Cult Fashion Label Ed Hardy Collapses
In Australia, cult fashion label Ed Hardy has collapsed. The brand, well-known internationally for dressing celebrities like Madonna with tattoo-inspired designs, has developed a global cult like following. Interestingly enough, the brand has also inspired a vocal hate movement on the internet, with many fashionistas offended by its loud designs. This past Monday, after accumulating nearly $15 million in unpaid liabilities, including $500,000 in unpaid employment wages, liquidators were appointed to begin selling off the firm's assets. Deloitte has been appointed as the voluntary administrator for the liquidation. While the liquidation applies only to Ed Hardy’s Australian franchise, analysts continued to be concerned for the fashion label's global future. Major Australian creditors include the Asian-Pacific Financial Institution ANZ, which it says is owed more than $4.3 million, and Ed Hardy Malaysia, which is currently owed more than $1.75 million in inter-business loans. As the liquidation occurs, Deloitte will continue to operate two Australian Ed Hardy stores - one in Melbourne’s Chapel Street and the other in Surfers Paradise.
To better understand the collapse, a closer examination of Ed Hardy's financial statements is required. Based on the most recent review, it appears that Ed Hardy suffered due to persistent negative operating cash flows. This deficit created a corporate cash shortage, dramatically limiting the company's working capital. The retailer also suffered from a downturn in sales brought on by the global financial depression. The recent unaudited financial statements for the year ended June 30, 2010 reveal that Ed Hardy earned approximately $17.5 million in sales during the 2009 - 2010 fiscal year. Unfortunately, the company lost over $1.9 million at year end despite improvements in sales velocity. Despite incurring operating losses, the company's leadership chose to continue investing in overseas expansion, a decision that many have questioned. This expansion reduced the company's available working capital, and was a key factor that caused the company to enter receivership. Prior to the commencement of liquidation, Ed Hardy had been operating 18 stores in Australia, including four concession stores within Myer. The brand was also sold through third-party stockists. In a last ditch bid to conserve cash, the company voluntarily closed eight stores. Sadly, these closures did not provide the company with enough liquidity to satisfy its creditor's demands. Immediately after taking over administration of Ed Hardy's Australian operation, Deloitte closed another four loss-making stores, and has subsequently closed 4 additional stores as this week closes. Last year, Ed Hardy was anointed as one of BRW's top Fast 100 companies. Earlier this year, its owner and chief executive, Gary Berman, had discussed a plan to float the company and open an international chain of 35 stores. Sadly, this story serves as a cautionary tail. While the brand certainly had upside, its failure within the retail segment illustrates how careful companies must be when executing strategy, particularly when growth may threaten a company's financial liquidity and solvency.