Children’s clothing brand Pumpkin Patch collapses into receivership after finding “no solution” to its multimillion-dollar debts
Thursday, October 27, 2016/
Embattled children’s retailer Pumpkin Patch has collapsed, with receivers appointed for the company and its subsidiaries yesterday.
Last week the business, listed on the New Zealand stock exchange, entered a trading halt while it started conversations with stakeholders about how to proceed with its $NZ46 million ($40.7 million) in debts, with a meeting with its bank scheduled for October 31.
In a statement to the market on Friday, October 21, chairman Peter Schuyt and managing director Luke Bunt said the company’s “ability to move forward from here is impacted by the lack of available capital for debt reduction and reinvestment”.
However, yesterday the company told the market it had entered voluntary administration “with considerable regret” after it became evident that “no solution is available to the company” to service its debts given its capital constrained position.
Andrew Grenfell and Conor McElhinney of McGrath Nicol were appointed as voluntary administrators, while the company’s bank appointed Neale Jackson and Brendon Gibson of KordaMentha New Zealand as receivers. In Australia, KordaMentha partners Craig Shepard and David Winterbottom have been appointed as receivers of the Australian assets.
What happens next
Receiver Brendon Gibson told SmartCompany the focus is now on finding a buyer for the business as a going concern, with all stores continuing to trade.
“We’re not here for a postmortem, we’re focused on the go forward,” says Gibson, saying that while the receivership process only started yesterday, there has been interest in the business from potential buyers.
Pumpkin Patch had been undergoing a four-year turnaround process to combat falling sales in the fast-moving children’s retail space, including plans to consolidate some stores.
“The business had been looking at store closures – we’ll be looking at accelerating that,” Gibson says.
There will be job losses as a result, with receivers telling media yesterday the end game will be to make the operation as viable a proposition for buyers as possible.
Staff will be paid for their services throughout receivership and Australian staff will have their entitlements met under their awards. Yesterday Gibson told TVNZ this was different for New Zealand staff, where this a statutory cap on entitlements of $NZ22,160.
Pumpkin Patch has operated bricks-and-mortar stores, online sales and partnership deals with a number of department stores and retailers across the globe. Over that time it has faced a number of hurdles, including an exit from the UK market in 2012.
The company put itself up for sale in 2015, but decided to go ahead with a strategic review after a deal was never completed. However, losses have continued throughout this year, with the company reporting a full-year loss of $NZ15.5 million ($20.3 million).
The business operates 117 stores in Australia and 43 stores in New Zealand. Gibson told SmartCompany that while there were many possible outcomes for the sale, it was likely one buyer would consider the stores across both markets given the brand recognition on offer.
“There’s obviously a range of ways you can cut it, but the brand is well recognised,” he says.
Receivers will now start the process of conversations with potential buyers, with no official timeline for a deal to be done.
“That’s a process [depending] on how many we get expressing interest,” Gibson says.
Earlier this week retail experts told SmartCompany Pumpkin Patch had struggled in an unfriendly children’s clothing retail landscape over the past several years, as discount department stores moved into Australia with similar designs.
The company highlighted in an announcement to the market last week that online sales had suffered particularly from overseas markets. Retail Oasis senior strategist Pippa Kulmar said that space is now dominated by special and niche categories of kids clothing.
“What [Pumpkin Patch] is missing is a creative direction – when you buy from them, what’s the look?” she previously told SmartCompany.
With the business being sold as a going concern, a buyer will be charged with developing a game plan to tackle competition from the likes of Zara Kids, Big W and other retailers promoting cheerful clothing options at lower price points.
Customers with gift cards for Pumpkin Patch and its imprint brand Charlie and Me will be able to redeem these on a dollar-for-dollar basis; to redeem a $100 gift card, a customer would have to buy items worth $200 in order to redeem it.
At 1:30pm yesterday Pumpkin Patch securities (PPL) were suspended on the New Zealand stock exchange. Because the business is a public company, the market will be notified as the receivership process progresses.
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