The deal was finalised on Friday 2 May and under the new structure, Bevilles Corp, headed by Michelle Beville, will retain 16 existing stores. Prior to the company being placed into voluntary administration on 1 April, Bevilles operated 27 stores and, while eight have since been closed, the three remaining stores that will not be acquired by the new entity will close by 30 June.
Prior to the appointment of PPB Advisory, the official administrators, Bevilles employed 477 staff, but that will now be reduced to 237.
“We are extremely pleased that our bid to reacquire the business and retain our fabulous 80-year old brand was successful. I would like to say a big thank you to everyone who has supported us throughout the process, including my family, our tremendous staff and loyal customers,” Beville said.
A media statement issued by Bevilles stated the new structure supported 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.
Originally, and throughout the administration process, it was expected that only 14 stores would continue operation however Beville said, “after final negotiations with landlords we were able to acquire two more: Chadstone and Northlands in Melbourne.”
The Melbourne-based company incurred trading losses of more than $10 million over the past three years and total claims against it amount to $14 million. This figure includes related party loans of $3.65 million by Keith Beville ($1.4 million), son of founder Leo Beville, and Deidre Capital ($2.25 million).
According to the administrators’ preliminary investigations report, secured creditors, including the Beville family, totalled $5 million.
The secured creditors list includes a number of watch companies with debts of more than $780,000, however Fossil, Citizen and Seiko all have claims under the Personal Property Securities Register.
Under the Deed of Arrangement, employee entitlements amounting to $1.5 million which, as secured creditors, is expected to be paid in full within the next 4-8 weeks.
Unsecured creditor claims amount to $7.5 million with a single creditor, Indian-based jewellery manufacturer Tara Jewels, being owed $6.4 million.
The Australian Taxation Office is owed $382,000 while another jewellery manufacturer, Hong Kong based Wah Cheong, is listed with a claim of $40,000.
Tara Jewels
The debt to Tara Jewels is interesting because when Bevilles announced an
“alliance” with Tara in January 2013, it was widely rumoured that the Indian manufacturer had purchased part of the Australian business or, at least, had become a shareholder in Bevilles.
At the time of the announcement of the “alliance”, industry speculation was heightened because an official Bevilles notification to other suppliers described Tara as having been “a long standing supplier to Bevilles and is a leading designer.”
The notice also outlined new shipping and payment details saying, “From 4 February 2013, all suppliers will be required to ship orders directly to the Indian jeweller’s Hong Kong office for consolidation and transhipment to Bevilles.”
The collapse of the jewellery retailer and the subsequent administrators’ report would indicate that the business arrangement between the two parties did not include any ownership of Bevilles by Tara Jewels.
However, the administrators’ report offers an explanation for the $6.4 million debt to Tara Jewels.
“In January 2013 an agreement was entered into with the Tara Entities, one of the largest jewellery exporters in India. In addition to providing product direct to the company [Bevilles], the Tara Entities also assisted in sourcing and delivering product from multiple suppliers across India.
“As at 31 March 2014, the majority of debt owed to trade creditors was to the Tara Entities (c$6.6m). Agreed credit terms with Tara Entities are significantly more generous than the company [Bevilles] previously enjoyed, which is reflected in the increased accounts payable figure since FY13. Before the Tara Entities agreement was put in place, international suppliers traditionally required a deposit on order and the balance cash on delivery.”
Key findings
The administrator has made some key findings that include:
- The company has incurred trading losses in excess of $10 million over the past three years due to reduced revenue and high fixed expenses, predominately employee costs and store rents
- Trading losses have been largely funded by reducing stock holdings, increasing trade creditors and loans from related parties
- During the 2013 financial year, Bevilles began to sell down its relatively low margin giftware inventory and focus on rejuvenating the jewellery business. This strategy required operational restructuring in the form of reduced floor space and lower employee head count. To date, the company has been unable to materially achieve the required level of restructuring
- Bevilles funded the repayment of bank debt and trading losses principally through increasing trade creditors ($3.7m), reducing inventory and funding from related parties ($3.7m)
- Inventory reductions of around $3.3m in recent years are also consistent with the change in business direction by selling down giftware
The administrators’ report also states, “We believe the following factors contributed to the company’s current difficulties: a general downturn in consumer retail spending and a change in retail spending patterns, inability to downsize/reconfigure stores to match the changed business strategy, high fixed rental costs on store leases, high head office cost structure and in ineffective changes to merchandising/product range to bolster sales.”
What went wrong?
The report offers a valuable insight into the plight of the business. For the financial year ending June 2011, Bevilles achieved sales in excess of $83.5 million but by June 2013 that figure had declined by more than $11 million to $73 million.
However, the report shows that during the same period while sales were decreasing, not only did staffing costs increase, but by June last year staffing costs were running at 27 per cent of sales. Industry experts suggest that wages, as a percentage of sales, should be around 18-20 per cent.
“I’m not sure on the metrics that they’ve [administrators] reported there but we did have a few redundancies that might have been placed in that period of time that might be obscuring the data.
“I don’t think our lines are crossing together and coming to the right outcome. Whether it’s because of redundancies or one-off anomalies in there in staffing costs that are being reflected in that transition. And also don’t forget that there are increased costs in labour. I think we should start comparing apples with apples,” Beville explained.
The administrators’ report also highlights other problems with the business including increased competition and a loss of market share, particularly in regard to diamond and giftware sales, which would indicate that Bevilles was offering the wrong product to the consumer.
Beville agrees. “Obviously we recognise that for one, we probably weren’t alone, in whether it be the jewellery market or retail overall, they were tough retail years [2011-2013] for many people. Setting that aside we recognise that customers were looking for a different experience, particularly when buying diamonds. The giftware offering was creating confusion for customers so I suppose that was a big part,” she explained.
“The second thing that is important to say is that even in the last year where we reduced the size of the giftware in our stores, where we took it from the front of the store and windows and reduced it probably by 30 per cent, it did actually result in a significant increase in diamonds and jewellery sales at that time,” Beville added.
Trading while insolvent
What might be of concern to the Bevilles directors is the administrators’ assertion that, “the company may have traded whilst insolvent in the period leading up to our appointment, but significant further investigation would be required by a Liquidator in order to reach a conclusion on this issue. For example, we are not aware whether the related party secured creditors would have provided additional funding if necessary.”
“We note that funding injections by Mr Keith Beville in May and June 2013 (totaling $1.4m) and by Deirdre Capital in January 2014 ($2.25m) were provided to repay debt and meet the company’s increased working capital requirements,” noting that the cash injection was made as debt rather than equity.
Bevilles’ financial reports for the years ended 30 June 2012 and 2013 were audited by Deloitte, which issued unqualified audit opinions however, “their report included ‘emphasis of matter statements’ in each year, casting doubt over the company’s [Bevilles] ability to continue as a going concern as a result of the losses incurred in FY12 ($2.1m) and FY13 ($6.7m),” the report stated.
Australian courts have previously identified fourteen general indicators to determine whether a company is insolvent and the administrators say, “Our investigations to date have identified that five of these indicators apply, or may apply, to the company.”
The five indicators pertinent to the Bevilles collapse include, continuing trading losses, overdue taxes, poor relationship with bank including an inability to borrow additional funds, creditors outside trading terms and special arrangements with selected creditors.
The future, what will change?
Commenting on the future of the new business Beville said, “Four stores will be converted to the brand new look this side of Christmas and we hope to get the majority of the others completed next year. In the meantime, all stores will be operating in a jewellery-only focused business – even if it’s in the existing larger footprint, we’ll be creating an environment where they’re actually only operating from the jewellery space. Giftware has been phased out –it will all be gone after next week and all stores will be jewellery-only.”
She outlined a number of things that will put the business back on track and return it to profitability.
“If you’ve got the structure right well then hopefully you’ve got a good chance, which is what we’ve been able to achieve. Working in smaller sized stores will assist in that process.
“The second thing, and more importantly I believe, is that if you provide an environment where customers want to come back and engage with the brand and be passionate about buying jewellery and diamonds, that’s the most important factor and I believe we’re well on track for that,” Beville said.
As the third generation in the business, Michelle Beville is keen to reignite the retail chain. “The pilot stores have shown significant growth in the jewellery [area] and demonstrated that customers are loving the brand and look and feel of the store for their shopping experience. Moving more stores into giving that customer experience is the focus. We’ve got lots of new initiatives on the way and a very contemporary way of retailing. So we’re looking forward to launching those over the next few months.”
As previously reported by Jeweller, Bevilles piloted its “new look” stores, which focused on a smaller jewellery-only format at one site at Highpoint Shopping Centre, Victoria, and another in Sydney, New South Wales.
AT A GLANCE
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