Discount retail chains collapse with debts of $201 million

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Discount chains Crazy Clark’s, Go-Lo and Sam’s Warehouse have collapsed into receivership with debts of $201 million, putting about 2700 jobs at risk around Australia.

Discount chains Crazy Clark’s, Go-Lo and Sam’s Warehouse have collapsed into receivership with debts of $201 million, putting about 2700 jobs at risk around Australia.

The three chains are owned by Australian Discount Retail, which is Australia’s largest discount retailer. Yesterday, ADR was placed in the hands of receivers James Stewart and John Melluish of insolvency firm Ferrier Hodgson after the company’s directors called in voluntary administrators.

ADR also owned Tasmanian discount chain Chickenfeed, but this business is a stand-alone operation and has not been placed in receivership.

The size and scale of ADR makes this the biggest retail collapse in over five years.

Crazy Clark’s, Go-Lo and Sam’s Warehouse had combined sales of $893 million in 2007-08, but lost $8.18 million in that period, compared to a profit of $21.4 million in 2006-07.

The collapse is also a blow for Australia’s private equity sector.

Private equity groups Catalyst Investment Management and CHAMP Private Equity formed ADR in November 2005 when they spent $200 million to buy the discount variety businesses from the Millers Group (now known as Specialty Fashion Group) and the Warehouse Group.

According to reports, Catalyst and CHAMP took $100 million out of the business in 2007, but spent $20 million last year on new warehouses and software for the company.

The private equity companies have been in negotiations for some weeks with ADR’s banking syndicate – nabCapital, ANZ and BOS International – in a bid to keep the company alive. The banking syndicate is now owed $96 million.

The receivers have immediately put the Crazy Clark’s/Go-Lo chain (which have 275 stores) and Sam’s Warehouse (99 stores) up for sale.

But James Stewart from Ferrier Hodgson says the sale process is likely to take some months.

That could well be a conservative estimate.

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