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Hornby hit by collapse of key customer ModelZone

Hornby (LSE: HRN.L - news) , the model train maker, has called ModelZone an "important business partner" after the retailer appointed administrators.

Deloitte has been confirmed as the administrator to ModelZone, which has 47 stores across the UK and is backed by the investment arm of Lloyds Banking (Other OTC: LLDTF - news) Group.

The appointment of administrators prompted Hornby to release a statement to the stock market saying that it has managed to limit its exposure to the collapsed retailer to an "acceptable level".

Hornby has concessions in all ModelZone's stores but is understood to own all its stock, meaning that the company will be protected from the demise of ModelZone.

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In a statement, Hornby, which fell into the red last year after disappointing sales of London 2012 Olympic (BSE: OLPCL.BO - news) models, said: "ModelzZone is an important business partner and although the news of the administration is disappointing our account management team has been well abreast of Modelzone's challenging trading situation and has been able to manage our financial exposure at an acceptable level.

"Hornby has a wide, multi-channel distribution platform, which it is continuing to broaden. In the UK, Hornby supplies over 700 independent model shops, national retail chains as well as selling direct to consumers via its online platform."

ModelZone is one of a collection of retailers to face collapse this week. Furniture chain Dwell as well as fashion retailers Internacionale and Ark have either appointed administrators or intend to appoint administrators in the week that retailers are due to pay rent for the next three months.

Deloitte said that ModelZone, which has 400 staff including its wholesale arm Amerang, had expanded too quickly.

Richard Hawes, joint administrator, said: "ModelZone has historically been profitable, however in recent years the company entered into leases for new stores that proved to be loss making.

"This, coupled with the growth in online competition, has resulted in ModelZone generating losses over the last couple of years, which the board of directors has now concluded is unsustainable and sought the appointment of administrators.

“We are working closely with customers and employees to ensure the business has the best possible platform to secure a sale, preserve jobs and generate as much value as possible for all creditors.

“Amerang is a profitable business, but the directors were forced to seek the appointment of administrators to protect the value of the business following the administration of ModelZone, its sister company.

"Amerang remains profitable and we will continue to trade as normal while we seek a buyer for all or parts of the business as a going concern.”