REDGroup update: money owed

Administrators Ferrier Hodgson has confirmed that 75% of the money owed by REDgroup Retail to non-staff creditors is owed to the group's owner Pacific Equity Partners (PEP).

As reported by Bookseller + Publisher's Weekly Newsletter (log in required).

REDgroup--which owns the Angus & Robertson chain in Australia, Borders stores in Australia, New Zealand and Singapore and the Whitcoulls business in New Zealand--called in administrators Ferrier Hodgson last Thursday following a board meeting.

Ferrier Hodgson partner Steve Sherman told the NZ Herald this morning that 75% of the money owed by REDgroup to non-staff creditors, which the NZ Herald reports is believed to amount to A$170 million (NZ$226.1 million), is owed to the Group's private equity owner Pacific Equity Partners (PEP).

Ferrier Hodgson announced earlier this week in a circular to creditors that the first meetings of REDgroup creditors will be held in Melbourne and Auckland on 1 March. The administrators said that the purpose of the first meetings of creditors is to determine if a committee of creditors is to be appointed and if so, the membership of the committee. Creditors will also be given an opportunity at these meetings to appoint a different administrator for the company if they wish.

A number of REDgroup staff members have been 'nominated from different areas of the group as key representatives to attend the meeting' on behalf of REDgroup employees. In Australia these representatives are Harmonie Green (Borders Carlton); Richard Williams (Borders Chadstone); Kate Cherry (Angus & Robertson Broadmeadows) and Troy Pretty (Angus & Robertson Fountain Gate).

Creditors will consider a report on the business from the administrators and 'resolutions regarding the Group's future' at a second round of meetings, originally scheduled to be held on or before 24 March, but likely to be postponed, according to Sherman.

Ferrier Hodgson also released the names of REDgroup businesses which are subject to the administration arrangement on its website this week. Excluded from this list is the REDgroup-owned Supanews chain of newsagencies. Inside Retailing has also reported today that Borders stores in Singapore will not be affected by the administration arrangement.

The administrators also released a number of documents containing additional information for employees, franchisees and suppliers on its website this week. The documents can be downloaded here.

Official statements regarding the redemption of gift vouchers have also been released on the Angus & Robertson and Borders websites since the administration announcement last week. As reported in the mainstream media, customers wishing to redeem Angus & Robertson and Borders gift cards at company stores are required to spend double the face value of the card.

Ferrier Hodgson said in a statement yesterday that customers who do not wish to redeem gift cards according to the policy above are advised to either retain the vouchers for use in 'any business that may emerge from the administration' or register as an unsecured creditor of the company and forfeit the ability to redeem the vouchers in store. The administrators also advised that the redemption of gift vouchers in franchise stores is at the discretion of the franchisees.

Industry responds to news

A number of key figures in the local bookselling and publishing industries spoke to the Weekly Book Newsletter last week about the REDgroup news.

CEO of the Australian Booksellers Association (ABA) Joel Becker told the Weekly Book Newsletter that the ABA was 'very saddened to hear that Angus & Robertson [and] Borders have gone into voluntary administration and our hearts go out to [REDgroup] staff'.

Becker said that retailers throughout the industry had faced 'a perfect storm' of factors in recent times that 'make it very difficult for bricks and mortar stores' with 'minimal attendant response from Australian publishers and distributors'.

'We at the ABA are going to be working with our members, assisting them where they don't have one to have a better online presence,' said Becker.

Becker said the ABA would be introducing IndieBound in 'the next few months' and working with booksellers so that ‘bricks and mortar stores can have online presence and ecommerce [facilities] including the ability to sell ebooks'.

CEO of rival bookselling chain Dymocks Don Grover told the Weekly Book Newsletter that REDgroup Retail is not alone in facing difficult circumstances and the news highlights further industry-wide concerns.

'Of course any form of retail is finding trade subdued and difficult at the moment which means the most important thing is ... a good customer-focussed strategy,' said Grover.

'This occurrence was perfectly capable of being foreseen,' said Grover. 'The fact is that we're in an uncompetitive wholesale market and protection has got to stop,' he said, referring to Australia's laws regarding the parallel importation of books.

'We now call on the Government to make some decisions in the light of this and protect bookselling jobs and immediately remove the protectionism,' said Grover.

Chairman of Booksellers NZ Hamish Wright said in a statement last week that the REDgroup news appeared to relate to the group's specific financial structure.

'We are very hopeful that the administration process will allow REDgroup Retail to restructure its financial position in order to strengthen successful stores and create better support systems within the group,' said Wright. 'Our hope is that all stores belonging to the group [in New Zealand] will remain open in the long term'.

CEO of the Australian Publishers Association (APA) Maree McCaskill described last Thursday as a 'sad day for book retailing' and said that the news 'reflects the overall crisis in Australian and global retail'.

'We encourage customers of REDgroup to continue to support [the company] while they are in administration and publishers sincerely hope that a solution can be found to ensure that another entity emerges from this,' said McCaskill, who also expressed concerns for REDgroup Retail staff.

Managing director of Hachette Australia Malcolm Edwards told the Weekly Book Newsletter that the publisher was 'not at all surprised' at the news.

'I think the thing that has been missed in all the news coverage [about REDgroup] is that for the past three years REDgroup Retail has been woefully managed, and that is the reason for its demise,' said Edwards. 'Any retailer who thinks it can load up prices... well it is pretty obvious what will happen to them.'

Edwards said that Hachette is owed a 'considerable amount' of money by the bookselling chain but he sees the development as being ‘potentially positive'.

'I am very hopeful that a phoenix will rise from the ashes and that what comes next [post REDgroup] will be better than before'.

Echoing Edwards' sentiments, Scribe publisher Henry Rosenbloom told Crikey on Friday that the REDgroup story is 'not a territorial-copyright story, nor is it an internet-takes-over bookselling story'.

'Borders [and] Angus & Robertson in its REDgroup incarnation was a very badly run business, for which the owners, PEP, are responsible,' said Rosenbloom.

'It's a very good example of why bookselling is not a corporate business. It's a hands-on, detail-intensive business, with low profit margins,' said Rosenbloom. 'Only people who love it and know what they're doing can make a success of it--internet or no internet'.

Chain to remain member of BISG

The Federal Government has confirmed that REDgroup chair Steven Cain will remain a member of the Book Industry Strategy Group (BISG) despite the company being in administration.

A spokesperson for Minister for Innovation, Industry, Science and Research Kim Carr told the Weekly Book Newsletter that Cain, who replaced former REDgroup chief executive Dave Fenlon on the BISG last year, will remain a full member of the BISG unless he resigns from the industry group.

'Although in voluntary administration, REDgroup Retail remain an important player in the industry and Steven Cain's contributions to the Group's deliberations remain relevant to the whole of industry analysis,' said the spokesperson.

This news of REDgroup's voluntary administration follows a difficult 2010 Christmas sales period for Australian booksellers, with 45% of bookstores surveyed by the Weekly Book Newsletter in January reporting decreased sales for the period compared to the year before. This result was reinforced by figures from Nielsen Bookscan which showed a 2.8% drop in the value of sales for the four weeks leading up to Christmas 2010.

Also in recent news, the Borders chain in the United States has this week filed for Chapter 11 bankruptcy protection and will close up to 30% of its stores. The Borders US operation has no direct relationship with Borders stores in Australia, New Zealand and Singapore.

Angus & Robertson has a long history in Australia, beginning as a partnership between Scottish booksellers David Angus and George Robertson in Sydney in the 1880s. Since then, the company has had several owners, including Ipec Insurance, Gordon & Gotch, Brashs, Whitcoulls Group, Blue Star Group and WHSmith. Its current owners, Pacific Equity Partners, purchased A&R and its sister company Whitcoulls in 2004.