21 June 2020 Consultancy.com.au
New Zealand women’s fashion brand Max is currently working with a partner from Australian consultancy McGrath Nicol to restructure its operations. At present, 17 of the company’s stores are lined up for closure, after having virtually no revenue during the Covid-19 lockdown.
McGrath Nicol is a specialist advisory and restructuring firm that has built a reputation for managing complexity and consistently delivering the results our clients need. According to a report earlier in the year from the firm, the retail scene in New Zealand and Australia is expected to see a heightened need for restructuring in 2020, warning that electronic card data suggesting retail spending was down just 2% from a year earlier was just a short term result – one likely to get worse in the coming months.
This was supported by industry association Retail NZ’s most recent Retail Radar report, which estimated that by May 2020, 7,500 firms had already been lost amid the economic slowdown from coronavirus. In its worst-case scenario for the medium term, Retail NZ said up to 17,100 retail businesses may cease trading, equating to 65,000 job losses.
Amid this, Auckland headquartered women’s clothing brand Max Fashion has announced plans for a major restructuring operation. Having been in business since 1986, the firm’s most recently available public financial statements leading to June 30, 2018, saw the company enjoy sales worth $50.1 million. It turned a $2.3 million profit after tax, while then-Chief Executive Simon West was paid $456,000. Since the Covid-19 crisis, however, the firm has seen a drastic change of fortunes.
Having seen income drop to virtually zero amid the lock-down, the retailer has called upon McGrath Nicol partner Conor McElhinney for help to plan a turnaround. In proposal documents, Max has said that despite receiving $1.7 million in wage subsidies from the Government for its 284 staff, it had incurred “considerable losses” due to costs that could not be avoided during the lockdown. As a result, Max plans to terminate 17 leases by the end of July, while its remaining landlords would see a reduction of about 30-to-40% in rent for the 2021 financial year – if trading goes to forecast.
McElhinney, who is acting for Max, said the government’s business debt hibernation (BDH) scheme or its rent arbitration scheme did not fit the circumstances the retailer was facing. He added that the commercial rent arbitration scheme introduced in June did not suit the size of business, because Max would have to enter arbitration with more than 30 landlords, which was not practical.
“The key flaw with BDH is that all of the debt must still be paid in full in the future, including potentially rent for April and May for example. It only hibernates debt, it does not eliminate debt. BDH also does not work to allow leases to be cancelled and stores closed,” McElhinney explained.
While Max did not confirm how many jobs would go with the 17 stores – just over half of which are in Auckland and Christchurch – the company said that its other suppliers have agreed to discounts and deferred payments, and senior management have taken a permanent 30% pay cut. If it can reach an agreement for its restructuring with landlords, it added staff will be paid wages as usual.