Management at Alceon, the private equity firm that controlled discount retailer Cheap as Chips, only flagged serious concerns about the business four months before its collapse, despite widespread industry knowledge that the company was in trouble well before then. Suppliers had reportedly been facing refusals from insurers to provide credit cover, a warning sign that had circulated across the sector months earlier.

Nick Aboud, the former CEO of Dick Smith, exited Cheap as Chips shortly before administrators were called in and WLP Restructuring was appointed to oversee the business. WLP has since moved to sell 44 of the retailer’s 47 stores.

Queensland-based chain Choice The Discount Store has emerged as the expected buyer of Cheap as Chips, which had been haemorrhaging millions of dollars in losses.

Choice The Discount Store operates a discount retail model focused on value-conscious consumers, selling a broad range of everyday products including homewares, craft supplies, party goods, garden and lifestyle items, health and beauty products, and general merchandise. The chain has multiple physical locations, predominantly in Queensland, with additional stores in New South Wales and Victoria. Its outlets are commonly located in shopping centres such as Australia Fair in Southport, Helensvale Plaza, Morayfield Village and Noosa Homemaker Centre.

Alceon, which acquired Cheap as Chips in 2016 and owned approximately 70 per cent of the business, recently lodged documents with the corporate regulator that confirmed the company was in severe financial distress — a situation previously reported by ChannelNews. Several suppliers had either stopped supplying the retailer or demanded cash-on-delivery terms.

For the 12 months ending June 2024, Cheap as Chips reported losses of $34.9 million on revenues of approximately $100 million.

Co-founder Trevor Loewensohn said the growing dominance of online retail giants such as Amazon and China-based Temu had pushed the business beyond viability. He argued that aggressive pricing and expanding market share from global online competitors had made Cheap as Chips unsustainable as a standalone operation.

Alceon managing director David Wilshire alerted WLP to a “potential new matter” on August 18, according to filings. Wilshire, a former investment banker at Macquarie and Goldman Sachs, provided an overview of the retailer’s operations, and a non-disclosure agreement was signed the following day.

WLP then circulated information outlining potential insolvency options to Alceon and Cheap as Chips, the Australian Financial Review reported.

Loewensohn said the increasingly difficult retail environment, intensified by the rapid growth and aggressive pricing of online platforms such as Temu and Amazon, ultimately led Alceon to conclude the business could not continue independently.

Late last year, investment banks told clients that Amazon, Temu and Shein could collectively generate more than $18 billion in Australian sales by 2026, equating to a 36 per cent market share, fuelled by an escalating price war.

Aboud had previously made similarly optimistic growth claims months before the $390 million collapse of Dick Smith — statements that later drew scrutiny from regulators investigating the sudden failure of that business.

ASIC filings show there was limited engagement between Alceon, Cheap as Chips and WLP between August and December, aside from brief trading updates and a phone call in September. However, on December 3, a more detailed update on the company’s financial position and trading status was provided, followed by meetings between WLP specialists, Cheap as Chips directors and Alceon several days later.