Rigid franchise approach criticised

gstarLandlords and a high profile international franchisor have copped criticism over the demise of a local fashion operator.

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Franchise and leasing consultant, Richard McDonnell, who has worked with Denim Enterprises for more than a decade, has accused franchisor, G-Star Australia, of being too rigid in its approach and unwilling to adapt to Australian retail marketplace conditions.

Denim Enterprises appointed Gess Michael Rambaldi and Andrew Reginald Yeo of Pitcher Partners as voluntary administrators on February 2. Denim Enterprises is based in Melbourne and operates all 21 G-Star standalone retail stores in Australia.

In Australia, G-Star’s wholesale division, including department store concessions and multi-brand stores, are owned by G-Star’s Australian parent company, G-Star Pty Ltd, which is based in Sydney.

G-Star country manager, Piet Poelmann, spoke to Inside Retail PREMIUM last week, however, declined to comment on McDonnell’s allegations, with a G-Star staff member telling Inside Retail PREMIUM Poelmann “has let me know that there was nothing further to report at this stage”.

Follow up emails to G-Star Pty Ltd by Inside Retail PREMIUM remained unanswered at the time of print.

Denim Enterprises was founded by directors, Nick and Candice Hirons in 1996, who were previously stockists of the brand in their own denim boutique, D.inc, in Melbourne.

The first D.inc store opened on Little Collins St in 1996, followed by a second store in Prahran in 2001. The first standalone G-Star store operated by Denim Enterprises opened in 2003 at Melbourne Centre.

McDonnell told Inside Retail PREMIUM G-Star International’s “ridiculous” fitout costs, which he estimates to have been around $1.2 million (including stock), “openly selling product to competitors of Denim Enterprise”, and operating G-Star DFO stores in locations nearby to Denim Enterprises’ stores, led to the collapse of the Melbourne-based franchisee.

“The G-Star [Melbourne Central] store that opened was the best in the world, and then the second store that opened at World Square [Sydney] was in the top two in the world for G-Star stores.

“It was paying $180,000 rent and it was doing close to $6 million turnover. At the moment, because of not very understanding landlords and a not very understanding franchisor, being G-Star, the store is now doing $2.6 million and rental is almost $600,000.”

G-Star Pty Ltd has 25 concession stores in Myer and David Jones and operates a multi-brand store model with retailers such as Glue.

The Australian model is in line with its global operations, where retail outlets are franchised by the parent company while wholesale remains parent-owned and operated.

Online is also a separate entity to Denim Enterprises. While Australian customers can shop online, orders are processed and shipped through the company’s global head office, however, Myer, David Jones, and Glue stock G-Star products on their online stores.

In a statement issued by G-Star Pty Ltd last week, the company said Denim Enterprises’ administration “has been a sole decision made by the management of Denim Enterprises. We are sorry and disappointed about their move and we have done everything possible to avoid it”.

“Despite this unexpected action, G-Star will continue to provide the Australian market with our craftsmanship and innovative jeans and apparel collection. G-Star and Australia have a special history together, as it was one of the first international markets that embraced our brand.

“We have a strong and long relationship with the Australian consumer and we will continue to serve them well through strong, profitable stores in key retail locations, as well as through our multi-brand partners that have sustained our brand with passion in the Australian market,” the G-Star Pty Ltd statement said.

McDonnell claims that while several of Denim Enterprises’ stores traded exceptionally, “at the same time, protected territories were cut out”.

“Denim Enterprises was showcasing the brand, paying the money to showcase the brand, and everyone else was benefiting. At the same time these companies were selling product over the internet,” McDonnell said.

G-Star International’s subsidiary in Sydney also operates G-Star DFO stores in Essendon, Moorabbin in Victoria, and Homebush, NSW. McDonnell believes the DFO stores should have been offered to Denim Enterprises to operate.

“The DFO that opened in Essendon virtually destroyed the North Melbourne store. The product was three months old [at DFO stores] and this took an enormous effect on G-Star stores.”

He claims there’s “a whole host of those instances where G-Star have been totally uncooperative and refused to see what’s happening in the marketplace”, including rejecting a cash offer by a landlord to terminate its existing lease, which McDonnell says “would have put some very positive cash flow into the account”.

“Denim Enterprises sales have been declining over the years, it’s not only G-Star. Landlords can see store sales declining and continue to expect a five per cent increase per annum.

“Sales have declined 18 per cent from one year to next and the landlords still want their increase, it’s silly.”

All G-Star stores continue to operate.

This story first appeared in Inside Retail PREMIUM issue 2033. To subscribe, click here.

 

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