The board of electrical and whitegoods retailer Clive Peeters yesterday appointed McGrath Nichol to act as administrator of the company after the company’s banker, NAB, refused to provide new funding to the retailer. Clive Peeters has debts of $160 million. While the collapse of national retailer has been largely blamed on the actions of a rogue payroll manager who stole $20 million from the entity — the real villain was the firm’s poor business model and insipid management.

Despite the claims of Rick Hart (a former director of Clive Peeters until late last year) that “all of the misfortune can be traced back to the embezzlement — that was the tomahawk in the chest”, the problem with Clive Peeters was not necessarily the fraud (although it certainly didn’t help matters), but its business model.  It also appears that the company’s internal controls were also not especially strong given that it was seemingly unable to detect the theft of $20 million, a sum that almost doubled the firm’s 2008 operating profit for a long period.

In short, Clive Peeters sold homogeneous big-ticket electronic and whitegood items against shrewd and well-run competitors. Compared to JB Hi-Fi and the privately held or franchised Bing Lee, Retravision and Good Guys, Clive Peeters lacked sufficient buying power and was unable to match competitors’ lower cost bases (exacerbated to some extent by the $20 million theft). JB Hi-Fi, one Australia’s great retail success stories of the past two decades, was run magnificently by Richard Uechtritz and maintained an extremely low-cost structure. Ultimately, Clive Peeters was selling the same LCD televisions as JB Hi-Fi or Bing Lee, but for a higher price. (The Clive Peeters fate was little different to that other failed electronic and whitegood retailer, Coles Myer-owned Mega Mart).

Clive Peeters’ share price had been steadily dropping since October 2009 (when it peaked at 74 cents per share), falling to only 11 cents per share earlier this month when the company told investors that its “unaudited net loss … for the three months January — March 2010 is expected to approximate $4.5 million” while “April sales have further deteriorated with the result that the April 2010 operating loss after tax is likely to have increased”.

Blaming the collapse on the theft by a former employee is a misnomer. As James Kirby percipiently noted last year, Sonya Causer, the woman behind the alleged fraud, actually invested the misappropriated funds by acquiring residential property in Melbourne’s eastern suburbs. Clive Peeters later sold all but one of those properties and should have easily been able to recover the misappropriated funds as Melbourne’s median property prices have risen by almost 40% since the properties were purchased. In fact, the fraud should have actually been a substantial money spinner for the retailer.

A cynic might even suggest that Causer was a far more astute businesswoman than Clive Peeters’ management team, which oversaw a drop in sales revenue by 7% in 2009, despite the pronounced effect of the federal government stimulus (JB Hi-Fi reported a 27% increase in sales during FY 2009).

Clive Peeters chairman Brian Pollock must be a busy man, also chairing embattled property group Becton, and is a director of struggling labour hire firm Programmed Maintenance Services

The managing director of Clive Peeters, Greg Smith, and non-executive director Peter Lord have been the biggest losers from the collapse. Smith’s stake in the company has fallen in value from more than $150 million in 2007 to nothing (although Smith did sell several million dollars worth of Clive Peeters shares to foolish institutions last year).

In 2008 Smith was reported as noting “all the good retailers will survive the cycle and come through … but along the way you can expect some retailers to just find it too hard — some of the smaller retailers perhaps.”

In the end it appears that Clive Peeters just wasn’t a very good retailer.