Clothing brands Herringbone and Rhodes & Beckett collapse: Behind the retail sector’s new year woes

Clothing retailers Herringbone and Rhodes & Beckett are the latest casualties of Australia’s troubled fashion climate, with the two brands collapsing into voluntary administration on Tuesday.

Herringbone Pty Ltd and Rhodes and Beckett Pty Ltd were placed in the hands of administrators from Cor Cordis, who say “high overheads, some unfavourable store leases, and other residual legacy issues” are the key factors that lead to their appointment.

Combined, the brands have 29 stores and 140 employees across Australia. Cor Cordis will now begin the task of evaluating which stores are underperforming before a sale campaign begins.

The retailers, which specialise in suits and corporate wear, are majority owned and supplied by German apparel group van Laack gbmH, which administrators say is interested in keeping both brands in Australia through a possible sale deal.

“Part of our role is to make improvements to these areas to prepare the business as an attractive asset for sale,” the administrators said in a statement about their appointment.

The appointment of external administrators to the brands is the second case of an Australian-based clothing retailer falling into voluntary administration in two weeks, after David Lawrence and Marcs called in Rodgers Reidy last Wednesday.

Retail analysts and businesses have cited soft retail conditions and cash flow concerns as key issues being faced by businesses in a challenging retail market.

Cor Cordis administrator Bruno Secatore, who has been appointed to the Herringone and Rhodes and Beckett businesses, told News Corp this morning the retail environment is currently “very strange” and sustained profitability has been an issue.

Meanwhile, retail sales data from the Australian Bureau of Statistics for December, released on Monday, showed a seasonally adjusted month-on-month decline of 0.1% across the board.

However, numbers for clothing retailing were slightly better; the seasonally adjusted monthly estimate for clothing sales rose 1.2%, while footwear and personal accessories rose 1.8%.

Cash flow is king

David Gordon, retail expert and executive director at Kepler Analytics, told SmartCompany there is a reason February is a concerning month for businesses in the sector, as retail cycles mean whatever the numbers were from the previous December will play a role.

“The cycle is that companies stock up in October/November. They might even put their orders through earlier, but they either pay their suppliers or they borrow money from the banks in October and November,” he says.

“They usually have between 60 and 90 days to pay that back, and they’re dependent very much on December sales, they can be five, six times a normal month.”

If Christmas sales don’t hit the mark, those debts can come due by February and cause problems.

However, Michael Stapleton, a founding member of the Virtual Association of CFOs, says for the businesses currently falling on hard times, it’s likely problems started more than a year ago.

“That’s probably something that for most of these guys has carried on for more than one year—it’s finally caught up for them. I would say there’s multiple years of bad trading, overhang of inventory,” Stapleton says.

While the world of fashion is a difficult one when it comes to predicting movement of stock and choosing the right inventory, Stapleton says examples of big brands calling in administrators should serve as a reminder for other businesses to address any concerns around extra inventory or lagging sales early.

“If you’ve got a problem, you’ve got to clear it, early on,” he says.

Read more: Dick Smith and working capital—lessons from the big end of town

Passion and service play a part

Gordon says that in general, the big brands that have recently fallen on difficult times have had complex management structures and, in some cases, a disconnect between the brand’s founders and new owners.

“There are a number of those brands that have gone into administration, that is mainly due to not bad management but due to incorrect management structures,” he says.

“That vision and energy and commitment is lacking when they bring in so called professional management teams.”

When it comes to lessons for SMEs, Gordon says it’s a timely reminder that a strong core team and brand can be key to managing other elements of a business, including cash flow.

“For smaller businesses, there is no question that they cannot abdicate responsibility to management teams,” he says.

To Stapleton’s mind, the recent voluntary administrations in the retail sector also highlight the importance of the overall bricks-and-mortar shopping experience, and the effect that has on moving stock in the first place.

With other retail experts telling SmartCompany this year that the middle market is struggling, Stapleton believes customer service is very important at the upper end.

“I think a big part of retail is the experience that the buyer has—I think if you’re in that upper price range, you’ve got to walk out of that shop feeling good about what you’ve done,” he says.

“I don’t know how many Australian retailers do that. I think making the experience good is an essential first step. You know that inventory is an essential thing, but if the experience is rubbish, it’s no good.”

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