Optima buys ailing retail chain

Looking to bump up its retail presence, ASX-listed PC assembler, Optima, has acquired ailing electronics and camera retail chain, Digital City, for an undisclosed sum.

Administrators were appointed to Digital City in late July following a wind-up application to the courts.

Optima chairman and managing director, Cornel Ung, said the pair began discussing a potential buyout late last year. By June, it became apparent Digital City was under financial strain.

"At the same time as we approached them, they were looking for an investor," he said. "We think the Digital City brand has a lot of value and a good name, so we've purchased the domain name and brand assets and will continue to use the masthead."

Ung said the acquisition would complement Optima's existing 3Cshop retail franchise business by providing it with a metropolitan presence. It would also give the company access to healthier gross margins.

The acquisition is being funded through working capital.

Digital City has five stores across the Sydney CBD as well as three franchises across Sydney and Canberra. All stores continued to trade during the administration process.

"Digital City has an online business, retail business, and a franchise model in place already, which made this acquisition ideal for us," Ung said.

Optima plans to expand the retailer's flagship store as well as add shop fronts in other capital cities nationally. Ung said it would look at opening a store in Brisbane or Melbourne, as well as bring on more franchise partners, in the next 6-12 months. Optima has also taken on the retailer's 36 staff.

Digital City traditionally focused on cameras and photo imaging products. Ung said it would extend the range to include more IT, consumer electronics and communications. Optima would also offer technical support and installation services to customers around digital home systems.

"The photo imaging and camera businesses has been a very profitable business, but the market has changed as Harvey Norman and JB Hi-Fi became involved," Ung said. "Digital City is now competing against mass merchants for high-end business. They didn't react to the change and have suffered on margin losses and competition.

"We can provide more products to the store, as well as products from leading vendors and a better understanding of IT."

Optima currently has 150 3Cshop members in Australia, as well as 60 stores participating in its catalogue business.

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