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Mosaic’s problems have been blamed on the pandemic, during which a lot of its customers, budget-conscious middle-aged and older women, staying home and not venturing out shopping.
Mosaic’s management changed earlier this year with the appointment of CEO Erica Berchtold, who replaced Scott Evans, who had held the role for almost a decade.
Mosaic Brands owns Rivers, Katies, and Noni B. Last month, it said it would axe some of its stores including Rockmans.
Under Berchtold, Mosaic’s management has been trying to turn the business around by slashing costs. It has been negotiating reduced rents with landlords and in some instances, it has also offered global suppliers one-third of what they are owed in a payment plan stretching over a two-year period.
Suppliers from Bangladesh, India and China are owed tens of millions by Mosaic. As a collective, they are divided over the extraordinary losses they have been asked to absorb and also the payment plan negotiations. Do they take the small amount being offered by Mosaic, or potentially get nothing? If they accept the proposal, is there a risk they will still get nothing?
Some suppliers have engaged lawyers while others have disclosed to this masthead the offers from Mosaic will hurt or ruin their businesses. Undoubtedly, Mosaic’s negotiations have strained supplier relationships, which raises questions about it stocking its stores into the festive season.
Mosaic management have said they are working to get the best outcome for the company, its employees and partners, and Mosaic does need to slash costs to service its debts. It has a $45 million loan with Hilco Capital, on which it is charged 9.25 per cent interest. The terms of the convertible note loan were also recently reset, extending the maturity to March 2026, but with interest on that note increasing from 8 per cent to 20 per cent.
Investors in Mosaic have reason to be frustrated. In November, at Mosaic’s annual meeting, chairman Richard Facioni told shareholders the company’s strategy “will continue to deliver growth in the near term and foreseeable future”.
In June, Mosaic issued a statement advising shareholders the group would have a “marginal loss” for the full year at the earnings before interest, tax and depreciation line. By July, in another statement, this loss had grown to between $5 million to $10 million. In August, Mosaic failed to file its accounts and in September, its shares were suspended.
Facioni has been chairman of Mosaic for a decade. He also lists himself as executive chairman and founder of ACTA Capital, a private equity firm, which manages a retail group called Alquemie. Alquemie recently appointed Scott Evans as its chief executive.
Some observers are waiting to see if the Spotlight group might end up owning Mosaic. The families of Morry Fraid and his nephew, Zac Fried, own the nationwide chains of Spotlight, Mountain Designs, Anaconda and Harris Scarfe. The private Spotlight group has been trading since the 1970s and its success has earned the Fried and Fraid families a $4.6 billion fortune.
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However, the risk for the Spotlight group in taking on Mosaic is the competition that Mosaic’s brands face from Chinese online retail giants Temu and Shein, where clothes can be bought for a small fraction of what is offered in Australian stores. Setting aside ethical considerations about Temu and Shein, budget-conscious Australian customers are willing to take a chance that clothing ordered from those online retailers may or may not fit, simply because it costs a pittance.
Then there’s also competition from Kmart and Big W, which apparently are picking up more of Mosaic’s customers.
Still, Spotlight might be tempted, just as Myer has been to acquire the apparel group of Solomon Lew’s Premier Investments, which includes a younger offering of brands such as Just Jeans, Jay Jays, Portmans, Jacqui E and Dotti.