The downfall of retailer, Max Brenner

Max Brenner

In 2016, an expensive overhaul of Max Brenner’s head office and a fall in turnover hit cash flow so hard that the company stopped paying staff superannuation for six months.

In 2018, turnover continued to fall to $41.3 million and Max Brenner operated at a net loss of $5 million for that financial year.

Staff of the chain are estimated to be owed a combined $5.8 million, including $2.7 million for 250 staff made redundant.

Administrators estimate creditors are owed $33 million. The company also owes $1.86 million in superannuation payments and $2.5 million in GST and pay-as-you-go requirements.

Reading the signals

There were a number of red flags that Max Brenner chose to ignore:

1. Continued rapid growth, together with a lack of capital, stretched capital expenditure with limited consideration of projected profits in a competitive retail environment
2. An office renovation hit cash flow so hard they were unable to pay staff superannuation
3. They were unable to pay suppliers.

Eventually, an application was issued by Sunstate Ceilings which caused the downfall of the retail chain.

Better practices

Before undertaking any substantial renovation or embarking on extensive growth, it would have been prudent for Max Brenner to undertake scenario planning or strategic forecasting to understand the financial ramifications of their investment, and the implications it would have on cash flow and other parts of their business.

The appointment of experienced business advisor’s would have helped provide the skills and strategic insights required to plan and forecast likely business impacts, as well as ensure all compliance obligations continue to be met.

These advisors are well placed to perform a review of the company position and structure to provide the recommendations to help secure the longer-term financial health and sustainability of the business.

The business should have used a 3-way forecast model to stress test scenarios before undertaking any critical decisions such as investing in extensive growth and renovations. When planning these scenarios, firstly the business should have looked at the base level variables such as wages, PAYG, tax and any other obligatory payments. From this base level, the business would have had foresight on the cash that was/wasn’t available to invest in growth.

Max Brenner should have spoken to a professional for advice on how they could restructure certain areas of the business to determine the greatest protection and return.