Competition among Apple resellers and growth in the mobile phone market has been blamed for the announcement that Vita Group will take an impairment charge against its reseller chain Next Byte to the tune of $15 million.
The business was acquired for $30 million in 2007. In that time, parent company Vita Group said yesterday, the business “has changed substantially… given a number of internal and external factors”.
That change has come in the form of increased competition. City Markets analyst Peter Esho told SmartCompany this morning the rapid expansion of Apple stores has contributed to Next Byte’s problems – in five years the giant’s local store count has grown from zero to 14, while Next Byte has 18 stores.
“But it’s not just that,” Esho says. “It’s the fact that the mobile division of Apple’s products have become some of the most popular, and they’re widely available everywhere.”
He also points out more companies such as JB Hi-Fi, Dick Smith, Myer, David Jones and even Target are aggressively pricing Apple products – most notably the iPad.
“As the desktop market goes more mobile, then you’d expect a lot of foot traffic to be in a number of different stores.”
Australia has one of the highest iPhone penetration rates in the world, partly due to the competition between mobile carriers and phone retailers.
Next Byte has maintained a popular following, especially during Apple product launches as fans flock to other stores instead of navigating through throngs of people at official Apple retail locations. But in day-to-day trading, the competition is increasing.
Vita Group joint chief executive David McMahon said in a statement the business remains committed to chain, and said it had “responded by developing a new growth strategy centred around new format stores in new targeted locations”.
He also told SmartCompany the chain will be formatting its stores to a larger floorspace.
“Certainly the number of places that are now selling and stocking Apple products has increased.”
“But we’ve made the decision to convert the entire Next Byte chain to this larger retail footprint. So we’ll be upgrading these stores to larger floor plans. It simply means the stores we acquired back in 2007 no longer have a long-term future, and they will either be changed or moved.”
That growth strategy will also include a cost reduction program, and a wind-down of underperforming channels.
But that doesn’t temper the pain of an impairment charge worth between $12-15 million.
Now, Vita Group maintains Next Byte performance has improved in the second half. But as Esho points out, the $12-15 million impairment charge comes despite Vita announcing guidance for full-year EBITDA of $15-18 million.
“It goes to show, one year’s earnings has been wiped out by overpaying for this business.”