Gloria Jeans franchisees caught up in closure of 16 more Borders stores

The toll from the collapse of REDgroup Retail continues to grow, with administrators announcing the closure of 16 more Borders stores.

But it’s not just the staff, customers and suppliers of the book chain that have been caught up in the closures – 14 Gloria Jeans franchisees operating within the book stores are also affected.

Gloria Jeans said this morning it is looking at legal action. It is also looking at “new locations along with preparing financial assistance packages for each partner to assist in relocation.” 

The Borders closures, to take place over the next eight weeks, will take the number of Angus & Robertson and Borders book stores operating in Australia to 76.

Sixty-five Borders and Angus & Robertson stores have closed since the debt-laden REDgroup Retail went bust almost two months ago.

Ferrier Hodgson, appointed administrator to the private equity-owned business in mid-February, said the closures would kill 310 permanent and 200 casual jobs.

But beyond the internal job cuts, the further closures will have wider effects.

Gloria Jones added this morning it was “disappointed” by the news.

“Although we have taken extensive measures to ensure continuous service to our valued guests, unfortunately the closure of these stores will force our coffee houses at these locations to cease trading,” it said.

“Gloria Jean’s Coffees has engaged specialist legal advice to review the position of our company and that of the Franchise Partners who own coffee houses within the affected.”

However, Gloria Jeans franchisees located in the Borders stores that are still trading are also being hurt, with the negative publicity surrounding the collapse of REDgroup Retail hitting turnover.

One franchisee operating within Borders told SmartCompany that sales had fallen since REDgroup went into administration.

The franchisee says those Gloria Jeans outlets in Borders stores to be shut have seen their sales fall between 20% and 35% since Ferrier Hodgson’s appointment.

The fresh round of closures and job cuts leaves just nine Borders and 67 Angus & Robertson stores throughout Australia.

But the number includes the 25 A&R franchisees who announced their plans to go independent this week. This would leave Ferrier Hodgson with a substantially smaller business to revive or sell. The administrator said it would make an announcement on the independent stores tomorrow.

The 25 franchisees who decided to cut their ties with REDgroup claim the owner breached their franchise agreements by failing to honour gift cards issued by the chain, thereby damaging the individual stores’ reputations. They also argued they were no longer receiving the benefits of being a franchisee.

But Ferrier Hodgson has fought back, saying it intends to “hold each of the franchisees fully accountable under the terms of the franchise agreements.”

Ferrier Hodgson’s Steve Sherman says the “restructures” are moving the business towards a “more sustainable model.”

Whether the closures are a good or bad thing for Ferrier Hodgson’s task remains to be seen, but the administrators’ decision to close so many stores so quickly suggests the stores’ trading positions were extremely unhealthy.