Greenlit Brands, which owns Fantastic Furniture, Freedom and Snooze, has survived financial fraud and Covid-19

Former boss of The Good Guys is remarkably frank about the mess he walked into at Greenlit Brands and the corporate scandals that nearly sank it.

Michael Ford: Greenlit has grown e-commerce sales from $60m to $300m.

Michael Ford is remarkably and candidly frank when he explains the corporate mess he walked into when taking on the role of saving the Australian arm of scandal-ridden retailer Steinhoff International to stop it sliding into bankruptcy, only to then be whacked by Covid-19.

“It’s like walking into an ambush and being hit by two claymores, it was a terribly difficult time … and quite candidly at the outset we did not know what we were going to be faced with,” the boss of integrated retailer Greenlit Brands, whose chains include Fantastic Furniture, Snooze, Freedom and Original Mattress Factory told The Weekend Australian.

Mr Ford, a highly respected veteran of the retail sector and CEO of The Good Guys for 13 years before it was sold to JB Hi-Fi, was appointed by South African group Steinhoff to run its Australian operations in 2017 with an ambitious mission statement to grow the business as it gathered more retail brands under its roof.

And then the wheels fell off.

Only months into his role it was discovered that Steinhoff was involved in an accounting scandal that had seen a number of top executives overstate profits for several years by as much as $US7.4bn, with fictitious transactions, cooked books and outright fraud wiping out shareholders equity and collapsing the share price.

Steinhoff International announced the resignation of its worldwide CEO, Markus Jooste, who was suspected of serious accounting irregularities and a failure to achieve sign off from the company auditors, Deloitte.

The Steinhoff share price collapsed from Euro 3.50 per share in November 2017 to around thirty cents in December 2017 and the company went into a liquidity free fall, as well as a management crisis and a financial reporting crisis.

That was Mr Ford’s welcome to Steinhoff. Then the pandemic hit, and a sale of some of its local assets such as Harris Scarfe, Best & Less and the closure of a poorly timed launch of British department store Debenhams helped steady the ship.

Greenlit did also consider the potential for an IPO of Fantastic Furniture in 2020 but this was derailed by the Covid-19 pandemic, while Mr Ford did reveal to the Weekend Australian ultimately Greenlit Brands would sell off all its divisions – but it isn’t in any rush.

Any further divestments will come from a position of strength, and what a difference a few years make. A slimmed down Greenlit Brands (they wisely dropped the Steinhoff moniker) has now not just survived but thrived to have annual revenue of $1.5bn, strong profit growth of 39 per cent in 2021 and the Australian offshoot is now actually sending dividends back to the Steinhoff mothership.

“At the outset of the pandemic we did not know what we were going to be faced with, the fact that our business actually outperformed what we anticipated it might do was extraordinary. In one case Fantastic Furniture remained open the entire period and I guess my apprehension and sleepless nights was around the fact that our people would get sick, and not only themselves but also affect the customers.

“The courage they have shown is almost like frontline doctors and nurses in that period … the courage of the group to stay open having faced the adversity it had from a financial standpoint was quite extraordinary and I guess to our surprise we knew we were well equipped from a e-commerce standpoint because we had invested in tier one platforms and the group was very well geared.

“In the case of Fantastic every store has an adjacent showroom so our ability to drive click and collect was extremely positive for us and so that brand performed very well through the period.”

Mr Ford said in some weeks the Fantastic Furniture business was doing 40 to 50 per cent of its weekly sales on e-commerce, with the stores open. “So it really put those platforms to the test, and now as we move into what hopefully will be more normalised times that’s going to provide us with a serious competitive advantage.”

Now looking back on the pandemic, which has overshadowed the Steinhoff fraud scandal, Mr Ford said he and his senior team were surprised in the way customers happily pivoted to buying furniture online, a category many believed was not fit for e-commerce.

“To our total surprise and to the surprise of some of our executives, the view was it was all about touch and feel, and we saw particularly in the value end with Fantastic Furniture … they were quite happy to make their purchase and pop up with their ute at the back of the store and pick up the goods.

“And Fantastic is very well positioned because most of the stores have warehouses attached to the store, and many would say that is lunacy because you are paying retail rents for warehousing, but in fact it facilitated click and collect extremely well.”

Although its more mid-market and higher value chains such as Freedom and Plush it lent itself to customers seeking to ‘touch and feel’ the product before committing to a purchase.

Under Mr Ford’s watch Greenlit Brands has embraced a digital first strategy and has grown its e-commerce sales from around $60m to $300m over the past four years as it formulates an omni-channel platform. In 2020 Greenlit Brands bounced back to a small profit of $13.585m, from a loss of $163.958m loss in 2019, following a massive restructure and divestment of some of its businesses.

The fact many of Greenlit Brands retail arms are also fully integrated, manufacture in Australia or are ‘made to order’ has also helped the business avoid some of the supply chain issues and logjams now impacting many local companies, especially retailers. It has a strong domestic supply chain and is one of the biggest mattress manufacturers in Australia.

But that doesn’t mean it has escaped all the disruptions caused by the pandemic and strained shipping, with some made to order lounge suites taking 12 weeks to get to customers before Covid-19 hit and that lead time now blowing out to in excess of 20 weeks.

“The consumer does understand, and we’ve also skilled our people into selling into longer lead times and the consumer has behaved very well … we are running at about 3 per cent (customer) cancellations and cancellations was our worry so that (3 per cent) wouldn’t be significantly out of the norm.”

The group is debt free too, having raised $110m in November from the sale of Plush to rival retailer Nick Scali and Mr Ford said other parts of its business are also candidates for sale if the right offer comes along.

“Over the course of time we will divest the businesses, but we are not in a hurry, the shareholder is very happy with the fact we have reduced our debt and are actually remitting dividends, significant dividends, to them so they are very comfortable that we know what we are doing.

“I think they (Steinhoff) will pick their time unless a white angel comes along and makes them an offer they can’t refuse.

“Our objective really is to improve the return to the shareholder by improving these businesses through what we would define as remarkable retail and that’s what our pursuit is and it has worked well over the period.”

He reflects it has been the most challenging time for retail that he has ever seen, but if the business can survive a massive financial fraud and the global pandemic it can probably survive anything.

“I am delighted how we have performed and the market share we have gained over this period.”

Originally published as Greenlit Brands, which owns Fantastic Furniture, Freedom and Snooze, has survived financial fraud and Covid-19