Listed audio retailer tunes out

Having to pay rental on empty stores has contributed to the collapse of Eastern HiFi Group.

Home entertainment retailer Eastern HiFi Group says being stuck with expensive leases on closed-down outlets was the final straw for the business.

The NZAX-listed company and its subsidiaries asked its bank, the ASB, to call in the receivers yesterday, following several years of losses and a shrinking number of stores.

The specialist audio retailer has just three stores remaining - in Khyber Pass Rd, Auckland; Wellington's Willis St, and the original store in Howick which opened 30 years ago.

That's down from a peak of 10 stores in 2006.

It also has a wholesale division, Avalon Pacific Marketing.

The collapse follows news this week that Australian company JB Hi-Fi is closing its four Hill and Stewart appliance stores in Auckland.

Eastern HiFi receiver Brendon Gibson of KordaMentha said one of the remaining stores was also being closed but the other two would continue trading in the interim.

The group owed about $4 million.

He said it was too early to say whether the operation could be a going concern but with two retail outlets, an importing and distribution division and some stock it was not a complicated business.

"We'll just have to see what comes out of the situation as it develops."

Chairman Denham Shale said the company had been trying for nine months to get rid of leases on the empty Mt Eden and Palmerston North stores, and also to sublet parts of its wholesale facility in Mt Wellington which weren't required.

"You can't live with a liability for rent that is not producing anything."

At its interim results announcement the company said its wholesale business, Avalon, was trading profitably, distributing to rival retailers such as JB Hi-Fi.

"The place for this company was as a wholesaler," Shale said.

South Island investor Ian Urquhart is the largest shareholder in Eastern HiFi with a 51 per cent holding.

Founder Steve Allbury took the company public in December 2004 with a $5 million initial public offer of shares at $1.

Shareholders include South Canterbury Finance owner Allan Hubbard.

Yesterday Eastern HiFi's shares were suspended at 8c.

After making a profit in 2004 and 2005, the company reported losses in the years that followed.

In 2008 it made a net loss of $3.4 million, and a loss of $979,700 for the six months to June 2009.

In 2008 Urquhart gave the business a $1 million loan which was subsequently converted into shares.

He ended up with a greater shareholding when a $3 million 2-for-1 rights issue failed to fire last year.

Urquhart said he had continued to support the business out of loyalty, and the company had worked hard to put things right. But it could not go on forever.

"We couldn't just keep on paying out $500,000 [extra] a year in leases, that's the guts of the whole thing."

Urquhart said Eastern HiFi had some good agency arrangements with overseas brands such as Onkyo, KEF, Boston Acoustic and Audioquest, and the company was concerned about maintaining those relationships through the receivership.