Colorado to close 140 stores: Three lessons for managers

The announcement Colorado Group will close 140 stores and sack more than 1,000 people after failing to find a suitable price for the clothes and shoes business is food for thought for those pondering the health of Australia’s retail industry.

While it was expected Colorado might receive offers of up to $80 million, its receivers and managers Ferrier Hodgson say it will slash the size of the business after failing to find a suitable offer despite months of searching.

Ferrier Hodgson says the store closure and job losses – which will take store numbers to 281 Australia-wide and employee numbers to 2,400 – are designed to increase the value of the business.

It added that it was considering offers from interested parties, but the sales process is not expected to reach a conclusion before the end of the month. Brendan Richards of Ferrier Hodgson told The Australian that removing the unprofitable elements should have “people immediately reconsidering how they assess the value of the group.”

While Myer, David Jones and the Solomon Lew-backed rag trader Premier Investments have been named as potential buyers of the assets – which are Colorado, Mathers, Williams, JAG and Diana Ferrari – Ferrier Hodgson says so far no offer has represented the value of the business. Time will tell whether one will by the end of the month.

Here’s SmartCompany‘s three lessons for managers from the Colorado shutdown:

1. Know your brand

Brands change, but not always for the better. In revealing comments, Brendan Richards of Ferrier Hodgson has told the Australian Financial Review that Colorado has been on something of a “directionless journey.” He added: “There is a good, core business suffering from a shroud of under-performance in certain aspects of the business.”

Fingers have pointed to Colorado’s shift from a male-focused outdoor wear retailer to middle-of-the-road leisure chain, particularly given the times seem to suit either mass market or niche offerings. The Colorado shoes will continue to be sold in its Mathers and Williams stores, as well as online.

2. Know when to fold ’em

Alarm bells ring when you read Ferrier putting the collapse down to the “under-performance of the Colorado brand over a six-to-seven-year period.” Given Colorado Group had 441 stores and 3,400 employees at the time of Ferriers’ appointment three months ago, questions can be asked about whether its owners ought to have made some tough decisions – closed more under-performing stores, for a start – before the collapse reared its ugly head.

3. Long-term focus, and experience to boot

Private equity owners got a bad rap when REDGroup Retail collapsed, with industry experts pointing to the owners’ high debt levels, short-term timeframe, neglect of key performance indicators, and unrealistic expectations. While books are different to clothes and shoes, it’s worth remembering Ferrier Hodgson’s earlier observation that management had changed three times in four years, and the company’s EBITDA had been slashed by almost two-thirds for the 2010-2011 fiscal year. Having paid $430 million for the business in 2006, Affinity has grappled with Colorado’s $400 million debt load and the under-performance of its eponymous brand – an unwelcome distraction during the GFC and its aftermath.