The long, slow death of the $2 shop

WHATEVER happened to Clint’s Crazy Bargains?

Throughout the ’80s and ’90s, the bargain variety store was one of the great Aussie success stories and a fixture on TV screens with the annoying catchphrase: “It’s craaaazy!”

Between 1986 to 2000, Clint’s went from three stores to 117, and the wholesale business went from next to nothing to being a major supplier to 400 stores around Australia.

At its height, prior to selling its stores to New Zealand firm The Warehouse for $103 million in 2000, the business employed 3000 people.

Just six years after rebranding Clint’s stores as Yellow Sheds, The Warehouse was forced into an embarrassing retreat from the local market, selling the loss-making Australian assets to private equity.

“It was heartbreaking for us, and obviously devastating for The Warehouse,” Clint’s Crazy Bargains co-founder Dave Rickards told news.com.au. “We were just a family business that grew too big.

“My wife and I were a couple of hippies at university, we used to go to Paddy’s markets to supplement our scholarship allowance. One thing led to another and we turned out to be very good at trading and enjoyed it immensely. We still had social ideals — we were a people-first type business and we looked after the people that worked for us.

“By the year 2000, we had 3000 staff. The business was far too big for our management capability. We had a classic succession issue to confront.

“The Warehouse, who were also a people-first company with a wonderful and similar history to ours, only far more successful, they courted us. We thought it would be a marriage made in heaven.”

So what went wrong? Mr Rickards pins most of the blame on the suits.

Kathmandu founder Jan Cameron is estimated to have lost $200 million in the collapse of Discount Superstores Group.Source:News Limited

“When you’re a public company and you’re investing a huge amount of money in buying someone else’s business, you’re obliged to get in some pretty heavyweight financial advisers — Goldman Sachs, JBWere, Ernst & Young,” he said.

“Those advisers of course are all from the big end of town. We were a grassroots, Western suburbs organisation. Our culture did not reflect the expectations or values of the big end of town, even though we shared values with the people that bought us.”

Mr Rickards tells one anecdote which he believes encapsulates the problems that ultimately sunk the company.

“We used to feed all the staff at the main warehouse in Sydney,” he said. “Three hundred people, all the executives, the truck drivers, the storemen, we would all eat together and the company paid for lunch. It was a tradition that had gone on since there were three of us.

“Someone came along and said, our [price-to-earnings ratio] is 18. All we have to do is cut out free lunches and that will put $9 million into the capitalisation of the company. So they did, soon after taking over.”

At a time when sensitivity between new and old was at its greatest, the demands of shareholders trumped culture. “The financial advisers that came in to facilitate the process, they destroyed a lot of the intellectual and cultural capital of the business,” Mr Rickards said.

The Yellow Sheds, which had formerly been Clint’s, became Sam’s. The Sam’s Warehouse stores now sat under the newly formed Australian Discount Retail group, which met a messy end just three years later.

ADR was placed into administration in 2009, to be snapped up by Kathmandu founder Jan Cameron’s own ill-fated Retail Adventures, which itself went under in 2012.

Ms Cameron rescued 143 Sam’s Warehouse and Crazy Clark’s stores from the administrators for $59 million, forming her new, and equally ill-fated Discount Superstores Group.

Following substantial financial difficulty, DSG Holdings spectacularly bit the dust in July 2014. After failed attempts to find a buyer for the discount chain, all remaining stores were closed by the end of August. Ms Cameron is estimated to have lost $200 million in the collapse.

Norm and Sue O’Neill, left, with David and Kerry Rickards in 2001. Picture: Gary EdeSource:Supplied

‘SUNSET INDUSTRY’

Industry analysts IBISWorld believe the $2.4 billion discount variety retail sector, today dominated by The Reject Shop with an estimated 30.6 per cent market share, is in a state of structural decline.

Profit margins have declined over the past five years as fierce competition has forced stores to lower prices. The sector grew at an annualised rate of just 0.8 per cent over the five years to 2014-15, while employment declined by 0.4 per cent over the same period.

The industry is struggling with the rise of the internet, which has eroded its competitive advantage by providing similar niche goods at low price points, while Wesfarmers-owned Kmart and Woolworths-owned Big W are increasing their market share through strong supply chains.

“Increasing discretionary incomes and the rise of internet shopping for niche goods mean that the industry’s two competitive advantages are being squeezed from both ends,” IBISWorld analyst Lauren Magner writes.

Meanwhile, the falling Australian dollar is tipped to put even greater pressure on the sector’s already squeezed margins. The main factor keeping bargain stores afloat over the past five years has been a relatively high Aussie dollar, which has allowed retailers to purchase Chinese goods more cheaply and pass the savings onto customers.

“If the Australian dollar falls by a significant amount, it could be the catalyst that forces a number of struggling firms to exit the industry,” Ms Magner writes.

Matt Simpson, senior market analyst with Thinkforex, said speculators were already shorting the Aussie dollar in anticipation of a weaker economy.

“Whichever way you cut the mustard, the Australian dollar is poised to go lower next year with potential for it to test the 60-cent mark, and possibly beyond,” he said.

Mr Rickards, who founded Clint’s in 1978 with his wife Kerry and married couple Norm and Sue O’Neill, also believes the discount variety sector as a whole is dying.

“It’s a sunset industry for sure,” he said. “Consumption patterns have changed enormously. People spend their money on technological products now, their phones, their iPads, social media stuff, all the rest of it.

“Going out and buying things doesn’t have the same attraction that it used to have, so in that sense it’s a terribly hard business. It’s a tough industry and it’s getting harder by the moment.”

Mr Rickards, who in 1986-87 was one the first Australian retailers to source merchandise directly from Chinese factories rather than through an import-export corporation, believes he rode the wave in a golden era of Aussie retailing.

“We went through magic times,” he said. “Back in 1988 to 1995, we were the kings of the industry. We were so far ahead we had people who were paying us for the goods in advance, and sometimes without even being told what they were going to receive, because we had so much credibility and price advantage.”

Today, Mr Rickards applies his retailing nous to humanitarian work in developing countries through the DAK Foundation, which facilitates projects including eyesight restoration surgery, birth injury repair and medical equipment delivery and training.

“My job these days is to go out and find a place where there’s a great need, find a facility that has a capacity to do something about it, then negotiate a deal to get the problem attended to in the most cost-effective and efficient manner that we can,” he said.

“We do the same thing we’ve always done, only we measure our achievement not in terms of the profit we make, but in terms of the outputs we get. We’re still in the bargain store business.”