Godfreys’ Collapse Leaves Former Employees and Creditors in Financial Lurch

Godfreys’ Collapse Leaves Former Employees and Creditors in Financial Lurch

Almost 460 former employees of Godfreys, the once-prominent vacuum cleaner retailer, are set to receive just 73 cents on the dollar for outstanding wages and entitlements after the company fell into administration earlier this year. Meanwhile, creditors seeking to recover a staggering $45 million in debt will walk away empty-handed.

The Fall of a Retail Giant

Godfreys, a 90-year stalwart in the vacuum cleaner market, succumbed to financial pressures in January 2024, leading to its collapse. Despite efforts to find a buyer who could resurrect the company, no viable deal materialised. The retail chain, which once boasted 160 stores, was unable to withstand the fierce competition from larger rivals such as Harvey Norman and online behemoth Amazon.

By the end of May, all physical stores were shuttered, and the company’s online operations ceased, resulting in approximately 635 employees losing their jobs.

Employees are owed more than $10 million, encompassing annual leave, payment in lieu of notice, long service leave, and redundancy pay, according to a report by the administrators. Additionally, 25 customers were left $18,000 out-of-pocket due to unfulfilled transactions.

The report from administrators Craig Crosbie, Robert Ditrich, and Daniel Walley of PwC highlighted that former employees would receive only a fraction of what they were owed. The dire financial state of Godfreys means that further compensation is unlikely.

The Blame Game

Management attributed the company’s downfall to several factors. They cited reduced consumer income due to higher inflation and rising interest rates, which pushed customers toward cheaper alternatives. The inability to increase prices amidst stiff competition and high finance costs also played a significant role.

Moreover, a notable shift in the product mix saw sales of high-margin stick vacuums decline, replaced by lower-margin products like robot vacuums. This shift eroded profit margins significantly.

Godfreys had been haemorrhaging money with substantial losses reported in recent years. The administrators’ report filed with the Australian Securities and Investments Commission (ASIC) revealed a noticeable deterioration in financial performance during 2023 and 2024, with losses escalating to $44.3 million in 2023 alone.

In just seven months until January 31, 2024, the company recorded losses of $22.3 million. Over the last 19 months, cumulative losses amounted to a staggering $66.7 million, driven by declining sales volumes coupled with rising costs across various categories.

Sales dropped by 9 percent, and the average monthly sales revenue fell short by $1.3 million in the 2024 financial year compared to 2023. Operating expenses exceeded gross profits by $18.2 million, exacerbating the company’s financial troubles.

Godfreys' Collapse Leaves Former Employees and Creditors in Financial Lurch

High Costs and Poor Strategic Decisions

PwC’s report attributed Godfreys’ demise to a reduction in sales, increased costs of acquiring stock, rising freight expenses, higher wages, and escalating rents. Additionally, the company struggled to cut head office costs and failed to close underperforming retail stores promptly.

The average cost of stick and robot vacuums saw significant hikes, rising by 8 percent and 26 percent, respectively. Furthermore, since the financial year 2021, Godfreys had acquired numerous franchise stores intending to convert them into company-owned outlets, a strategy that ultimately backfired.

“Most of the franchise stores acquired ultimately became loss-making,” the administrators noted. The report indicated that store closures were not feasible due to insufficient financial resources to cover redundancy payments and other employee entitlements, along with potential compensation to landlords for lease breaches.

Unpaid Debts and Disappointed Creditors

Over the past three-and-a-half years, Godfreys spent $27 million to buy out 36 franchise stores. Despite these investments, the company could not turn the tide in its favour. Now, 264 creditors collectively owed almost $45 million, including major vacuum cleaner manufacturers TEK, Bissell, Electrolux, and EcoVacs, as well as various landlords and the Australian Taxation Office (owed $883,000), will not recover their investments.

PwC presented three options to creditors in its report, ultimately recommending against the liquidation of the company’s assets. Instead, they encouraged a deal with secured lender 1918 Finance. The report found that under a liquidation scenario, a “low” estimate of 73 cents on the dollar would be allocated to employees owed entitlements.

Despite efforts to attract buyers, including engaging with 55 interested parties, providing 26 of them with summary information packs, data room access, and sales process instructions, and receiving six offers, a suitable buyer for the retailer could not be found. The administrators noted that some prospective buyers lacked the ability to secure funding, while other offers were deemed to be of “poor or low value.”




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