The financial problems afflicting longstanding vacuum cleaner retailer Godfreys loom as a potential source of bother for users of three buy now pay later schemes.
Eight operating entities associated with the Godfreys Group were placed in voluntary administration on Tuesday and are now under the control of administrators (Craig Crosbie, Robert Ditrich and Daniel Walley from PWC).
While the administrators said in a statement that Godfreys would continue to trade in Australia and New Zealand, they have initiated a restructure of the business that will result in the closure of 54 stores and 193 jobs.
The restructure will leave the group with around 87 stores in Australia and New Zealand, along with its online portals.
In a statement, Mr Crosbie confirmed that a creditors meeting had been scheduled for 9 February.
“Like many retailers, Godfreys has faced a challenging economic and operating environment,” Crosbie said.
“ Lower customer demand amid cost of living pressures, higher operating costs, and increased competition have all taken a toll on profitability, with some stores more impacted than others.
“Our aim is to move quickly to restructure Godfreys to preserve as much of the business and as many jobs as possible.
“We intend to trade the restructured store network and sell the business and assets as a going concern, with strong interest expected from prospective buyers.”
The big question being asked by payments experts last night was whether the Godfreys business would be able to deliver products ordered by online customers in the week leading up to the appointment of the administrators.
Godfreys online portal heavily promoted buy now pay later services offered by Afterpay, Humm and Klarna.
The logos of each of these payments companies are displayed prominently at the top of the Godfreys’ Australian homepage – an indication potentially that the retailer might have some level of dependence on the schemes to complete ecommerce sales.
If fulfilment of online orders becomes problematic, the schemes could encounter resistance from Godfreys customers who used a BNPL facility to fund their undelivered purchases.
In such scenarios agitated customers might simply refuse to repay their BNPL debts.
While Godfreys’ financial situation is unlikely to create material reputational headaches for the three BNPL players, it might be a harbinger of other episodes in the struggling retail sector.
This could present another existential threat to those local BNPL providers that managed to weather the funding pressures precipitated by the wave of interest rate rises since 2022.
Official retail spending data published by the Australian Bureau of Statistics on Tuesday show that consumer confidence fell into a hole in December.
Retail spending slumped in seasonally adjusted terms by 2.7 per cent, with merchants in the household goods and department store sectors hit the hardest by the slide in consumer activity.
In such an environment, most BNPL companies are likely to be stretched trying to grow their transaction volumes.
They might also encounter a wider incidence of customers using their services to pay for goods that cannot be delivered.