Kleins chain to close

"Once the owner was in trouble, the franchisees were tied to the destiny of the franchisor," he said. Franchisees had no capacity to do their own thing.

http://smallbusiness.smh.com.au
June 13, 2008

Kleins chain to close

Philip Hopkins

Kleins, the budget jewellery and accessories retail chain that is in receivership, will close its Australian operations over the next few weeks after attempts to find a buyer failed.

The business will launch a closing-down sale this weekend. All Kleins' 35 company-owned stores and 135 franchised stores in Australia will close, and up to 100 employees will be made redundant.

The business, formed 26 years ago and based in Dandenong South, went into administration last month, owing more than $25 million.

Administrator James Stewart, of Ferrier Hodgson, said that despite an extensive marketing campaign, no party wanted to buy the Kleins network as a whole.

Thirty-six expressions of interest and eight indicative offers were received. "The logical buyers did their due diligence and could not be confident with the transaction," Mr Stewart said.

Employees are expected to receive almost all their entitlements through the Federal Government's GEERS scheme. Mr Stewart said unsecured creditors were not expected to receive any return.

The family business was started by Terry and Greg Campbell. It acquired a chain of 16 jewellery stories in 1982 and expanded into a franchise operation in 1990.

Kleins has 200 shops across Australia, New Zealand and South Africa. The NZ business is also being closed and talks are continuing with the South African businesses.

Mr Stewart said Kleins had failed to stay relevant to its market and customers. Its stock was not fresh.

"In the past few years, new competitors such as Diva and Groove have appeared," he said. The changing dynamics were reflected in the companies' respective websites.

"Diva's website offered a more sexy vision than Kleins'."

Mr Stewart said the Kleins business model needed a big overhaul to be relevant, requiring working capital and repositioning of the brand.

There were also structural issues with the franchise, he said. The franchisor provided income guarantees and rent subsidies to the franchisees, and Kleins, the franchisor, was the tenant in all the stores.

"Once the owner was in trouble, the franchisees were tied to the destiny of the franchisor," he said. Franchisees had no capacity to do their own thing.

Mr Stewart said there had been a general slowing in consumer spending.

"In a transaction like this, there are risks that are not insignificant," he said. "A soft retail market does not encourage an entrepreneur to move forward."


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Risks: Franchisor insolvency, Income guarantees, Franchisor is wholesaler and retailer, Lease controlled by franchisor, When the franchisor tanks, so does the franchisee, Canada, 20080613 Kleins chain

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