PAS collapse a dose of COVID-19 reality

For all the signs of renewed life in the Australian sector – the better foot traffic numbers, the gently increasing spending volumes – the collapse of fashion retailer PAS Group is a reminder of the harsh reality the economy faces in the next 12 months.

Not every business is going to make it out of hibernation. And those businesses that went in to crisis in trouble are the most likely to fall over in a weakened post-COVID economy.

PAS, which owns women’s fashion brands Review, Black Pepper, Yarra Trail, and JETS Swimwear, was placed in administration on Friday.

The group has seemed in trouble ever since it scraped its way onto the ASX in June 2014 in a float that provided investors including Macquarie Private Equity, Propel Investments and State Super an exit route.

The shares never traded above their issue price of $1.15 and within just 12 months of hitting the boards, an offshore hedge fund called Coliseum Capital Management made an offer of 63¢ share.

Unfortunately for investors such as Rich Lister Larry Kestleman, who owns 10.6 per cent of PAS, that offer was only partially successful.

Coliseum, which would follow up its original pitch with a second offer at 51¢ a share two years later, could only get its hands on a 65 per cent stake, leaving the company in a bit of a twilight zone between private and public ownership.

Might things have gone differently for the 1300 workers at PAS’s 225 retail stores if Coliseum could have gained full control and executed a restructure away from the glare of the public market?

Maybe. Although arguably PAS itself was stuck in the twilight zone of the fashion game – not cheap, not high-end, but somewhere in the middle where competition is intense, margins are thin and life is awfully hard.

It’s why we’ve seen so many similarly placed chains – Esprit, Collete, Jeanswest, Topshop, Roger David, Ed Harry and Bardot – go under in recent years.

Ironically – or perhaps not surprisingly – PAS was also a supplier to Harris Scarfe, perhaps the poster child of this stuck-in-the-middle syndrome. The discount department store chain had to be rescued from administration earlier this year.

The board of PAS, chaired by Launa Inman (herself no stranger to difficult retail situations as the former chief executive of Target Australia and Billabong International) deserves credit for putting the business in the hands of administrators from PwC at a stage early enough that they believe PAS is still solvent.

That should give the PwC team, led by insolvency top gun Stephen Longley, the best possible chance of salvaging something here.

But unfortunately for the staff, the prospects must be grim. It would have taken a brave investor to take on PAS 12 months ago.

Finding one to buy in now, with the group’s stores having only just reopened, will be next to impossible.

There will be winners in retail. As PAS collapsed, Kogan.com’s market value broke through $1 billion, as it surfs the online shopping wave.

But PAS is a sobering reminder – for workers, for suppliers, for investors, for landlords, for lenders and for politicians – of what’s coming over the next 12 months.

It won’t be pretty.