Creditors of Bevilles will vote on the proposed deed of company arrangement at a meeting to be convened on May 11.
Directors of the Melbourne-based jewellery and gift chain appointed PPB Advisory as administrators last month in a bid to restructure the business and to exit unprofitable stores.
The family-owned chain indicated it was keen to retain ownership, but was forced to appoint administrators when landlords refused to allow it to re-engineer the business around smaller and fewer stores.
Under the proposed agreement struck with PPB Advisory and retail landlords, Bevilles Corp will acquire 16 stores, retaining 237 staff.
When it was placed in administration, Bevilles had 27 stores and 477 staff. Eight stores have been closed and three more will shut by June 30.
The 80 year old retail chain undertook a major rebranding program last year, introducing new smaller concept stores focusing on jewellery ranges in a bid to lift sales and profitability, but underperforming stores have continued to impact trading results.
Michelle Beville, Bevilles’ former CEO who will also head the new entity, was unable to renegotiate some leases with landlords to cut costs and exit stores, and determined the only option to allow the chain to restructure was a voluntary administration process.
Beville, who has worked in the business for more than 20 years as a store manager, regional manager, marketing and sales manager, and buyer, developed a business strategy of smaller footprint stores of around 90sqm, eliminating giftware to concentrate on jewellery.
The smaller jewellery only concept has been tested at Highpoint shopping centre in Melbourne, and Liverpool in Sydney.
Bevilles stores have traditionally been around 150sqm to 180 sqm and the cost of rents, staff, and other outgoings made the business model unprofitable, particularly with competition in giftware cutting prices and margins.
Beville says the new structure will support the move to new look, jewellery only stores which will focus on diamonds and a range of watches.
“The new format outlets will be approximately half the size of previous stores while new systems and processes will be implemented to streamline operations, improve efficiencies and reduce costs.”
Bevilles incurred trading losses of more than $12.3 million since July 2011, including $3.57 million in the current financial year.
The chain was only able to continue trading because of loans. With total liabilities around $14 million, it is possible that the chain traded while insolvent.
In the event that the Australian Securities and Investments Commission investigates the insolvent trading issue, directors of the new ownership vehicle could face heavy penalties, although directors could have a defence in having been prevented from taking action to cut losses by the refusal of landlords to renegotiate leases.
PPB Advisory conceded directors of the family company could possibly have provided further funding to the business in the event of continuing losses.
Secured creditors, including the Beville family, are owed $5 million, with outstanding employee entitlements of around $1.5 million.
Unsecured creditor claims are around $7.5 million with the Indian-based jewellery manufacturer Tara Jewels, owed $6.4 million.
Bevilles posted a profit of $908,000 in the 2011 financial year, but lost $2.09 million, $6.75 million, and $3.6 million in the subsequent three financial years as a result of falling sales and high fixed expenses.
Trading losses have been largely funded by reducing stock holdings, increasing trade creditors, and loans from related parties.
Sales fell from $83.5 million in 2011 to $71.9 million last year, and were set to fall further in the current year with revenues to March 31 at $54.7 million.
The decrease in sales in 2013 and 2014 reflects a decline marketshare, but also a shift out of low margin giftware ranges.
Margins and profits did not benefit from the change in merchandise strategy because of clearance costs and the high and increasing fixed costs associated with stores that had more floorspace than was required for the revamped merchandise mix.
PPB Advisory’s report to creditors notes there were five key factors in the Bevilles collapse – continuing trading losses, overdue taxes, a poor relationship with the company’s creditors on extended trading terms, and special arrangements with selected creditors.
Provided creditors approve the deed of company arrangement, Beville plans to convert four stores to the new smaller format by Christmas.
The majority of the remaining outlets are expected to be trading under the new format by the end of 2015, with all stores selling only jewellery and watches.
This story first appeared in Inside Retail PREMIUM issue 1997.
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