Too big to be small: Why retailers like Brosa struggle post-Covid
Digital furniture retailer Brosa collapsed into voluntary administration on December 14 Co-founded in 2014 by David Wei and Ivan Lim, the brand was an official partner of this year’s Melbourne Food and Wine Festival, and experienced rapid growth throughout the pandemic. It tripled in size over this period and – according to a recent Inside Retail report – outpaced the growth of other furniture businesses in the space, such as Temple & Webster. Brosa attracted $5 million in Series B fun
ies B funding in 2017. It expanded from e-commerce – opening stores in Melbourne and Sydney in 2017 and 2020 – invested in its technology capabilities, and strengthened its supply chain over the last few years.
But declining sales following the lifting of Covid-19 restrictions – and cash flow pressures after a period of phenomenal growth – were cited as reasons for the business falling into administration.
Richard Tucker and Michael Korda of Kordamentha have been appointed as administrators, and are seeking urgent expressions of interest in the sale of Brosa as a going concern.
As of 16 December, there’s already been a surge of interest, with more than 30 approaches made just two days after the appointment of administrators. Potential buyers were particularly interested in Brosa’s online expertise and unique customer base, with the administrators hoping to have a deal in the next week, before the first meeting of creditors.
Tucker told Inside Retail that the administrators are focused on stabilising the business and dealing with customers. He said that their statutory responsibility is to keep the business alive and – if that is not possible – achieve the best result for creditors.
“There will be a first meeting of creditors the week after next [week commencing 26 December] when we will have a better idea of the state of the company and its debts,” he said.
“Within a month of that meeting, we will issue a report to creditors and hold a second meeting at which the administrators will make a recommendation amongst three options – return the company to the directors, liquidate the business or accept an offer to buy the business, possibly under a Deed of Company Arrangement.
“Meanwhile the administrators will be stabilising the business to keep it alive as a going concern and analysing stock levels to develop a plan for existing orders.
“There are big discounts available for online shoppers immediately.”
According to Tucker, orders from 14 December will be guaranteed by administrators. If stock is not available, the administrators will make full refunds. For pre-appointment orders, they are analysing stock levels, and developing a plan to deal with them.
Caught with stock
Chief executive and founder of the Retail Doctor Group, Brian Walker, questions whether Brosa had an expensive or unprofitable business model.
“We’ve seen a recent flurry in the last five years of a lot of capital investment into retail businesses that have been predicated on growing data and communities [that] have fundamentally been built on tech platforms,” he said.
“As a consequence, if [these businesses] are buying at projected Covid-19 levels, and the wheels fall off, they can get caught. [They’re] basing themselves on the belief that the Covid-19 dance will always continue.”
He believes that Brosa might have been caught in a market that is unforgiving, with consumers demanding new products and ranges, making it harder for the brand to get rid of rising and ageing stock.
“For a company like Brosa, its [brand image] and inventory profile might have been challenging to manage. That’s a callout for online retailers who have built a lot of stock in Covid-19, especially fashion type businesses,” he said.
Walker said there’s also a risk of being too small to be big, and too big to be small. This can lead to high costs, incremental revenue, and the need to burn capital at an accelerated rate to stay afloat.
He added that businesses who are stuck with inventory amid slowing or stagnated growth are caught in a tricky situation. The capacity to turn inventory into cash might depend on when the brand at hand identifies the problem.
“It’s about judiciously reducing orders, clearing out stock, teaching staff how to substitute sell, creating substitute product offers [and] going into the loyalty database,” he said.
“[Also] reducing as many forward commitments as you can, and selling what you’ve got.”
Tucker said that the administrators are currently assessing staff levels, but that it’s likely there will be some redundancies.
He said that a large portion of these were planned to occur, even if there was no voluntary administration.
He called on customers to be patient so the administrators can focus on the plan to ensure Brosa can continue as a business.
“I understand the frustration of customers who are waiting for deliveries. But we must concentrate almost completely on this window of opportunity to save the business and provide a better outcome for customers,” he said.
“We are assessing orders and stock so we can inform customers about their orders as soon as possible. The administrators will be in contact with customers by email as soon as this analysis is completed.
“This [will] likely take the administrators some time.”
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