Background
The Company comprised two retail brands, namely Look and Listen and Jive City. The Look and Listen brand was born in 1969 with a store in Eloff Street, Johannesburg. Look and Listen’s flagship Hillbrow store opened in 1974. At the Commencement Date there were 25 stores made up of – 19 Look and Listen and 6 Jive City stores located at major shopping centres around South Africa.
The business’s traditional product range of CD’s and DVD’s was extended to include a range of gaming hardware and software products such as Xbox, PlayStation and Nintendo.
The Company was placed in Business Rescue the 2nd June 2014, as a result of the majority of the stores no longer trading profitably, due to the following reasons:
Challenges
- Lease issues and complex negotiations with landlords.
- Problems with suppliers maintaining continuity of supply.
- Deflationary price adjustments within the product categories sold by the company.
- Reductions in margins generated by the product categories sold by the company.
- A depressed economic climate, specifically within discretionary retail product categories such as music, gaming and movies.
- Escalated migration of customers away from physical product offerings within the music, gaming and movie categories to digital downloading platforms.
- Illegal downloading and free content acquisition from digital file sharing and other providers.
- Pirate copies of music and DVD sold informally.
- Complex licensing arrangements making it difficult to source alternative markets for digital products.
- Unsuccessful discussions with key stakeholders in an attempt to address industry challenges
- Retention of key staff.
- Slow moving merchandise.
Solution/Strategy
- Refined the retail footprint by consensually cancelling and renegotiating leases where appropriate.
- Retrenchment of staff and where possible voluntary retrenchment agreements were entered into with full severance being paid.
- Limitation of landlord damages.
- Consolidating of inventory into a central warehouse.
- Restructure and relocation of the head office thereby decreasing monthly fixed costs.
- To make the Plan attractive to ensure its successful adoption and implementation, a cash contribution was secured from the shareholder.
Results/Outcome
This was a successful Business Rescue that resulted in the restructuring of the affairs of the company that allowed the company to continue to exist on a solvent basis. Creditors received a higher dividend than they would have received in the event of liquidation and approximately 240 jobs were saved.