Tough conditions take their toll
Inside Retail PREMIUM understands there has been initial interest in both Homeart and Man to Man, but industry analysts are not confident that either chain will attract a trade buyer.
There is speculation that more retail chains are on the brink of collapse as a result of poor sales and profitability resulting from discounting over the Christmas and New Year sales period and continuing subdued spending by consumers.
Landlord concessions on rents in the past three years have kept some retailers from closing underperforming stores, but increasing costs for staff and stock are making it more difficult for chains to carry unprofitable stores.
The fall in the Australian dollar is impacting on buying for winter season ranges, particularly in the fashion category.
Challenging market conditions have been underscored by a string of profit downgrade warnings from listed retailers, including The Reject Shop, Kathmandu, and Specialty Fashion Group (SFG).
The Reject Shop has warned it expects a 25 per cent fall in first half earnings after continuing weaker than forecast sales in the December quarter.
While the chain fared better in the second quarter with a 1.7 per cent decline in comparable sales as against the more dramatic 5.4 per cent like for like sales drop in the first quarter, The Reject Shop is struggling to regain momentum after focusing on an aggressive store expansion program that includeds the acquisition of selected sites from Jan Cameron’s failed Retail Adventures/DSG Holdings group.
It is refocusing on “delivering great value on everyday products” to boost customer traffic and sales, according to Ross Sudano, the chain’s MD.
Kathmandu has also expanded its store network aggressively in the past three years and underpinned sales growth with a deep discounting strategy.
The outdoor retailer has reported same store sales and margins in the Christmas trading period down on 2013, and it expected to produce lower earnings for the first half.
Kathmandu’s sales growth has been pegged back by lower than anticipated Christmas trading amid signs that customers are less motivated by incessant discount offers, that will no doubt be reviewed by incoming CEO, Xavier Simonet, who has been recruited from The London-based retailer, Radley.
Simonet begins with Kathmandu in March, having previous experience with LVHM in Europe as well as DB Apparel and Seafolly.
The SFG’s expected 32 perc ent fall in earnings is the result of an $11 million writedown for the first half, which is largely attributable to problems in the Rivers chain it bought for the bargain price of just $3.9 million in late 2013.
Rivers was known to be losing money when it was acquired, and Gary Perlstein, SFG CEO, has conceded that the turnaround plan and integration of the Rivers business into the group is taking longer than expected.
Perlstein remains confident that Rivers will be a good brand for the company and notes that sales for the chain are up significantly with a clean up of existing inventory, while the group’s other chains are faring better than most competitors wit 5.7 per cent like for like store sales increase in the first half.
Another fashion retailer struggling is Fusion Retail Brands, formerly known as Colorado Group.
Attempts to sell Fusion Retail Brands have been unsuccessful, and one of the group’s investors in the group, Couper Finance, has taken control of the business after it posted $36.7 million loss for the 2014 financial year.
Former CEO, Don Grover, parted ways with Fusion late last year after two years with the business.
Couper Finance is associated with 96 year-old John Johnston, one of the partners in the Godfrey’s vacuum cleaning chain.
Johnston reinvested in Godfreys in a deal that bought the chain back from private equity ownership ahead of a listing on the Australian Stock Exchange in 2014.
Couper Finance plans to shut 40 unprofitable stores in the Fusion Retail Group, which trades under the Mathers, Diana Ferrari, Williams, and Colorado brands.
It suffered a fall in sales from $216.5 million in 2013 to $200 million in the 2014 financial year, and although it reduced losses by around two thirds in 2014, ended the last financial year with a net liability position of $121 million.
This story first appeared in Inside Retail PREMIUM issue 2031. To subscribe, click here.
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