Rediscovering the sparkle
The jewellery chain retains a foothold in North America, with stores in Canada that are profitable and generating revenue growth. But its immediate focus is on strengthening its Australasian store network after a strategic review identified a new growth plan to be executed by newly appointed CEO Daniel Bracken.
Bracken joined Michael Hill in September after a brief stint with fashion retailer Specialty Fashion Group, which he led through a structural review that saw most of its apparel brands sold off to Noni B.
Bracken’s prospects at Michael Hill look much brighter, although not without challenges.
Indeed, one of Bracken’s initial tasks will be to rebuild investor confidence after the exit from the loss-making US market in the 2018 financial year and a subdued first-quarter start to FY19.
Michael Hill entered the US in 2008 but made no headway in the competitive jewellery market despite what the retailer described as significant investment. Attempts to find a buyer for the nine stores across three US states were unsuccessful, and with sales declining by 10 per cent in the first half of FY18, the retailer opted for closure.
The review completed by Michael Hill also determined that the retailer’s second brand, Emma & Roe, was not sustainable and should be closed. The two business exits resulted in a $25.5 million provision in the FY18 accounts, shaving annual net profit to just $4.6 million.
Michael Hill, which started in New Zealand in 1979 and is listed on both the Australian and New Zealand stock exchanges, with headquarters now in Brisbane, is not the first Australasian retailer to find the US too difficult.
Country Road and Peter Alexander also lost money in the country, and both, arguably, ended up under new ownership after failing to fully recover from their losses.
Michael Hill is better positioned than either of those two retailers, and there is a confidence that it can increase its market share, sales and earnings with further capital expenditure of around $25 million in the current year.
At least 10 new stores are planned for the current year across the three markets, along with continuing development of the online retail platform, which has increased sales by 85 per cent to $3.4 million in an otherwise-subdued first quarter of FY19.
Sir Michael Hill, chairman of the jewellery retailer, is bullish about future opportunities telling shareholders at the annual general meeting that the company was “energised by the compelling opportunity to be a global leader in the fine jewellery category”.
Hill said the retailer aims to differentiate its brand and product offer and to use digital and data to tailor, personalise and deepen each customer interaction. Hill is also mindful that jewellery is now an omnichannel business, with customers who invest significant time understanding the retail offer online before visiting stores.
“While we believe our stores will always have an important role to play, we know our customers take multiple trips through the digital world on each shopping journey,” he said.
“To be a successful jewellery retailer in today’s rapidly changing environment means enabling our customers to shift seamlessly between channels.”
Hill said the retailer’s digital roadmap was to improve customer experience through the use of data and analytics.
“We will tailor and personalise communications and better integrate our online and instore experience.”
Michael Hill has more than 300 stores and annual sales of more than $575.5 million.
Having taken the tough decisions to abandon its second brand growth strategy and exit the US market, the company has now refocused on its core business, giving Bracken a clear blueprint to increase sales and rebuild its profitability.