“I’ve come out totally penniless,” says Mark Mahony, principal of failed PC dealer Best Buy. “I don’t have a house any more, I don’t have any money, there’s no trust sitting behind me and I’ve lost my reputation.”
Best Buy closed its doors on June 26, saying it had total debts of around $700,000. Of that, $220,000 was owed to around 220 customers who had paid deposits ranging from 10% to the full price for computers yet to be delivered.
Mahony blames the failure of Best Buy on an advertising campaign earlier this year by PC Direct — both parties took legal action — and the failure of its main supplier, Pegasus Electronics, to deliver on an undertaking to supply AMD K6 MMX PCs.
“In March, Pegasus offered the AMD K6 chip. Colin Brown [managing director] said he could deliver within seven days, so we promoted the model at 14 days.
“We received a couple of faxes in April saying the chip had still not shipped, then Brown faxed us on April 29 saying he couldn’t source it.”
Mahony says at that stage he had taken 490 orders for PCs.
“Then Brown said delivery was three weeks out, so we advised our customers by letter. Brown said he could fill the orders with Pentium models but he upped our price. That compounded our profitability problems.”
Computerworld has sighted correspondence from Pegasus which confirms that there were delays in availability of the K6 chip.
Mahony says he took orders for 440 PCs in May but during the month and in June he had to make a lot of refunds.
“We didn’t have a financial problem in April but we couldn’t get delivery. Around 130 people cancelled their orders and we made refunds.”
He says the average deposit paid was between $700 and $1000.
Despite the amount owing, Mahony refuses to appoint a liquidator. He feels that if he does so, the people who have paid deposits will miss out entirely. Instead, he is trying to find an alternative supplier who is prepared to offer PCs at a discounted price in exchange for a bulk order. However, the customers would still lose their deposits.
One who paid a deposit, Dave McQuoid, is trying to set up an action group to pursue this course. He has gathered the names of 100 of the people affected but the Best Buy receiver won’t give him the remainder of the names because they are regarded as an asset in the wash-up.
“I was pretty irate about what happened,” he says. “I’ve got nothing to gain financially and I’m doing this for my own satisfaction. Beneficiaries, families, schools and businesses were affected.
“I’m well along the track to getting a deal put together.” (McQuoid can be contacted at 025-828 527.)
Computerworld asked Mahony if he had adequate systems in place at Best Buy.
“We grew very quickly. With that rapid growth we brought in a major accounting firm in January [Gosling Chapman] to do an audit and recommend systems. We put in a point-of-sale system in late March and brought in a new manager from PC World in the UK.”
He says Best Buy had turnover of $15 million in the past 12 months.
Compounding his other problems, Mahony was paying out $10,000 a week — half to the National Bank in a sinking lid settlement related to a $180,000 debt incurred over his earlier failed business, Cost Club — and half to Pegasus, which stopped credit on March 31. Pegasus converted an amount owing into a loan to be repaid at $5000 a week and at 15% annual interest.
Documentation obtained by Computer-world doesn’t specify the amount but does outline stringent conditions imposed by Pegasus. According to Mahony, Best Buy owes Pegasus $370,000.
Pegasus managing director Colin Brown was overseas last week and not available for comment.
However, he’s issued two press releases, saying Best Buy owes Pegasus more than Mahony says and that Pegasus had approximately 250 machines on order by Best Buy but supply was withheld because Best Buy was not in a position to purchase them.
Two days before Best Buy closed its door, Pegasus swooped on the premises and recovered its stock. However, Mahony says PCs that had been paid for were also taken.
Auckland furniture chain Forhomes has expressed interest in purchasing Best Buy. In a letter to managing director Graham Harvey, dated July 4, Mahony refers to a request over the phone by Harvey that a liquidator first be appointed.
“My major concern ... is to protect the position of all unsecured creditors, inclusive of those customers who have either paid or partially paid for computers which have not been delivered,” he wrote. “There appears to be no advantage for those creditors if I put the company into liquidation now without endeavouring to ensure that any prospective purchaser of the company’s assets will go some major distance toward remedying the position in which those creditors find themselves.”
It’s understood that Forhomes has a financing operation associated with its stores and may seek to expand this into the PC retail industry.