stores across Australia, first started showing signs of problems back in 2015 when the company pulled out of its US market. Blame has been put on what Perdis’ founder claims as “greedy landlords” who would not reduce rent, however, the increase in online shopping, competitors lower prices and rival beauty giants such as Sephora and Mecca, as well as the company’s deal to enter the pharmaceutical market with Priceline were just some of the reasons give for its collapse.
2. Cosmopolitan Magazine
Popular women’s magazine Cosmopolitan was forced into administration after 45 years of publishing. CEO of Bauer Media, Paul Dykzeul, stated that “..the commercial viability of the magazine in Australia is no longer sustainable”, with the continual difficulty in making money out of publishing in the age of digital media being a major factor of the magazine’s demise.
The magazine played a pivotal role in providing young women advice on everything from relationships to fashion. Former editor Mia Freedman attributes the magazine’s demise to the readily available content found on the internet.
“Make no mistake: women’s media has never been stronger. Women are consuming more content than ever before. It’s just that now it’s via their phones and social and podcasts.”
3. Diana Ferrari
Footwear, clothing and accessories retailer Diana Ferrari announced the closing down of all of its stores after 17 years of trading. Andrew Spring from insolvency firm Jirsch Sutherland stated,
“This news shows that well-known brands are surrendering to the mounting pressure faced by traditional bricks and mortar operations.
As the online retail marketplace expands and traditional geographical barriers to entry are removed, Aussie retailers are dealing with more competition than ever before. And those retailers that have failed to evolve by investing in their e-commerce platforms, will continue to feel the pain this year as they find the costs of a having a bricks and mortar store too high.”
The company has since made the decision to continue trading and maintaining a presence solely online.
4. Roger David
Menswear chain Roger David shut down shortly before Christmas 2018 after being placed in voluntary administration in Q4.
The privately-owned company called in the aid of an administrator following its inability to cope with the influx of international competitors and the evolution of online shopping. The chain saw an immediate closing down sale nationwide to clear stock and raise as much money as possible for employees’ and other creditors.
The 76-year-old chain, like many fashion retailers, had become walled-in by global competition. Administrator Craig Shepard stated that “the company has been exploring all options, including a sale of the business, but has been unable to find an alternative to administration.”
The company had been working with KPMG for two years in an attempt to sell the business, with no success. Mr Shepard said that Roger David turned over about $60 million a year, and was the third-largest menswear chain in Australia.
5. Toys R Us
Following the nation-wide shutdown of all Toys R Us stores in the USA, the toy retailer was put into administration just two months later with the shutdown of all 44 of its Australian stores. Toys R Us US headquarters stated they were to close all 735 of its stores after going bankrupt in September 2018 and failing to restructure billions of dollars of debt.
The Australian collapse comes as retailers face tough trading conditions and online competition from retailers such as Amazon. IBISWorld industry analysts said the company’s failure could be blamed on ‘intense internal and external competition’.
“While demand for toys and games remains high, consumers have moved online or to discount department stores,” the analysts said. “Toy and game retailers have long been warned that being a simple shop for toys would not be enough to compete, and Toys ‘R’ Us was not able to adapt fast enough to changing market conditions.”
The company’s stores failed to attract busy parents, many of whom purchased toys from stores such as Kmart while shopping for other necessities.
Fashion retailer Esprit closed all of its Australian and New Zealand stores after a 64% plunge in sales over the last seven years, from $142 million in 2010 to $50.8 million in 2017.
Executive Director Thomas Tang said that local operations had been losing money for years despite efforts to turn it around. Interestingly, accounts lodged with ASIC show that despite the plunging sales of the Australian business, Esprit (Retail) Pty Ltd, was still breaking even. It made a pre-tax profit of $784,323 in 2017, $1.09 million in 2016, $145,020 in 2015 and $2.2 million in 2013, but lost $173,909 in 2014.
Once a highly popular and sought-after fashion label of the 80s and 90s, Esprit began to lose to bigger competition with the likes of fashion brands Uniqlo, Zara, and H&M. It also appeared to be a victim of Myer’s declining sales and market shares.
7. Max Brenner
Chocolate retailer and cafe chain Max Brenner collapsed into liquidation in October 2018, after the business struggled following an expensive overhaul of its head office hitting its cashflow so hard that the company stopped paying staff superannuation for 6 months in 2016.
Turnover fell to $41.3 million in 2018 and Max Brenner operated at a net loss of $5 million for the financial year. Staff of the chain are estimated to be owed a combined $5.8 million, including $2.7 million for 250 staff made redundant as part of Max Brenner’s administration.
Administrators McGrath Nicol estimates creditors are owed $33 million, with major creditors including the ATO which is owed $4 million. The company also owes $1.86 million in superannuation payments and $2.5 million in GST and pay-as-you-go requirements.
The retailer was initially said to be able to strike a deal and be rescued from liquidation by investment office Tozer & Co, however this deal fell through and the chain was then bought by cinema mogul Roy Mustaca.
8. Sumo Salad
Healthy fast food chain Sumo Salad was put into voluntary administration in July 2018 due to restructuring issues. SumoSalad chief executive officer Luke Baylis said in a statement, “The business has some legacy issues that have made ongoing trading challenging, despite the strength of the brand and the business model,” he said. “We now need to restructure the balance sheet to address these issues and give the business the strongest possible footing moving forward.”
The legacy issues stated may have alluded to an ongoing battle Sumo Salad had with landlords in its numerous food court locations. Following administration, the company has been able to improve its cashflow and profit and is focused on taking the food chain into new environments including wellness centres and hospitals.
9. Laura Ashley
Fashion and homewares chain Laura Ashley entered administration for the second time, following challenges faced by several fashion retailers in recent years. The clothing and home furnishing group operated 18 stores in Australia and first fell into administration in 2016 before being sold to a private buyer.
Administrator Craig Shepard states,“The business has been hurt by the same factors affecting many other fashion retailers — a becalmed retail environment, rising fixed costs and fierce competition from online retailers,” Mr Shepard said. “The capital requirements to revive and grow the business became too burdensome as retail conditions became tougher.”
10. Ed Harry
Menswear retailer Ed Harry were appointed administrators after a tough Christmas 2018 sales period and mounting pressure from online shopping. KPMG’s Brendan Richards stated, “Like many other Australian retailers, after a strong period of growth, it has faced a challenging environment over the past 12 months – and a particularly tough Christmas sales period.”
“It has also become clear that shopping centre footfall has been significantly weaker than expected.”
The retailer failed to find a buyer and ended up closing its doors in early 2019 after 25 years of trading.
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