Doughnut Time enters liquidation, owing up to 300 employees wages, as experts warn other retailers at risk of “imminent collapse”

All Doughnut Time stores will close for good as a liquidation process begins for the troubled food business, amid warnings from insolvency experts that thousands of other businesses are at risk of “imminent collapse”.

Doughnut Time was founded in 2015 by Damian Griffiths, who had built up a network of 30 stories selling gourmet doughnuts before 23 of those stores closed at the start of March.

At the time, the former chief executive of the company, Dan Strachotta, was reportedly in line to purchase the seven remaining stores. That deal came as staff complained of unpaid wages and Griffiths revealed he was facing significant personal financial challenges, according to Fairfax. “I had a go and made lots of mistakes,” he said at the start of March.

A sale deal had also been in the works for Strachotta is purchase the brand’s intellectual property from Griffiths, but liquidator Michael Caspaney of Menzies Advisory tells SmartCompany that deal “fell over” last week.

Caspaney was appointed as the company’s liquidator on Friday, however, the ABC reports that staff only found out about the sale falling through via an email from middle management, which also suggested that Griffiths “would not sign over” the trademark.

Caspaney says the situation could leave up to 300 employees owed entitlements and wages across 23 Doughnut Time businesses in Victoria, Queensland and New South Wales. He confirmed the final Doughnut Time stores closed last week.

The estimated wages bill owed is $200,000, reports the ABC, with Caspaney telling the broadcaster “there isn’t any money anywhere” within the business.

Early indications suggest the liquidation may have been prompted by include significant cash flow problems in the business, which led to it being unable to continue to pay staff.

However, the news also comes as insolvency experts warn an “onslaught” of international competition across the retail sector will make the next 12 months a volatile time for those trying to work make it work in the world of retail.

According to SV Partners managing director Terry van der Velde, retailers are being hit on all fronts, including “international and online competition, technology disruption, domestic pressures and changing tastes”.

At-risk retailers on the rise

The SV Partners Commercial Risk Outlook Report for March 2018 says 1,460 Australian retailers are vulnerable to “imminent collapse”, with 260 of these retailers with annual turnover of more than $10 million.

Retailers now present the third highest level of “high to severe” financial risk , which represents a three percent increase when compared to last year.

Doughnut Time is just the latest in a number of high-profile retail businesses running into financial trouble this year. Last week Aussie Farmers Direct entered voluntary administration, while John’s Nuts, discount grocery chain NQR, and clothing brand Maggie T have also appointed external managers this year.

According to the SV Partners report, there was a 4.8% drop in retail businesses entering external administration over the past year, but looking forward, the report authors say a larger number are vulnerable to falling over over the next year.

Cost pressures are affecting retailers of all sizes, with the report even pointing to five big retail businesses with revenue of $100 million or more than it believes “are facing possible financial failure within the next 12 months”.

In a statement, van der Velde’s said the factors presenting challenges to retailers are “not unique”, but they are varied and mean cash flow management is critical to prevent financial failure.

“High rents in capital cities, high labour costs and the increasing number of consumers choosing to spend their discretionary income on experiences rather than new items have continued to be stress points for many retailers,” he said. 

SmartCompany has attempted to contact Doughnut Time founder Damian Griffiths for further information.

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