The retail tale of woes continues, as cautious consumers send another retailer to the wall.
Yet another has slid into administration, with Retail Adventures, owner of Crazy Clark's, Go-Lo, Chickenfeed and Sam's Warehouse stores, finally appointing administrators.
Three years ago, Kathmandu Holdings (ASX: KMD) founder, Jan Cameron rescued the company, paying $70 million to bring it out of administration. But things haven't turned around. The retail environment has become tougher, as consumers shop online and overseas. For a company that's already focused on low prices in its stores, with margins are already razor thin, further discounting brings with it lower revenues and losses.
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This follows an especially tough year in retail, with many companies going out of business. Australian Convenience Foods, a competitor of Patties Foods (ASX: PFL), which supplies ready-made sandwiches and other snacks to service stations and convenience stores, fell into administration in August this year.
WOW Light & Sound, a competitor to Harvey Norman Holdings (ASX: HVN) and JB Hi-Fi Limited (ASX: JBH), went into receivership in February 2012, following two years of losses. Showing consumer electronics is a tough business, Woolworths Limited (ASX: WOW) sold its Dick Smith Electronics business for just $20 million to a private equity firm, despite reporting $1.6 billion in sales across 325 stores in the 2012 financial year.
The reasons for the collapse of these retailers are many and varied, including cheaper products online (assisted by the high Australian dollar), a lack of a domestic online presence, global price differentiation (where suppliers charge different prices to retailers in different countries for the same product) and a consumer focused on value and keeping their hands in their pockets.
Retailing has always been a cyclical business, riding the peaks and troughs of the economy. This time it's also been hit by structural change, and domestic retailers have been left behind by international competitors and emerging trends.
Those that survive, should come out of it stronger and more able to deal with future downturns in business. But, if they don't get a lucky break soon, there's not going to be many left!
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Motley Fool writer/analyst Mike King owns shares in JB Hi-Fi. The Motley Fool's purpose is to help the world invest, better. Take Stock is The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request your free subscription, whilst it's still available. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
