Retailer Harris Scarfe goes into receivership

Allegro Funds says the failure of Harris Scarfe is symptomatic of a wider malaise in the retail sector.

A Harris Scarfe store in Adelaide. Picture: AAP

Allegro Funds founding partner Chester Moynihan says the failure of department store Harris Scarfe is symptomatic of the wider malaise that has gripped the retail sector.

The private equity firm had hoped for a better outcome after buying the chain only nine days ago.

The nation’s struggling retail sector was dealt another confidence blow just two weeks out from Christmas with Harris Scarfe placed into voluntary administration and receivership on Wednesday, putting in jeopardy more than 1800 staff at 66 stores.

Making matters worse for the wider department store category, which includes Myer, David Jones, Big W, Target and Kmart, is that Harris Scarfe could trigger a fire sale of its stock that could severely dent profit margins for rival retailers as they battle to compete.

READ MORE: Harris Scarfe fall catches mall landlords off guard

It is the second time Harris Scarfe has failed after the retailer was placed in receivership in 2001 owing $93m to unsecured creditors and $50m in company debt.

It was later resurrected and until recently was owned by Steinhoff International, which also owned Best & Less, Freedom, Fantastic Furniture, Snooze and Plush. But three weeks ago Steinhoff, which changed its name to Greenlit Brands, sold off Harris Scarfe as well as Best & Less and women’s fashion chain Postie to Allegro.

“We are obviously in a challenged retail environment and it’s a business that clearly is facing headwinds, as a lot of retail businesses are, so at the end of the day it is now in the hands of the administrators,’’ Mr Moynihan said.

“It was part of a group of assets that we bought and suffice to say we bought it with the best of intentions.

“But when you own these businesses essentially sometimes you have to make the hard decisions, and it was a business that before we bought it had a series of challenges.”

Mr Moynihan said Allegro had to take Harris Scarfe as part of the deal to buy the other retail chains from Greenlit.

“Greenlit wanted to get rid of or get out of their general merchandise division; they wanted to focus on their furniture division and so the deal for us was here, you can’t cherry pick, it’s kind of a package deal.’’

Deloitte Restructuring Services partners Vaughan Strawbridge, Kathryn Evans and Tim Norman were appointed receivers and managers over Harris Scarfe, and a number of associated entities.

Operating nationally, but best known in Victoria, South Australia and Tasmania, Harris Scarfe retails linen, kitchenware, homewares, electrical appliances, and apparel through 66 stores. The business employs over 1800 workers and has annual sales of $380m.

Mr Strawbridge said trading would continue as normal over Christmas and employees would continue to be paid by the receivers. He was confident there was more than sufficient assets to meet all employee entitlements.

Harris Scarfe had been making losses for some time, he told The Australian. “Harris Scarfe was a very challenged business, it has got a lot of legacy issues and it is underperforming, it has been loss making,’’ he said.

“It really comes down to — is there the appetite to put significant funding into fund that business going forward?

“And significant money has been invested in this business as well … it has had a fairly chequered past and had a few owners.

“Parts of this business (are) pulling down the rest. There is a good business at the heart of this which has a loyal customer base and a great team.’’

The receivers intend to achieve a sale of the business as a going concern and preserve the employment of as many people as possible.

“Harris Scarfe is a longstanding retail institution. We will be making every effort to secure a future for the business,” Mr Strawbridge said.

Gerard Dwyer, national secretary of the SDA union that represents workers at Harris Scarfe, said he was deeply concerned at the news.

Mr Dwyer said the SDA would file a dispute with the Fair Work Commission over the company’s failure to consult with the SDA prior to this announcement. “This announcement has come without warning and employees are shocked and will be very concerned as they head into Christmas.

“SDA is seeking urgent consultations with the receivers to guarantee that there are in fact sufficient funds to meet the legal entitlements of all employees.”