By Claire Reilly
Retravision CEO Paul Holt has written to its members announcing that the company is set to wind up its national business, with Narta to acquire the Retravision brand in April 2013. The Retravision Australia store network will be carved up and divided between the Narta and Leading Edge buying groups.
Current.com.au has obtained a copy of the complete letter to shareholders and store owners which outlines the reasoning behind the decision, and what is to become of Retravision’s remaining stores in the future.
Retravision (WA) Ltd
7 November 2012
Dear Shareholder / Store Owner
I write to advise that after much investigation, consideration, analysis and effort, the Board and Management at Retravision Western have concluded that we are no longer able to support a stand-alone national or state business model for the Retravision brand.
We are deeply disappointed by this outcome. However, after exhaustive investigations and advice, we cannot see that there is any other conclusion. As result, we are now focused on an orderly wind down of Retravision Western while also seeking to secure a high integrity transition of our remaining business.
Clearly, this is a significant and serious decision that has not been taken lightly by the Board of Retravision Western. In arriving at this decision, the following issues and challenges facing the business have been weighed and measured by Management, the Board and each of our independent advisors:-
– The issue of credit limits and stores being able to open appropriate accounts with the majority of suppliers is proving a massive challenge for many stores across Australia. A significant number of stores have not been able to open commercially competitive accounts (or, in many cases, accounts at all) due to restrictions placed on suppliers by insurers.
– Suppliers are not providing our business with “competitive pricing” in the market, primarily due to significant number of very small stores trading in our group. Of the 180 stores remaining, 100 of our stores are trading below $1.5m per annum in purchases. Regrettably, the cost to service this part of our business is reflected in our pricing offer from suppliers.
– In addition to the above point, suppliers are more and more providing a small number of larger store operators pricing incentives outside of our system. This fragmentation as to pricing and product supply means that our ability to advertise and compete within our state markets or nationally is severely impacted.
– Whilst we have been successful in securing a bank facility to underpin the new business model (through to March 2013), this facility is subject to 23 different covenants strictly tied to the ongoing performance of the business. If we fail to meet any one of these covenants in coming weeks and months, the bank will be entitled to withdraw our facility with immediate effect.
– Noting the above risk, current market conditions are the worst in recent memory. In fact, the Retravision business is down circa 25% on the same period last year and, whilst some of this deterioration is due to the disruption to our business model following the demise of the Southern business, the market at present is very challenging indeed with no sign of significant improvement on the horizon.
– We have fielded many calls from store owners in recent weeks who, mindful of all of the above challenges, have implored us to try and find a better solution for the business than the one we are currently driving and failure to do so quickly will see them having to close their doors.
Presented with these compelling and challenging circumstances, the Board decided to approach NARTA, as that business has been identified as being best able to offer a realistic strategic solution for our business. This was a decision that was seen by Management, the Board and our independent advisors as a legitimate and immediate imperative.
NARTA is a major buying group that has the volume business that could support a brand rationalisation project designed to provide a competitive trading platform for those Retravision store owners who are financially stable and can demonstrate the capability to satisfy the core conditions and disciplines required within the NARTA business model.
Whilst we are still in discussions with Narta regarding how this would work, the high level elements of the plan are expected to be as follows:-
– The Retravision brand will be acquired by Narta with effect from 1 April 2013. We understand that it is likely the Retravision brand will continue to operate primarily in the Western markets, due to the size of our market share in this state.
– Given the significant damage to the Retravision brand in Victoria (preceded by the previous damage that occurred with the demise of Retravision NSW) it is likely that the Retravision brand will be replaced in all of the Eastern seaboard states.
– Stores with turnovers of $3m or less may not be able to be accommodated under the Narta platform. We are therefore also in discussions with the Leading Edge group seeking that they provide a platform to support those smaller stores. Leading Edge is an independent buying group, but will collaborate with Narta to deliver benefit to members.
– It is proposed that NARTA or Leading Edge will provide support services for advertising, IT and price negotiation to stores, depending on the brand option that is selected for each of the stores in question.
– We estimate the brand rationalisation project will take 6 to 9 months to fully execute.
Clearly, there is a significant amount of detail still to be decided and agreed regarding the above plan. What is already clear though is the vast majority of the changes we are proposing will not start to take place until early next year.
We anticipate a more detailed plan will be completed within the next 6 to 8 weeks and be ready for communication to all stores in early January. This plan will outline the group that your store will be invited to join and an indication of when the transition for your store will take place in the New Year.
After extensive and comprehensive investigation and consideration, the Board, Management and our independent advisors believe that in these times of challenge and change in our industry, this plan makes the most commercial and strategic sense. It is clear that to remain on our own without access to substantial public funds or being part of a multi-billion dollar buying group, is no longer viable.
In consultation with our independent advisors, Retravision (WA) Ltd, Management and the Board determined that the path chosen will:-
1. Provide the best possible opportunity for store owners to continue to build profitable businesses;
2. Enable an orderly wind down of our head office business and provide us with an opportunity to deliver a return of capital to our members as opposed to being overtaken by the real prospect of another Retravision State company going into administration without any return to members.
Retravision Western is committed to an orderly wind down of its business model by March 2013 and the NARTA team is committed to working closely with the Retravision team in order to facilitate a high integrity outcome for as many stores in our group as is possible.
We will be in touch with you again as soon as the detailed plans are confirmed in order to outline the transition proposal for your store. In the meantime, we understand that you may receive offers from other parties and we strongly encourage you to carefully consider such offers and await the full details of our plan before making any decisions.
Please contact myself for any further information required at this time.
Chief Executive Officer