How UK import Debenhams played a key role in Harris Scarfe’s downfall
The collapse of a British department store in Melbourne played a key role in the downfall of Harris Scarfe, which tumbled into administration before a potential saviour was named this week.
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The failure of British department store import Debenhams played a key role in the downfall of sister retailer Harris Scarfe, a report to creditors has revealed.
Harris Scarfe also had $13.1 million in its bank accounts at the time its new private equity owner tipped the business into voluntary administration, the report shows.
The details are contained in a company activities report lodged by administrator BDO Australia.
It concludes Harris Scarfe ran into trouble because of a “failed network expansion which resulted in a number of unprofitable stores” and “declining retail traffic and sales as a result of reduced consumer spending and online disruption”.
The report also notes Debenhams’ woes in Britain and the closure of its pilot Australian outlet “resulted in a looming unresolvable default under the lease with a significant associated cost”.
The revelation comes after administrators and receivers for Harris Scarfe on Monday announced they had agreed to give the owners of the Spotlight retail empire exclusive rights to negotiate a buyout.
Private equity firm Allegro Funds bought Harris Scarfe from household goods retailer Greenlit Brands in a deal that also included the Best & Less chain and Debenhams Australia.
The package transaction was made as Greenlit hived off its general merchandise division to focus on its furniture chains, which include Fantastic Furniture, Freedom and Snooze.
Harris Scarfe and Debenhams were put in voluntary administration on December 11, little more than a week after Allegro formally took control of the businesses.
The moved shocked the retail sector and caught suppliers and landlords unaware, particularly as Allegro is an experienced buyer of distressed businesses.
Allegro has hived off Best & Less into a separate corporate vehicle and the discount department store chain continues to trade.
Debenhams’ only Australian outlet at Melbourne’s St Collins Lane — an up-market shopping arcade owned by JP Morgan Asset Management — closed early this year.
The closure had already been announced ahead of Allegro picking up the business.
Unsecured creditors to Harris Scarfe are owned $98 million but its collapse is complicated given Allegro has emerged as a key secured creditor.
Being a secured creditor means it will be paid back before unsecured creditors from any money raised during the restructuring and sale process.
That has raised eyebrows among some out-of-pocket suppliers, who fear they will be forced to wear losses as Allegro uses the administration process to carry out an aggressive restructuring process, including walking away from numerous leases.
A separate update to creditors from BDO administrator Duncan Clubb, issued this week, said it was continuing to probe the actions of Allegro.
“As part of the investigation process, we have obtained documents in relation to the assignment of security to the secured creditor and are seeking further documents in relation to the share sale transaction,” Mr Club said.
If a deal to sell Harris Scarfe to the Spotlight Group is to proceed, it could be done by mid April.
The Spotlight Group is owned by the Melbourne-based Fraid family, and also includes camping and hiking supplies chain Anaconda and the Mountain Designs outdoor clothing brand.