How Accent Group stopped discounting and started growing
Accent Group CEO Daniel Agostinelli remembers the exact day he decided to stop discounting for the sake of comparable sales growth – December 18, 2017. While frequent discounting had been driving top-line sales, margins were shrinking and stores were beginning to look cluttered and downmarket. The frequent discounting was also masking some underlying issues with Accent Group’s retail experience and execution, the CEO believed. So he decided to start the process of withdrawing from the discount drug.
Fast forward 12 and a bit months and it seems to have worked. Accent Group on Thursday reported a record $32.2 million in net profit after tax for the six months to December 30, 2018, a 27.3 per cent improvement on the previous corresponding period.
The group, which runs the Platypus, HypeDC and The Athlete’s Foot retail chains and distributes brands such as Skechers, Vans and Dr. Martens, booked $458.1 million in total sales in the half, up 6.2 per cent year-on-year. Excluding The Athlete’s Foot franchise store sales, company-owned sales reached $389.4 million, an 11.2 per cent year-on-year increase. Like-for-like sales were up 1.2 per cent in the half.
In a statement to investors last week, Agostinelli directly attributed the strong result to his 2017 decision to stop discounting, a strategy he refers to as “no lazy retailing”.
“Of course, we still discount in the June period and around Boxing Day, but in the main, we’ve removed what we call ‘lazy retailing’, which is simply discounting to raise your comp sales,” he told IRW on Monday.
It hasn’t been an easy process at times. Agostinelli said there were some “scary times” over the past year, when the company lost market share, since it couldn’t match the discounts that its competitors were offering on the same products. To combat this, Accent Group has worked with its suppliers to differentiate its range, so it doesn’t need to rely on discounts to drive sales.
“We’ve got some amazing products that come in from Nike, Adidas, Vans, Dr. Martens and Skechers, and I think they [suppliers] like the fact that we’re respecting the products they bring to market,” he said.
The decision also led Accent Group to look more closely at its cost base, and the retailer has found ways to roster better to have the right number of people working in-store at the right time, something that should come naturally to retail, Agostinelli said, but which can be neglected in pursuit of top-line sales growth.
Rent is another cost the company is scrutinising, according to Agostinelli.
“It has definitely meant that we simply will not go to those shopping centres where we feel the consumer is discount-biased. We’d rather expand our footprint where we feel we can compete with our new strategy,” he said.
Roughly one year after making the decision to stop discounting purely as a means to drive sales, Agostinelli is more convinced than ever that it was the right move.
“We’ve now cycled through 12 months and feel like we’re still losing some share here and there due to others’ discounting, but we’re not prepared to get involved in that competition,” he said.
Eloise Zoppos, senior research consultant and research fellow at Monash University’s Australian Consumer and Retail Studies research unit, told IRW that many international retailers are moving away from a discount-driven strategy.
“Retailers overseas have come out and said they’re not doing discounts at any time of year because they feel it diminishes the quality of their product. They’re maintaining a steady price point throughout the year,” she said.
“I think we’ll see more of that in Australia moving forward.”
There may be another reason behind Accent Group’s strong growth in the first half of FY19, and that has to do with its position as a specialty retailer. Specialty retailers, such as City Chic and Adairs, have also posted strong half-year results, with City Chic lifting both comparable sales and gross margin.
The figures look especially good compared to department stores. David Jones lifted revenue just 0.1 per cent, and profit before tax fell 29.4 per cent in the six months to December 23, 2018. Myer had not released its half-year results at the time of writing.
At a time when the in-store experience has never been more important, specialty retailers, according to Zoppos, are able to offer a much better shopping environment.
“A specialty retailer can offer a more premium and personalised experience, not only because the floor size may be smaller than a department store, but because they have specialty products that people are going to come in for especially, and they have staff who are specialised in those products,” she said.
Zoppos believes the smaller store footprint also makes it more apparent when specialty retailers invest in their fitouts and staff, as Accent Group has done.
“When a specialty or smaller retailer makes a change the outcome can be immediate. At a department store or larger store, the outcome may not be as immediate but doesn’t mean they’re not trying to improve and it doesn’t mean they’re not making great headway,” she said.
“David Jones has done a lot with the flagship in Sydney. They’ve opened an entire floor dedicated to shoes, they have a concierge that can escort you to where you need to go, they’re serving champagne. We’re seeing department stores recognise that they need to offer a great experience.”