It’s been a disastrous year for retail. Consumer electronics chain WOW Sight and Sound is only one of many consumer-focused businesses that have collapsed this year – but its demise is wrapped up in a myriad of bad property investments.
The story begins in 2010. The directors of the company, Sam Savvas and Suds Sotiris, made headlines when receivers swooped in on multi-million dollar property empires owned by the pair. It had nothing to do with WOW, but it raised eyebrows about the company’s health. Savvas stepped aside as chief executive.
Then in February of this year, Ferrier Hodgson appointed receivers to WOW and receiver James Stewart revealed that WOW was negatively impacted by a bad property debt worth $20 million.
That $20 million was associated with Aristocon, one of the companies that oversaw the troubled properties in 2010.
NAB Private Equity was even tied up in the deal, and lost millions.
The Lesson: Of course, WOW was hit by the downturn in retail like many others. But its collapse underlines how bad property investment can come back to haunt a company and its owners – entrepreneurs should always take the long-term view.
The collapse of videogame retailer GAME began when its British parent was placed in administration in May. But after months of attempting to find a buyer, the business eventually fell over completely. Administrators PwC closed every store and laid off all the staff.
But while the retail downturn is partly to blame, PwC partner Kate Warwick said there were plenty of other factors involved – including an ambitious store rollout plan.
GAME certainly had a large presence in Australia, with 94 stores and turnover of $33 million. But an ambitious rollout plan can hurt any company, even a successful one.
The Lesson:
Rolling out is a good plan if you’re attempting to win market share and capitalise on demand. But rolling out too quickly, especially in a bad market, can be a disaster. Choose your battlegrounds wisely.
There’s no doubt the construction industry has been facing some of the worst conditions in its history. But it wasn’t just a poor housing market that took down construction firm Hastie – it was a $20 million fraud.
The business was placed in administration in May. It left 44 subsidiaries and thousands of contractors out of work.
PPB Advisory administrators Ian Carson, David McEvoy and Craig Crosbie were appointed to the company. Immediately, they released a statement saying they had discovered “accounting irregularities” worth as much as $20 million.
“These irregularities date from the financial year 2009 and appear to have resulted from the deliberate actions of a current employee (on suspension),” Hastie said.
It’s not the first company to be taken down by fraud, but certainly one of the largest in recent history.
The Lesson: It cannot be overstated how important fraud protection is to a larger company. With a significant number of transactions made over EFT systems, it’s become even easier for a company to be ripped off. Entrepreneurs should implement proper security systems in their workplaces as soon as possible.
The grocery sector has been under a lot of pressure. Cost-cutting among supermarkets has led to thinner margins for suppliers, who are being squeezed so hard they can barely afford to stay afloat.
Tomato grower SP Exports – the largest in the country – found that out the hard way. The Queensland company collapsed in February with $31 million in debt after suffering from not only market forces, but hostile weather as well.
A tomato glut in 2011 meant a lack of demand for its produce. But things hadn’t been right for a while in the company, which reportedly put 1,160 hectares of land up for sale in late 2011.
It wasn’t just market forces putting the company under pressure. Administrators KordaMentha said the Queensland floods had a significant impact, while two chemical over-sprays from nearby farms reportedly ruined crops – the business was considering a multimillion dollar insurance claim.
All up, the company was left with $31 million in debt, with no other option than to enter administration.
The Lesson: It’s impossible to avoid industry pressure, but back-up planning for a weather-related catastrophe and adequate insurance are vital.
Cara Waters is a former SmartCompany editor. Previously, Cara was a senior reporter for the Financial Times’ website and worked for The Sunday Times in London.
