Smiths City owes creditors $26.8m, including $1m to IRD, outlook for creditors appears bleak

Smiths City operated nine stores when it went into voluntary administration last month.

The outlook for unsecured creditors of the former retail icon Smiths City appears bleak, as liabilities have mounted to more than $26.8 million.

Liquidators for the century-old retailer stated in their initial report that 240 creditors were owed money by the company.

However, any distribution of funds to unsecured creditors was not anticipated at this stage, they said.

Colin Gower and Diana Matchett of BDO Christchurch were appointed administrators of Smiths City (2020) Limited on September 2. The company was then placed into liquidation at the Watershed Meeting of Creditors last week.

In their first liquidator’s report, Gower and Matchett outlined the main reasons Smiths City ran into trouble.

The company had experienced a significant decrease in sales in FY24 amid a challenging economic environment and reduced consumer spending.

Rising costs also had a significant impact on its margins.

“The reduction in both sales and margin, combined with a high fixed-cost structure, made the company unprofitable,” the report said.

Management restructured the business by reducing staff and took steps to vacate unprofitable stores, but couldn’t reduce costs within the timeframe or at the level needed to turn around the company, liquidators said.

Attempts by Smiths City to sell the business in the months before going into administration had been unsuccessful, while trading conditions “significantly worsened”.

The liquidators’ report shows secured creditors are owed $9.5m.

Preferential creditors are owed $1.16m, which includes a claim of $1.02m from Inland Revenue and a subrogated claim by ASB of $211,000, after the bank made funds available for wages prior to the administration.

The liquidators said employees were paid all preferential entitlements in full during the administration period.

The company employed around 137 staff at the time administrators were appointed.

Meanwhile, unsecured creditors are owed more than $15.4m.

The company has estimated assets of $8.7m, however, some of the funds will be subject to administration costs and expenses.

Creditors include ASB, 2 Degrees, Air New Zealand, Coca-Cola Amatil (NZ), Go Media, Miele New Zealand, New Zealand Post, Samsung Electronics New Zealand and Spark.

Colin Neal’s investment company Polar Capital bought Smiths City in 2020 in a deal worth around $60m.

At the time, Smiths City had 29 stores, but operated just nine by the time it went into administration.

Downfall of a retail icon

Chris Wilkinson, a consultant and managing director of First Retail Group, previously told the Herald that Smiths City’s demise was unsurprising, given its position in the market today.

Wilkinson said while Smiths City was a well-established South Island brand, its “biggest misstep” was its move into the North Island.

“[Smiths City] really didn’t have a distinct edge in the North Island and people didn’t know them.

“They ended up taking expensive sites in Auckland and many other areas around the country and they just didn’t have that grunt and that market awareness in the face of the likes of Harvey Norman, which was growing extensively, Noel Leeming and other big brands.”

Wilkinson said retail had also changed, with new big-box retailers branching out into other markets, “chipping away” at the likes of Smiths City.

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Cameron Smith is an Auckland-based business reporter. He joined the Herald in 2015 and has covered business and sports. He reports on topics such as retail, small business, the workplace and macroeconomics.