Ragtrader founder Fraser McEwing offers his insider take on the market.
The popular term ‘headwinds’ has become gale force for many of Australia’s big apparel retailers. While a few are trading profitably, the majority are doing it tough with little in the economy or weather patterns to suggest optimism.
Online start-ups are multiplying in increasing but virtually invisible numbers that seem to imitate the housing bubble – and are likely to suffer the same fate once the market is saturated and the public rediscovers the joys of bricks and mortar shopping.
Measured by public disclosure, Premier Investments (Just Jeans, Peter Alexander, Smiggle, Dotti, Jay Jays, Jacqui E, Portmans) is the standout performer with recently released spectacular numbers in sales and profit growth from its 1000 stores (local and international) and online.
By keeping price points and styling levels out of the gutter, the group is proving that value wins over raw price. Even Premier’s awful purchase of just over 10 per cent of Myer’s shares seems to be hitching up its pants as recently installed CEO, John King, is delivering better-than-feared results.
Whether this upturn really suits Solly Lew’s strategy is hard to say because it does rob him of some grumble ammunition in his campaign for board changes. I doubt he ever wanted to take over Myer. Department stores, worldwide, are on the nose. In the US, for example, Morgan Stanley tells us that department stores were handling 24 percent of national apparel sales in 2006 which will be down to eight percent by 2022.
John King’s half yearly results are more to do with cost cutting than product merchandising. Although Myer is pushing its apparel house brands (Basque, Urbane, Soho, Blaq, Miss Shop) the group still runs a staggering 320 womenswear brands and over 100 menswear brands. John might now swing his culling cutlass in that direction.
Myer, along with many big retailers who are moving into online trading, is pleased with its percentage increase although the total dollars are not yet a significant share of turnover. Having said that, Myer stands a better chance than most of becoming an online star. It has been a major Australian retailer for more than a century, is trusted by consumers and has well established logistics. A big push in the online direction would surely pay off.
Also trumpeting good results is Noni B, Australia’s biggest budget collective with about 1420 stores over brands which include Noni B, Rivers, Rockmans, Katies, beme, Crossroads, Autograph, W. Lane, plus a number of specific labels like Liz Jordan and Maggie T. In a judiciously worded half yearly result, the group appeared to be in good shape, although that seemed way out of kilter with its persistent and deep discounting. Staff cuts have also contributed to the profit result, but how far is too far? As
Myer’s John King might also find, babies can go out with bathwater. Both retailers are wedded to sparse numbers of merchandise operatives and shop assistants, although those on the floor at Myer get time to take a pee – as against (as reported by the Sydney Morning Herald) those working solo at Noni B who say they have to hang on or close their store for a loo visit.
There is plenty of street talk about Noni B’s treatment of suppliers, its financial gyrations and its hunger to keep growing by acquisition. None of it may be true, of course, and I’ve got sympathy for CEO Scott Evans whose job, in this climate, gets harder by the day. The industry needs its biggest budget chain to succeed, but the Alceon Group’s (Noni B’s dominant shareholder) link to the Babcock & Brown disaster of 2008 has me a little uneasy.
The loss of Guy Russo late last year as CEO of Kmart was undoubtedly a contributing factor to its disappointing half yearly result, but I wonder whether Russo, knowing what was coming, parachuted out of running Kmart and Target.
I also wonder how much damage Noni B’s discounting did to Kmart’s apparel profitability – since they are direct competitors in the budget market.
Come to think of it, Noni B’s ‘nothing over’ sale mantra probably hit a wide range of budget retailers, including those hidden away online. Wounding discounting can point to overstocking, cash starvation or lousy styling. I trust none of these apply to Noni B.
Woolworths must be wondering what to do with its 183 Big W stores after its eight-million-dollar loss for the half year ended December 2019 – bearing in mind the numbers included what is a normally profitable Christmas/holiday season. That followed a loss of $110 million in the previous full year.
The company has announced that it will close 30 of its least profitable stores over the next three years at a cost of $270 million. It’s the old story of getting out of long leases, an issue high on Myer’s agenda – but that doesn’t solve the fundamental merchandising problems for either group.
Big W’s apparel offering isn’t all that bad really, but it doesn’t stand out on either price or styling. It is a victim of just too much ordinary stuff for the market to digest. Again, Noni B’s discounting would have cut down its wriggle room.
Although Target is not yet a profitable enterprise, a change of direction is giving its 300 stores a much better chance of returning to their glory days. It came a cropper when it tried to go head to head with Kmart on high volume/low margin apparel.
That earned it the Wesfarmers dunce’s cap until it adopted a new strategy, said to have been suggested by Designworks (a division of the PAS Group) two years ago, of moving into offering keenly priced second tier brands like Bettina Liano, Dannii Minogue and Lonsdale.
It is also making a banded comeback into its former stronghold, children’s wear. The move into brands also marks a move away from Target’s former accountant-driven policy of trying to carry out third party providers’ (3PP) functions and buy direct from overseas factories.
How well the Sussan Group (Sussan, Suzanne Grae and Sportsgirl) is doing is anybody’s guess because it is a private company owned by champion fashion retailer Naomi Milgrom.
However, street talk places the 500 stores firmly in profit. Sussan is another group that seems to have mastered the delicate balance between styling, price and volume.