The tough retail environment was the obvious catalyst for the appointment of administrators yesterday to Retravision Southern, but there were other factors at work in the collapse of the electrical retailer’s buying arm, according to retail experts.
Retravision Southern acted as the buying and marketing licensor for 104 privately-owned Retravision stores in Victoria, southern New South Wales and Tasmania.
Administrators KordaMentha blamed the fragile retail environment for Retravision’s problems.
“The company’s ability to operate as a going concern had been impacted by the industry-wide decrease in consumer discretionary spending being experienced by retailers,” Bryan Webster of KordaMentha said in a statement yesterday.
However, retail experts say while the fragile retail sector was an issue, other factors were also at play, including the deflation of Retravision’s core product, the structure of the business as a co-operative and the location of its stores.
These are six of the factors behind Retravision’s collapse:
1. An outdated co-operative model
Retravision operated as a co-operative with Retravision Southern acting as the buying arm for stores in Victoria and NSW, which were independently owned and operated.
Stephen Giles, partner in the retail and brands group at law firm Norton Rose, told SmartCompany that while he has no knowledge of the Retravision situation, he recently presented to another organisation on the topic, “The Co-operative is Dead”.
“There is no leadership in a co-operative, just a mix of consensus and people doing their own thing,” says Giles.
“The economies of scale are not what they should be because there is no retail discipline – each member buys what they want, so there is no genuine competitive pressure on their suppliers to give the best deal.
“The retail models supported by co-operatives cannot compete in CBD and high competition market.
“Typically they survive with members from rural and regional areas, where there is not as much competition.”
2. Failure to move to a franchise model
Giles advocates a franchise model for businesses rather than a co-operative model.
“The primary reason why the franchise model always outperforms the co-operative model is because it is a selling group not a buying group; it is customer focused, not supplier focused,” says Giles.
“We have seen a number of co-operatives successfully convert to franchising like Forty Winks, Auto Barn and Auto Pro.
“They have not lost their mantra, but a co-operative is often a passive player and a Forty Winks or Auto Barn can go out and take an opportunity that arises in a new area like a new site.”
3. Deflation of core product
The cost of computers, televisions and digital cameras – all products sold by Retravision – fell by more than 13% in 2011, according to the Canon Consumer Digital Lifestyle Index.
Brian Walker, managing director of the Retail Doctor Group told SmartCompany that Retravision was affected by the deflation of its core product as TVs and appliances have become more mass-produced than ever before.
“The categories they play in are the most affected. If you look at the department stores, those categories are the most affected – appliance and home electrical,” says Walker.
“That category is over competed.”