Horror outcome after retailer’s $45m collapse

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Nearly 460 former Godfreys employers may receive as little as 0.73 cents on the dollar for outstanding amounts owed to them following the vacuum cleaner retailer’s bankruptcy earlier this year. Creditors demanding repayment of $45 million in debt, however, will get nothing.

The 90-year-old retailer filed for bankruptcy in January and attempts to find a buyer to revive the company failed after it faced competition from larger rivals such as Harvey Norman and Amazon.

As a result, all 160 stores were closed and online operations were suspended at the end of May, while around 635 employees lost their jobs.

According to an administration report, employees are entitled to annual leave, notice period compensation, special leave for long-term employees and severance payments, among other things.

At the same time, 25 customers were left with $18,000 out of pocket, the report said.

Company management attributed this to lower consumer incomes caused by higher inflation and rising interest rates, as well as customers switching to cheaper alternatives.

They also pointed out that competitors were unable to raise prices and that financing costs had increased due to higher borrowings to cover operating losses and finance franchise acquisitions.

Management also cited a “shift in product mix, with sales of high-margin products, particularly stick vacuums, declining and being replaced by sales of lower-margin products, including robots.”

According to an insolvency report filed with ASIC, Godfreys had lost significant amounts of money as the company’s financial performance “deteriorated” noticeably in 2023 and 2024, with losses increasing to $44.3 million in 2023.

In the seven months ended January 31, Godfrey’s accumulated losses of $22.3 million, the report said.

“Declining sales volumes coupled with rising costs in a number of categories are having a negative impact on

The group’s margins have been impacted, resulting in losses totaling $66.7 million over the past 19 months,” the report said.

Sales declined significantly, by 9 percent, and actual average monthly sales revenue was $1.3 million lower in the current year 2024 compared to fiscal year 2023, the report added, while Godfery’s operating expenses were $18.2 million higher than gross profit.

The PwC report attributed Godfrey’s decline to declining sales, increased costs of sourcing goods, rising freight costs, higher labor and rent costs, the inability to cut costs at the company’s headquarters and the failure to close underperforming retail stores to stem losses.

It was also found that the average cost of stick vacuum cleaners and robot vacuum cleaners increased by 8 and 26 percent, respectively.

“In addition, since around the 2021 financial year, the group has acquired numerous franchise stores for conversion into group-owned stores, which has exacerbated the decline in the group’s trading performance,” said the company’s administrators, Craig Crosbie, Robert Ditrich and Daniel Walley of PwC.

“Most of the acquired franchises ultimately made losses.”

Store closures are also not feasible, the report said.

“It should be noted that the group probably did not have sufficient financial resources to finance a store closure program, which would have required the payment of severance pay and other employee entitlements in addition to compensation to landlords for any breach of contract,” the insolvency administrator said.

The report revealed that 36 franchise stores had been acquired over the past three and a half years for a total cost of $27 million.

It was also revealed that 264 creditors, who were owed a total of almost $45 million, will not see a penny following the company’s collapse. These include vacuum cleaner manufacturers TEK, Bissell, Electrolux and EcoVacs, as well as a number of landlords. The Australian Tax Office is also owed $883,000.

PwC presented creditors with three options in its report – advising against liquidating the company’s assets and instead recommending a deal with a secured lender, 1918 Finance.

The report concluded that workers would be entitled to a “low” amount, estimated at 73 cents on the dollar, in the event of a liquidation.

Although 55 parties expressed interest in Godfreys, 26 parties received a summary information package, access to the data room and instructions on the sales process, and six offers were received, no buyer could be found for the retailer, the insolvency practitioners found in their report.

They found that some parties lacked the ability to find financing, while other offers were “poor or of low value.”

Godfrey’s, one of the “world’s largest vacuum cleaner retailers,” opened its first store in 1931. At the time of its bankruptcy, the company had 141 branches, with a further 28 outlets operated by franchisees.

sarah.sharples@news.com.au

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