By IRENE CHAPPLE
The Warehouse would face a bill of around $200 million if it decided to quit its troubled Australian arm, analysts say.
But the retailer remains defiant, committing itself to Australia until 2006, when it will reassess its viability in the highly competitive market.
The Warehouse paid A$105 million in 2000
for the budget chains Silly Solly's and Clints Crazy Bargains. But this year the investment is expected to clock up an underlying loss of $30 million to $40 million.
An ABN Amro report this month analyses five theoretical scenarios for The Warehouse: a successful turnaround; linking with an Australian partner; downsizing; selling as a going concern; or liquidation.
The report said The Warehouse had underestimated the market and failed to deliver a clear brand offering.
Among other improvements, it needed to convince Australian shoppers of its worth by making its product offering compelling and its catalogues memorable.
The report calculated the "worst-case scenario" - liquidation in Australia - to cost between $400 million and $500 million, equating to $1.31 to $1.64 on a per share basis.
The report said such an exit would be clean but costly and unlikely given competitors such as Woolworths Australia had expressed interest in The Warehouse's assets.
Other analysts say if The Warehouse did decide to quit the market it would most likely do it through asset sales, knocking between $180 million and $250 million off the company's balance sheet. The mid-point of estimates is around the $200 million figure.
Forsyth Barr analyst Jeremy Simpson said the company could move its operations to Queensland, where its distribution centre opened in September last year.
"That would mean less exposure to redundancies and leases and it wouldn't have such a stock problem, because they could ship it back to Queensland."
But another analyst believed scaling down was not a realistic option. The more likely scenarios, he said, were exiting, trading out or finding a joint partner.
The Warehouse finance chief, Luke Bunt, said leaving Australia "is not an option we are considering".
By 2006, said Bunt, "if [the Australian arm] is in profit the options are narrowed to continuation and if it is not in profit the [options] are wider than that but include continuation".
The market has attributed negative value to the Australian arm for months.
