PwC Fears Colorado Group May Not Live Up to Its Loan Agreement Amid Poor Retailing
PricewaterhouseCoopers reported that the sluggish retail activity in the last two years following the global financial meltdown that drastically affected consumer spending may lead Colorado Group to fail to comply with its loan agreement in the next 12 months.
Colorado Group, a footwear and apparel retailer with more than 430 stores throughout Australia and New Zealand, faces the uncertainty of sustaining its ‘going concern’ status if its lenders would demand to be repaid with the $387 million stipulated in its loan agreements terms and conditions. The strong probability that Colorado Group lenders would demand for the compensation could come after the poor retailing performance of the company since 2008, PwC said.
For the financial year ended July 2010, Affinity Capital-owned Colorado Group suffered a 2.3 percent decline to $465.2 million in its sales revenue and a loss of about $70.7 million in debt restructuring. Massive discounts awarded to customers have also dragged down the sector’s returns, PwC said.
Customers’ confidence has plunged drastically since interest rates have been increased this year by the Reserve Bank, contributing to the downturn of retailers’ revenue.
On December 29, trades of retailers, including Colorado Group, have stooped to levels last seen years ago, accounting for 45 percent of the entire sector, according to the Australian Retailers Association (ARA). Russell Zimmerman, executive director of ARA, said that the scaled-down consumer spending in the last few days leading up to Christmas has disappointed retailers who were expecting rush in sales for this season.
The lower consumer spending prompted Colorado Group and other retailers to award large discounts to consumers, diverting from the convention of scaling up prices to their full value in busy seasons like this.
Although retailing activity went sluggish this year, ARA said total spending from Australian consumers is likely to hit 3.5 percent higher this year than in 2009, or $39.9 billion.
Colorado Group operates apparel brands like Colorado, Diana Ferrari banners, and Jag, and footwear chains Williams and Mathers.