Creditors in collapsed retail giant Colorado Group have agreed to a plan that will see the business resurrected in trimmed-down format, but one retail expert says the company will still face a challenge to revitalise its brands after a turbulent period.
Under a deal orchestrated by Ferrier Hodgson, the creditors of the group – which collapsed with $450 million in debt in March – will swap their debts for equity stakes in the new business.
Colorado Group, which owns the Colorado brand, Jag and shoe brands Mathers and Williams, will now have a network of 280 stores, after receiver James Stewart shut 124 stores with the loss of more than 1024 jobs.
Steward says the business is forecast generate to a net profit of $20 million for the 2011-12 financial year.
The company will also change its name to reflect the fact that that loss-making Colorado retail chain has now been shut down.
In the end, creditors had little choice but to accept a debt-to-equity swap – Stewart was unable to find a serious bidder for the group with or without the Colorado chain.
“What the sale process proved was that the sentiment in the market to buy retail businesses at that point was just so poor that the prices being offered for some of the individual brands were never going to be commercially acceptable,” he told The Australian.
“They were mostly opportunistic, people who were experienced in the market and clearly took a view that if they could get one or more of these brands for a bargain, they would be able to enhance their own existing businesses with very little risk.”
Retail analyst David Gordon of accounting group WHK says the collapse of Colorado underlines the challenge for large, publicly-listed retail groups that operate many brands and can struggle to keep them relevant.
“It is very, very difficult to keep the brands relevant. You’ll find that the Just Group has the same issue and there are several other large players like that.
“These bigger groups that don’t have the private owner’s focus and touch and feel on what their brands stand for. It is very difficult for corporate retailer to have that sort of instinctive feel that retailers need.”
While smaller, private businesses have their own problems – including cashflow and difficulties negotiating good deals from suppliers and landlords – the fact corporate retailers can carry large amounts of debt makes life even tougher.
Gordon says that even with the rescue plan in place, management of Colorado Group could still find it difficult to turn its situation around.
“There is still quite a large requirement of capital to recreate and revitalise both the brands and the stores – that question is not going to go away.”
But Stewart says that capital will be made available.
“It will be profitable from day one, it will have a substantially restructured balance sheet and it will have access to working capital to reinvest and grow the businesses,” he told The Australian.
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.
