Smouha sagha

The outcome of Smouha Textiles' administration has all the elements of a soap opera. There is the bemused owner, the secretive administrator, the beautiful designer wife, the Chinese connection, the warehouse locked up to prevent removal of stock, farcical creditors meetings and the un-named suitor who may purchase the carcase.

Those who may have looked at buying it, but didn't, have formed shrapnel companies all trying to scoop up some of  Smouha's market.

What we've got here is a textile supernova where information is scarce and rumour abounds. Philip Smouha could be the leading contender for the purchase (backed by some money from a Melbourne donor) but, as revealed at the second creditors' meeting, he is also supposedly on the committee to value the company and its stock, hardly a good position from which to put an optimistic valuation on something he intended to buy. In the meantime he's working out of Dennis Graham's office for a company called Airbot.

And then there is the lady who was managing Smouha while Philip was busy on other matters. She has apparently to gone to work for Sass and Bide which happens to be one of Smouha's major trade debtors.

And here's a beauty. When one of the creditors called the administrator to ask for a list of other creditors (he wanted to know who was in bed with him) he was told that the list would not be forthcoming because it was confidential.

That hasn't stopped a few public domain documents from popping up, however. Smouha's problems began well before we'd ever heard of sub-prime mortgages. Smouha had made a loss of half a million dollars for the year ended June 30, 2007 - on a turnover of $26.3 million. At that point employee benefits expenses were more than $3.6 million and 'other expenses' were shown at $4.2 million, making a massive dent in the trading profit.

By June 30, 2008, the outgoings hadn't changed much, but with turnover down to $20.2 million the loss ran to $2.02 million. The wheels really came off over the following eight months with a loss of $1.78 million on a turnover of $13.7 million. At that point the pin was pulled.

By comparison, White Stallion (the garment supply division of Smouha, formerly known as Hill Textiles) had done better. While it still ran up losses, they were more manageable. For the year ended June 30, 2007, White Stallion managed a creditable turnover of $8.24 million to produce a loss of $77,000. With a little jiggery-pokery that could have become a profit. Not so for the year ended June 30, 2008, with turnover down to $7.7 million and finance costs up, the loss went out to $315,500.

Smouha's balance sheet shows property, plant and equipment valued at about $12 million and therein lies the rub. If liquidators can sell the building for book value the outcome will be little better for the creditors. But that is a big if. 

Personally I'd like to see Philip back in control to rebuild his textile reputation to say nothing of his father, Charlie, who is one of the most respected pillars of textile wholesaling in Australia.

Telltale signs

Empirically, I believe that there are more retailers running sales now than ever before, but how does my gut feeling match with reality. One way to find out was to ask a prominent company that manufactures and sells sale signs.

The one I chose was Designer Sales Signs, currently doing good business - which could be construed as the only positive side of an otherwise dismal fashion retail scene.

The company told me that demand has changed dramatically over the last 12 months. The most popular signs are now specific, in that they announce a percentage off rather than more the nebulous announcement of a sale.

A year ago the most popular sign was for 15 per cent off. Now, there is virtually no demand for those, having being replaced by 50 per cent off as the number one seller. Some signs go as high as 70 per cent off. There is also growing demand for 'closing down sale' signs.

To me, all this points to the fact that retailers, especially in the apparel business, see price reduction as the panic handle to grab in difficult times. Rather than try to entice the customer with desirable merchandise, the assumption is that price is fundamentally more important than style/quality.

I disagree with this. Cutting the tripe out of price only confirms, in the customer's mind, that the goods must have been too dear in the first place and establishes new, lower price expectations for the future. If the money spent on promoting low prices went instead on presenting exciting new merchandise everybody would be better off - except the people selling sale signs.