By GILES PARKINSON*
Harris Scarfe had a good year in 1998. The discount department store from Adelaide was one of the glamour stocks on the Australian Stock Exchange.
Its sales were soaring, it was snapping up the stores that David Jones could no longer afford to run and it even had enough
money to bail out Poppy King's cosmetics operation.
But that was as good as it got. Harris Scarfe shares, which peaked in 1998 at $A3.90, were worth barely 15 per cent of that before the company was suspended from trading last week.
Its fall from grace was slow at first, as investors reacted to concerns about its rapid expansion and whether it could maintain its margins in a declining retail environment.
But until last month, the retailer was giving a fairly good impression of being able to cope. It had even spent $3 million on the wreckage of online retailer dstore and had entered another online venture with Shell.
Then the bad news started to emerge.
First, Adam Trescowthick, the 35-year-old inheritor of his family's investment, blamed high petrol prices, the slowing economy, the plunging Australian dollar, GST, rising interest rates and low consumer confidence for a sharp fall in profit and negligible sales growth.
It was a familiar story that has been used by many retailers over the past few months.
Coles Myer discount department stores have had such rotten results that the company is looking for a new boss for the division.
Even Dennis Eck, once the pin-up chief executive of Melbourne's financial circles, is rumoured to be considering an early departure.
But now it appears that Harris Scarfe may have been rotten to the core.
The company called in administrators on Tuesday, and said it had discovered serious financial and accounting irregularities stretching back six years.
The board, controlled by the Trescowthick family, who hold a 45 per cent stake, called in PricewaterhouseCoopers to investigate the actions of senior management and the role of its auditors.
The preliminary findings of those investigations clearly demonstrated a significant deterioration in the net asset position of the company, being a material overstatement of stock and an understatement of liabilities.
"The board has been advised that these irregularities have been occurring for a period of up to six years," it said on Tuesday night.
Reports suggest that shareholder funds might have been overstated by almost 50 per cent in its most recent accounts.
Rather than having net assets of more than $100 million, they were closer to $60 million.
It is an extraordinary admission from one of the most prestigious retailing dynasties in the country, and promises to cause ripples across the entire retailing industry.
If Harris Scarfe collapses, it means not only that the Trescowthicks and other shareholders have lost their entire investments, but some prominent names that had taken up shares in exchange for their interest in dstore will also be completely out of pocket.
These include Kerry Packer's ecorp, internet venture LookSmart, Rebel Sport, the Liberman family's JGL Group, and the Besen family's Sussan group.
Even David Jones might get caught up in the whole mess.
The department store group acted as guarantor to the shops it sold Harris Scarfe and may be liable for lease payments if the Adelaide retailer is unable to meet its commitments.
* Giles Parkinson is editor of AFR.com
By GILES PARKINSON*
Harris Scarfe had a good year in 1998. The discount department store from Adelaide was one of the glamour stocks on the Australian Stock Exchange.
Its sales were soaring, it was snapping up the stores that David Jones could no longer afford to run and it even had enough
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