Start-ups need to diversify their offering without diluting their brand, according to industry experts, to avoid suffering the same fate as debt-laden clothing and footwear company Colorado Group.
Colorado, which owns iconic Australian brands Jag, Mathers, Diana Ferrari and Williams the Shoeman, was placed in the hands of administrators in March after struggling to get out of debt of more than $400 million.
After failing to attract a buyer, the company announced earlier this week that 140 underperforming stores will be closed, affecting more than 1,000 staff.
Receiver Brendan Richards, from Ferrier Hodgson, said the job losses are undesirable but necessary to enhance the group’s profitability.
“The restructure of the group would eliminate the loss-making Colorado-branded stores and those other stores impacting on the profitability of the group,” he said in a statement.
“The remaining brands and stores are all profitable and would form the cornerstone of the future business.”
Richards admitted the Colorado brand isn’t what it used to be, describing it as “something of a directionless journey”.
“There is a good, core business suffering from a shroud of underperformance in certain aspects of the business,” he said.
According to National Retailers Association spokesman Michael Lonie, Colorado’s collapse sends a strong message to other retailers to ensure their offering is clearly defined, particularly if they operate within a niche.
Lonie says high prices – characteristic of niche markets – must be justified with a very specific stock range, arguing Colorado isn’t specialised enough for the prices it charges.
“Colorado is a little bit of this and a little bit of that. If you’re going to operate within a niche like camping and hiking, you need to have a clearly defined category of goods,” he says.
Erminio Putignano, managing director of FutureBrand Australia, says companies who frequently diversify their original offering can appear as if they are losing direction.
“If they diversify a lot, the whole overarching brand could lose – or appear to be losing – its sense of direction,” he says.
Brian Walker, managing director of The Retail Doctor, says businesses must be very clear about the market they wish to pursue and why they believe an opportunity exists.
“Ensure the innovation and penetration of the product is very much in that segmented space otherwise the danger of overlapping [into another market] and confusing consumers can be quite high,” Walker says.
The Colorado Group was purchased by Affinity Leave Partners in 2006 for $430 million when the retail market was particularly buoyant.
But reports indicate the group has been struggling to cope with the fragile retail environment for the last two years, posting a $62.7 million loss last financial year.
Ferrier Hodgson’s proposal is to close 100 Colorado-branded stores in Australia and nine in New Zealand, with other closures including seven Mathers stores, 21 Williams stores, one Diana Ferrari store and two JAG stores.
This will take down the company’s overall store number from 434 to 281, employing about 2,400 people.
The company will have no presence in New Zealand, and there will be no Colorado-branded stores remaining, although some Colorado branded-footwear will be sold online and through Mathers and Williams outlets.