Road to receivership: Where did retailer Clive Peters go wrong?

Published on May 19, 2010 Road to receivership: Where did retailer Clive Peters go wrong?

Less than a week after being awarded the Sitecore Ecommerce Site of the Year for Australia and New Zealand, Australian retailer Clive Peters has been placed in to receivership, with a debt bill of  $38 million.  What’s more, Smart Company magazine have reported that some suppliers are predicting a drop in sales by up to 20% as a result of this happening.

So what went wrong?

When the economy was going well, Clive Peters expanded their physical network of stores rapidly to 45 but did not go online until mid 2009. Their online store is easy to use and worthy of the award it won but it came too late in the piece to offset the large amounts of debt that they incurred in their expansion.

Because Clive Peters was marketed head-t0-head with larger retailers like Harvey Norman instead of as a niche or specialist chain, it gave customers the expectation that they could and would compete head-to-head on price as well. This squeezed margins which worked okay when the economy was going well but when Kevin Rudd’s stimulus money ran out this year and the economy started to turn down, it really started to hurt them to the point where they could not meet their debt obligations.

They also had a lot of bad luck –  for example they were stung when an employee defrauded them by $20 million last year. 

What lessons can others learn?

Some people will take a negative view like “If a big store like Clive Peters can’t compete in this economy how can  I?” but that’s the wrong view to take. You can compete in this economy but you can learn some lessons from their unfortunate situation:

• When things are going well, don’t rush to expand – manage your debt carefully
• Get online sooner – online has lower margins than a physical store and can complement your network of physical stores. You don’t have to spend millions of dollars in advertising to get people into your stores online. Some targeted advertising, a strong offline brand, using your physical stores to promote your online stores and search engine marketing (SEO) can all help.
• Don’t just put your product online, start selling online using a real online shop.
• Find your own specialist area or point of difference and compete on that – don’t try to do everything for everyone. Even in the online world you need a clearly defined market. If you’re in a niche and offer something different from your competitors, you won’t be so squeezed when times are tougher
• By all means trust your employees, but the bigger you get the more important it is to have the processes in place to detect accounting irregularities – well before they defraud you by $20 million.

There will always be a place for physical stores as not everything is well suited to selling online (or is cheap enough to deliver). Ecommerce and physical stores can really complement each other if the retailer has the right mindset for success.