Management buyout saves Rhodes & Beckett and Herringbone from voluntary administration: What next for the menswear brands?

retail

Troubled menswear brands Rhodes & Beckett and Herringbone will live to fight another day after a management buyout was secured with support from a Hong Kong-based private equity firm, in a resolution administrators say they are “very pleased” with.

The brands had 140 employees across 29 stores when administrators were appointed in February, when high overheads and tough leasing conditions were said to have contributed to the company’s woes.

Administrators at Cor Cordis began examining inventory and store performance, closing seven shopfronts and bringing in Gordon Brothers for a stock clearance program.

This week, administrators announced a management buyout had been negotiated, with Black Bear Holdings, which is headed by current Rhodes & Beckett brand director Michel Boutin, to take control of the businesses.

The deal is supported by Hong Kong private equity operation AO Capital, which invests in a variety of sectors across the Asia Pacific and explains on its website it specialises in “distressed assets in order to realise potential value and growth”.

Eight Rhodes & Beckett concession stores previously operated in Myer department stores but were recently closed, with the concession agreement due to end in July of this year. Fifteen stores remain, but the exact shape of the future operations remains unclear.

How many of the current fifteen stores will remain is unknown at this stage,” Cor Cordis partner Luke Targett told SmartCompany this morning, explaining conversations still needed to be completed with the store’s landlords. 

While administrators can’t speak to the value the new buyers see in the business, Targett said there are some lessons from the process of preparing the brands for sale.

He says the number of retailers that have been plunged into voluntary administration in recent years and never resurfaced speaks to the challenges of resurrecting bricks-and-mortar operations.

Financially, it can be a disaster because shop fitouts are so expensive, especially at the higher end … it’s often very challenging, because you don’t have freehold property and the stock isn’t yours to deal with,” he says. 

The Cor Cordis team approached the administration as a two-step process, assessing each store on the basis of performance and taking swift measures to consolidate stock with the help of Gordon Brothers.

One of the issues I think a lot of retailers face quite frankly is they just carry too much stock. They have a mindset of maintaining margin, and you reach a point where you just hold too much stock and you have to turn it into cash,” Targett says.

There was just so much stock that it was almost a negative rather than a positive with potential buyers. We decided okay, ‘let’s clear the decks and enable’.”

Targett estimates a quarter to a third of the brands’ 140-strong worker base were employed full-time, and says the administrators were able to make the sale with minimum changes to headcount, although casual hours have been reduced as scheduling changes were put in place.

There hasn’t been a huge reduction in headcount, but probably hours worked,” he says. 

SmartCompany contacted Michel Boutin for more information on future plans for the business but did not receive a response prior to publication.

There’s growth in menswear, but macro challenges remain

The names Herringbone and Rhodes & Beckett still have brand value, says senior research analyst at Euromonitor International, Bettina Kurnik, but challenges remain for the new owners.

“Menswear in Australia has consistently outperformed womenswear since 2009 in terms of year-on-year retail value growth, albeit off a smaller base,” she says.

“The growth in the menswear category comes as Australian men are more interested in their personal appearance, becoming more fashion-conscious and being willing to spend on high quality and stylish apparel.”

However, a move to more casualised workplaces may have contributed to the 1% drop in growth of suit sales in 2016, with Kurnik highlighting that space is now growing at around 2% a year.

Meanwhile, despite a “local brand equity” that the new owners of Herringbone and Rhodes & Beckett will be able to tap into, there same macroeconomic trends for bricks-and-mortar retailers remain in place.

“A sluggish retail environment, characterised by consumers tightening their purse strings for discretionary spending, will remain a reality in the short-term,” Kurnik says.

Then there’s the well-known reality of Amazon’s pending arrival in Australia, which provides a “considerable dimension of uncertainty” for retailers of all sizes, Kurnik adds.

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