The founders of designer clothing label Ksubi have blamed the collapse of the company on poor margins, with one industry expert claiming the company’s woes could be traced back to a sudden drop in the value of the Australian dollar in early 2009.
The Ksubi brand (formerly known as Tsubi before a trademark dispute forced a change in 2006) was founded in 2000 by Dan Single and George Gorrow, and Gareth Moody, who left the company in 2005.
Single and Gorrow said in a statement that putting the company into voluntary administration was the “only way to ensure the future of Ksubi”.
Administrators Paul Billingham and Said Jahani of Grant Thornton will keep the company’s retail stores open and will operate on a “business as usual” footing while they weigh up the label’s financial position.
“Our job is to try and preserve the inherent value of the business and we will be working closely with the directors and key stakeholders to do this,” Billingham said in a statement.
A spokesman for the administrator declined to discuss the level of debt in the company, saying investigations were at an early stage.
The business employs about 20 people and operates two stores in Sydney, one in Melbourne and one in New York.
The collapse is as sudden as it is spectacular. While there have been reports that the company’s debts were mounting, Gorrow and Single were still valued at $24 million on BRW’s magazine’s Young Rich edition, published in late September 2009.
The company’s marketing spending has also continued at full speed in recent months. In December 2009, Ksubi hosted a lavish party to celebrate its partnership with Japanese alcohol company Kirin. According to a report on the Harper Bazaar website, the event featured a number of live performers, DJs and a sound designer “all curated by Ksubi”.
So what caused the collapse? Single and Gorrow said in a statement that the business has been “struggling to achieve the margin necessary to fund the growth and development of the brand”.
The pair also attempted to restructure the business by licensing the manufacturing and distribution to an “Australian-based company with overseas production experience and networks”.
“However, despite best efforts it has not been possible to formalise a new restructure leading to the appointment of an administrator.”
Jo-Ann Kellock, executive director of the Council of Textile and Fashion Industries of Australia, said the brand’s woes may be able to be traced back to late 2008 and early 2009, when the global financial crisis sent the value of the Australian dollar down 30% and raw material prices jumped sharply for Australian labels.
“You’ll find there are pockets of people working on skinny margins and high volume who were impacted early on when the dollar dropped very quickly,” Kellock says.
“Depending on how you hedged and how you used the dollar, then you may have costs that you can’t reign in quickly enough.”
Kellock says many labels lock in forward orders with retailers and wholesalers at set prices, which means labels have little ability to pass on a 30% increase in costs.
Kellock says the drop in the Australian dollar could also affect sales in the next season, as the company may have been unable to order as raw material as it might like.
Fewer raw materials means less stock, which means less sales – which means cashflow takes another hit.
“Some time these things take a long time to filter through because of the seasonal nature of our industry,” Kellock says.
“A combination of two or three things in this industry can really hurt you. It’s ruthless, it’s free market and it’s not protected by barriers to entry.”
Like many others, the collapse has taken Kellock by surprise.
“I would have thought that a brand like Ksubi would have been strong enough to get through that. But there are a lot of new up-and-comers coming into the market place and if you’re not constantly reinventing your brand then you can very quickly take a bit of a hit.”
Whether Ksubi can trade out of administration remains to be seen. Single and Gorrow say they remain committed to helping the administrator restructure the business, but this will not be an easy task in what is a very tough sector.
James was the editor and publisher of SmartCompany and LeadingCompany for five years. He is now the Australian Financial Review‘s companies & markets editor, and a former BRW editor.
