By James Wells
SYDNEY: After selling 30 million shares for 3.4 cents each earlier this week, Strathfield Group founder and major shareholder, Andrew Kelly, is expected to purchase six franchised stores from his company planned for the Gold Coast.
The move by Kelly follows an announcement made by Strathfield in late March that it plans to franchise 62 of its 87 retail stores to raise between $10 million and $17 million in upfront fees and annual profit of more than $10 million.
Sydney-based Kelly, who was once worth $125 million is reportedly negotiating to purchase six franchises for approximately $600,000 which will be opened in the Gold Coast. The value of each store has been valued from $95,000 to $670,000 depending on size and location.
Earlier this week, Kelly sold 30 million shares in the retailer worth $1.02 million which are expected to be used to fund the move back into retailing for the current consultant to Strathfield who started his business by selling car radios at Paddy’s Market in Sydney.
Kelly still holds 120 million shares or 17 per cent of the company which is worth approximately $4 million. The current share price is well below the company’s listing price of $1.70 in 1999.
Kelly stepped down from the business as non-executive director last year and was relieved of $2 million of a $7 million loan to the company.
“Mr Kelly wants to retire, run six stores and get back to what he’s good at,” Strathfield director and former mobile phone entrepreneur, Warwick Mirzikinian told The Financial Review.
“We’re working through how it’s going to work. It is good news for us because Brisbane is the state we have the most issues in – and with the right people in there, it could really turn around,” Mirzikinian said.
Strathfield CEO Gerard Frack claims the company has taken deposits on 30 of the 62 stores, which are expected to be fully franchised by Christmas. At the end of March, 12 deposits had been taken and another 16 were in negotiation.
Frack has blamed Strathfield’s management structure on the company’s $11 million loss last financial year, and claimed the stores will be profitable under the new model.
“Strathfield previously had an exorbitant management structure at head office which contributed to the annual loss,” he said.
“At store level most of the stores that are on offer produce good net profit before head office charges.We are making available vendor financing to potential franchisees at 12 per cent interest so the exact amount of cash received will not be known until the completion of the process. Experience to date suggests it may be a 50/50 split,” he said.
Strathfield will also retain a number of flagship stores for training and “keeping in touch with the marketplace”.
Under the agreements, Strathfield head office will hold the leases of the franchised stores, which can be held for five years plus a five year option.
Earlier this month, Strathfield acquired 11 C2one stores from the Optus-owned C2one Communications.
The stores are located at Bondi and Chatswood in New South Wales, Carindale, Chermside, Victoria Point and Toombul in Queensland, Garden City and Woden in the ACT and Northlands, Southland and Frankston in Victoria.
The acquisition was described by Strathfield management as being in line with the company’s strategy of rolling out new Strathfield Connect stores in ‘A-grade centres’, and has increase the number of stores from 12 stores to 23 stores.
“The mobile phone business is a critical part of Strathfield’s growth and long term strategy in the market and we are confident of achieving great results here,” said Strathfield Group product manager – mobile, Jack Shamoon.