Internacionale set to call in administrators

The fashion chain appears set to call in administrators. Picture: Contributed

In a further blow for the struggling high street, another retailer, toy store ModelZone, is also understood to be on the brink of entering the administration process.

Internacionale, which claims on its website to have 140 stores nationwide, was founded by Scots entrepreneur Ken Cairnduff, who sold the chain in 2006 to a management buy-out team in a deal worth some £45 million.

The chain of stores, as well as its sister homewares chain, Au Naturale, then fell into administration in 2008 risking 900 jobs. It was reported to have been acquired by an Indian textiles and retail conglomerate, S Kumar Nationwide.

The fresh spate of high street woes comes despite the CBI saying that retailers are expecting sales to pick up next month, according to its latest monthly distributive trades survey.

Retailers are having to face paying their latest quarterly rent bills about now. Paying quarterly is a common practice in the retail sector, but critics claim that has put pressure on tenants affected by insufficient cash flow.

Internacionale has 11 outlets in Scotland, including three in Edinburgh. Other towns affected by the retailer’s plight include  Aberdeen, Clydebank, Cumbernauld, Falkirk, Glenrothes, Inverness, Kirkcaldy and Stirling.

In its latest accounts, the directors, led by managing director Raj Sehgal, note that the company had started a turnaround process. In the five months to the end of 2011, the firm had achieved sales of £33.8m and a pre-tax profit of £2.2m. This compares to a full-year loss of £15.4m in the year to 24 July 2011. But it noted that investors had pumped £9.4m into the business in an effort to improve its fortunes.

ModelZone, which has three stores in Scotland out of about 50 across the UK, is expected to appoint Deloitte as administrator.

Lloyds Development Capital, the investment arm of Lloyds Banking Group, had backed a management buyout of the business in 2009. LDC invested £300,000 in ModelZone in 2008, and had agreed to inject a further £3.6m over the subsequent three years to facilitate an “accelerated retail roll-out plan” and fund acquisitions.

In the past 12 months, administrators have been called in to film rental chain Blockbuster, electrical retailer Comet, bed specialist Dreams, entertainment group HMV, camera retailer Jessops and youth fashion chain Republic.

The CBI said retailers who were weathering the storm were looking for an uptick next month after flat retail sales volumes in the year to June.

The survey of 115 firms revealed orders were broadly flat on a year ago during June, although they surpassed expectations of a third consecutive month-on-month fall.

Sales volumes were a fair way below average for the time of year in June, despite expectations they would be broadly in line with seasonal norms, the CBI said.

Barry Williams, Asda chief merchandising officer for food, and chair of the survey panel, said: “Despite an improvement in British weather conditions, retailers will be disappointed they didn’t see the return to growth they expected in June – but the forecast is looking good for July when it’s hoped retail sales will return to form.”

A spokeswoman for the Internacionale business refused to comment. Ernst & Young, which is expected to be appointed to handle the administration of Internacionale, also declined to comment. Contacts in Mumbai for S Kumar were unavailable.