News

19 Feb, 2019
Forget the slowdown - Chinese shoppers are still in the lap of European luxury
The Financial Review

London | China's shiny economic miracle may be at its dullest for a decade, but somebody forgot to tell the country's bling-happy upmarket shopaholics. They are still stocking up on $3000-plus handbags from Gucci, Hermès and Louis Vuitton, creating a glitzy bright spot in an otherwise gloomy European economic outlook.

Gucci owner Kering was on Tuesday the latest company to share some goods news from the Far East with its investors. The French company posted a 25 per cent jump in reported sales to €3.8 billion ($6.1 billion) in the fourth quarter of last year, with Gucci's Asia-Pacific sales growth motoring along at an annual rate of 45 per cent.

"Sales among our Chinese clientele remained very dynamic in the fourth quarter, even with a high comparison base," said financial director Jean-Marc Duplaix.

 

Women's 'Arli' shoulder bags, by Gucci, are charging out the doors of Chinese shops, filling the coffers of European conglomerate Kerang. Taylor Weidman

His boss, chairman and CEO Francois-Henri Pinault - does anyone have a single-barrelled first name at Kering? - said the trend was set to continue: "In terms of the momentum with Chinese clients, it's very strong."

Gucci is apparently not the brightest star in the Chinese handbag firmament these days, so Kering is looking to push on into perfume, beauty, jewellery and travel retail – you name it, really.

A few days earlier, LMVH – owner of Louis Vuitton and Christian Dior – also waxed enthusiastic on China. The Asia-Pacific was its fastest-growing market, with sales revenue climbing 5.5 per cent to €13.7 billion – pulling away in size terms from the US market that used to be its equal.

"The Asian market, in particular the Chinese market, is very buoyant indeed," said LMVH chief executive Bernard Arnault.

Hermès, whose Birkin bags change hands for eye-watering sums, also enjoyed a stunning quarter: 13 per cent sales growth in non-Japan Asia, and a new e-commerce site in China to boot.

"We are still growing strongly in Asia; we did not see any change in momentum in our stores in China," said CEO Axel Dumas. 

Finally, Swiss firm Richemont, purveyor of Jaeger-Lecoultre watches and Montblanc pens, said its Asia-Pacific sales growth excluding Japan rose 17.5 per cent in the fourth quarter to €1.39 billion, despite an apparent shift in Chinese consumer preference from watches to handbags.

An accepted data point is that Chinese shoppers account for more than a third of global demand for luxury goods. So the European deluxe sector has been watching the region with as much furrow of their collective brow as the Botox allows.

China's fourth-quarter GDP growth of 6.4 per cent was the slowest since the global financial crisis, and the annual rate of 6.6 per cent was the slowest in 28 years.

Retail sales, though, bucked the downtrend, rising 8.2 per cent for the year. Rural consumers got in on the act, outpacing their urban peers and perhaps investing in their first Philippe Patek.

But not all companies shared in the luxury goods makers' bonanza. Apple reported a 27 per cent drop in gadget sales in the fourth quarter.

"While we anticipated some challenges in key emerging markets, we did not foresee the magnitude nor the economic deceleration, particularly in greater China," Apple CEO Tim Cook wrote to investors.

It's possible Chinese consumers are happy to buy a different phone or tablet, while seeing no possible substitute for a Birkin bag or a pair of Gucci glasses.

So while the European leaders fret about their lack of infrastructure titans to take on the US and Chinese conglomerates, there is still one industry where the old Continent bags the global top spot: when it comes to the fashionable and frivolous, the French still rule the roost.

19 Feb, 2019
HSBC Australia appoints new head of retail
Image via Investor Daily

HSBC has appointed a new head of retail banking and wealth management effective immediately to help build a bigger retail presence. 

Jessica Power will be part of the banks efforts to increase its presence in retail banking by assisting domestic and international customers with their mortgages, bank accounts, credit cards and other financial needs. 

Ms Power has over 23 years’ experience in the industry, most recently as state manager metro NSW for Westpac. Prior to that, she worked at Citigroup Australia for 19 years in various roles. 

Ms Power replaces Graham Heunis who has taken on a new role as head of Asia-Pacific sales management, retail banking and wealth management. 

HSBC Australia’s chief executive officer Martin Tricaud said that under Ms Power’s leadership the bank would see its growth efforts come to fruition. 

14 Feb, 2019
City Chic reports strong Christmas trading in solid first half
Inside Retail Australia

Plus-sized fashion brand City Chic has booked a solid first six months in FY19, its first half since it emerged as the only Specialty Fashion Group brand left standing after Millers, Katies, Crossroads, Autograph and Rivers, were sold to Boni B Limited for $31 million in June 2018.

The brand, now part of City Chic Collective, saw net profit after tax reach $10.1 million, translating to an earnings per share of 5.3 cents per share, driven by 7 per cent sales revenue growth of $75.4 million.

Comparable sales grew by 9.6 per cent over the period, with City Chic chief executive and managing director Phil Ryan stating stores are profitable and trading well, and that it has plans to expand the portfolio further across Australia and New Zealand.

“Trade was consistently strong throughout the half, including over the Christmas period,” City Chic chief executive and managing director Phil Ryan said.

“We have delivered excellent topline growth globally and at higher margins, due to a constant focus on our customer.”

City Chic grew its gross margin to 60.4 per cent, compared to the 59.4 per cent observed during 1H18.

Ryan noted that online is the brand’s most profitable channel, across both Australia and the United States. It now accounts for 40 per cent penetration with the platform.

In an interview with IR in December, Ryan said City Chic’s success online is due to the way the channel is viewed within the business.

“I don’t look at online as a different silo within our business… we don’t sit there and ask, ‘What’s our online channel doing?’ We ask, ‘How many people did we sell to this week?’, and then the second question is, ‘Where did they buy?’” Ryan said.

The brand offers a much broader range online than in bricks-and-mortar stores, which are restricted in size and restrictions inherent in a physical location, tailoring the in-store experience to the high-end of the product line, and keeping a more diverse range available on the website.

The brand’s comparable sales growth has continued to be positive into the beginning of the second half of FY19, and remains in line with expectations.

14 Feb, 2019
Ahmed Fahour the new hair apparent
The Australian Business Review

Former Australia Post boss Ahmed Fahour is turning his hand to hairdressing.

In a way it makes perfect sense for a man some have described as Melbourne’s answer to George Clooney.

Still, it’s a notable diversification of the personal investments of the man last year appointed as head of banking upstart Latitude Financial Services.

Clearly the reincarnated banking exec Fahour isn’t putting all his eggs in the financial services basket.

Towards the end of last year keen asset trader Fahour — once Australia’s highest-paid public servant back in his $5.6 million-a-year postie days — took a 15 per cent stake in retailer Hairhouse Warehouse.

The outfit, which sells hair care products and operates in-store salons, has more than 135 shops nationally. Fahour has also joined the private company’s board of directors.

To make room for Fahour’s aptly named investment vehicle Beachlane Beauty on the Hairhouse Warehouse register, co-founder brothers Tony and Joseph Lattouf each sold down their stakes in the group from 40 per cent to 32.5 per cent.

It is unclear how much Fahour — who also chairs billionaire Raphael Geminder’s ProPac — paid for his stake in the operation. The Lattoufs have plans to expand their store count to more than 200 in Oz and offshore in the next five years.

Latitude, ProPac and the burgeoning haircare enterprise will all keep Fahour busy in the year ahead.

Surely the one-time NAB exec has too much going on to be tempted back as Andrew Thorburn’s permanent replacement.

Although wouldn’t it be fun?

Back in town

Gaming billionaire James Packer is catching up with old friends on his week back in Australia.

Margin Call hears the Crown Resorts major shareholder — at last count valued at $5.25 billion on the Stensholt Index — spent much of Tuesday evening one-on-one with his friend and Crown Melbourne developer Lloyd Williams. The fellow richie — Williams is worth $787m at last count — is one of several father figures in Packer’s turbulent life.

Williams, along with ANZ’s famously discreet chairman David Gonski, was executor of Kerry Packer’s will.

Packer died at the end of 2005 but his will has only been settled between James and his older sister Gretel Packer in recent years after some, at times, acrimonious negotiations.

Packer flew into Melbourne on Sunday following the unexpected death of his former personal chef, Justin Bull.

On Monday, Packer was in Sydney, visiting friends and conducting business meetings.

Friends say the businessman’s surprise return to Australia and in particular Sydney — where his mother Ros and sister live but where Packer has struggled to feel comfortable — is a positive sign in his recovery after a difficult year.

The proof of Williams’s constructive approach was the audience along to hear him, most of whom rolled out for the after-party in the neighbouring parliamentary courtyard.

Among them were ASIC’s new enforcer Daniel Crennan and head of corporate affairs Matthew Abbott. The corporate cop ASIC was one of the other institutions Williams willed to be better over the years.

Also along: CBA whistleblower Jeff Morris (who listened three rows in front of Comyn, who sat next to his corporate affairs boss Andrew Hall and lobbyist Euan Robertson), a trio of Williams’s media friends Piers Akerman (also in bow tie), Adele Ferguson (whose first media job was thanks to Akerman) and Sky News’s Janine Perrett (on whose show Williams revealed he had Parkinson’s).

Others paying tribute to one of Australia’s most decent politicians: NSW Labor’s newish mouthpiece Cameron Sinclair (recently at Woolworths and before that one of Williams’s bank-baiting allies back in his days in Sam Dastyari’s office), singer Kamahl (for whom Williams once organised a dinner with Barack Obama) and NAB’s highly regarded government relations operative Aron Whillans, who in January learned (while on leave) that he had missed out on the bank’s chief government affairs job to Philippa King, a former staffer to Mike Baird.

That was a shock to many along at last night’s knees-up, not to mention members in Treasurer-most-likely Chris Bowen’s office.

Time for Whillans to leave the circus?

14 Feb, 2019
Harvey Norman struggles to find sites
The Australian Business Review

Billionaire Gerry Harvey says it’s impossible to find suitable land for the next rollout of Harvey Norman flagship stores in Australia and will settle on redeveloping one of the group’s pre-existing Melbourne stores.

Harvey and his wife Katie Page, chief executive of Harvey Norman, say it is too early to divulge traffic volumes at their first flagship store in Auburn, which at 16,000sq m is the group’s largest worldwide.

Built in the geographic heart of Sydney, it opened in October and followed the successful rollout of seven flagship stores in Singapore, Malaysia and Ireland.

The flagship stores cost about $50 million to develop plus an extra $10m-$20m in fit-outs.

“We want to roll out a flagship store in every state,” said Ms Page, adding that sales in its first flagship in Singapore spiked soon after its opening.

“In Singapore we had a budget for the first six months. We have exceeded our budget,” she said.

“But we will never get a site in Australia as big as Auburn.

‘‘The problem is finding sites … we want flagship stores in every state, particularly Brisbane and Melbourne.’’

On the retail front, Ms Page, who oversees more than 200 Harvey Norman stores in Australia, said one of the biggest recent sellers was the Dolce & Gabbana small appliance range. She said the $800 kettles, toasters and juicers had sold so well the Italian company was extending its range.

Ms Page said the heavily decorated Smeg appliances, popular in Italy and France, were also selling well in Australia despite the relatively small population.

“We started working with small appliances several years ago when they were black or stainless steel. Now it is a really strong category for us.’’

Ms Page said the Auburn store was tracking well and she would assess its performance at the end of June. “Gerry and I want to have a flagship store in every state,” Ms Page said. However, the difficulty was deciding what store in Melbourne they would redevelop into a flagship.

“We have a lot of real estate in Melbourne. It’s just a question of which store becomes the flagship,” Ms Page said. “The decision as to what part of Melbourne will be hard, but it does not have to be greenfield. This will not be an easy decision.”

In Brisbane Harvey Norman already has a site pegged out in the city’s southeastern suburbs.

On the property front, Mr Harvey said the residential market was the only weakness, with office, retail and industrial performing strongly. He has a team of 30 staff in his property division.

“Office is particularly good. We have a big portfolio of assets and they are still going up in price,’’ he said. “I have horse, cattle, residential properties and warehouses. I have a lot of investment in retail centres and entertainment.

“But it’s impossible to find sites for flagship stores. We can’t get anything that stacks up. If it’s not possible you can’t do it.

“We have the one site in Brisbane, but can’t find anything in Melbourne or Sydney.”

Meanwhile, Ms Page said the fastest growth for Harvey Norman is overseas, particularly in Southeast Asia, Ireland, Slovenia and Croatia.

“I am on planes a lot,” she said. “Five years ago 6 per cent of our profit was from offshore; last financial year it was 22 per cent,’ she said.

14 Feb, 2019
Pay snafu blots Super Retail result
The Australian Business Review

Compensation to underpaid retail managers has weighed on Super Retail Group’s first-half result, with the Rebel Sport owner reporting a slight dip in first- half profit to $71.7 million despite increasing revenue. 

Super Retail (SUL) revenue rose 6.0 per cent to $1.4 billion in the six months to December 29, but the Rays and Supercheap Auto owner saw its net profit slip by 0.7 per cent in the wake of impairments announced on Tuesday.

The company said a review of employment arrangements had showed $32 million in overtime hours had not been paid in accordance with the General Retail Industry Award over the past six years, with interest-related compensation adding another $11 million in pre-tax costs.

Super Retail will pay a fully franked interim dividend of 21.5 cents, unchanged from last year.

14 Feb, 2019
Breville on the boil after booking bumper result, lifting dividend
The Australian Business Review

Shares in Breville shot up nearly 20 per cent after the appliance maker defied the recent retail slump and worries of a global economic slowdown, booking a bumper first-half profit and upping its interim dividend.

Following a lift in its half-year result on the back of growth in existing markets, as well as its expansion into Germany and Austria, Breville (BRG) said its earnings before interest and tax growth for the full year is expected to beat the market’s current consensus forecast of about 11 per cent.

For the first half, net profit after tax attributable to members lifted 19.7 per cent to $43.5 million.

That figure was positively impacted by a one off reduction in its US deferred tax asset in the previous corresponding period. Excluding the impact of the deferred tax asset, net profit after tax increased 14.8 per cent for the period.

“The first half of fiscal year 2019 was a solid half for the group,” said chief executive Jim Clayton.

“We continued to deliver double digit earnings before interest and tax growth while successfully executing on our acceleration program, increasing our investment in product development and marketing, and successfully entering the German and Austrian markets.”

The company upped its interim dividend payout to 18.5 cents a share partly franked, up from 16.5c last year.

Earnings before interest, tax, depreciation and amortisation up 14.6 per cent to $70.5m.

Shares in Breville closed yesterday up 18 per cent at $14.09.

In its first-half results announcement this morning, the company said it achieved double digit growth in its key North American and UK businesses.

The ANZ business saw double-digit growth in Australia, which the company said was a strong result against a challenging retail environment. Meanwhile the New Zealand market was softer, Breville said.

Entry into Germany and Austria had been successful so far, with revenue from Germany already 42 per cent higher than the first half the company entered the UK market in fiscal year 2014, the company said.

The positive result follows a wave of business failures in the discretionary retail sector have collapsed in recent years, with iconic Australian cosmetics brand Napoleon Perdis falling victim to the retail slump last month and entering voluntary administration.

Brands including Topshop, Marcs, David Lawrence, Rhodes & Beckett, Roger David and Oroton have entered into administration recently, some shutting their doors for good.

Earlier this week, electronics giant JB Hi-Fi booked a 5.5 per cent lift in first half profit, with chief executive Richard Murray speculating that consumers are putting electronic items higher up the shopping list than other discretionary items, such as fashion and clothing.

12 Feb, 2019
'Throwing workers a bone': Deliveroo calls for national laws to govern gig economy
The Sydney Morning Herald

A new class of worker should be created to cover gig economy employers Deliveroo has argued as part of a plea for a national shake up of workplace legislation.

The food delivery platform made a submission on Tuesday to the Victorian government's inquiry into on-demand work calling for a "Future Work Act" to allow it and other platforms to offer riders benefits without employment in what has been described as a "third way".

However experts and unions criticised Deliveroo's legislative push claiming it was merely "throwing workers a bone".

Deliveroo's submission compares the proposed legislation to the Fair Work Act saying an equivalent was needed for "modern" ways of working.

“To end the trade-off between flexibility and security, we believe law reform should be considered that allows workers to accrue benefits on the basis of work performed, for example, the number of deliveries completed or the value of fees earned, rather than their ordinary hours of work, and that the provision of benefits by a company to a self-employed contractor should not impact their employment status," it says.

Deliveroo argues the current system “disincentivises” companies from offering contractors greater security in the form of benefits.

It's in an alleyway behind Chapel Street and it's pumping out takeaway meals – but it's not a restaurant. 

Any legislation would need to be implemented at both federal and state levels and Deliveroo has proposed the governments “work in tandem” potentially through the Council of Australian Governments (COAG) agreeing to model legislation that could be implemented uniformly.

Deliveroo suggests a Future Work Act could enable companies to provide benefits to contractors including accident and injury or third party liability insurance, income protection when temporarily unable to work because of an accident, sick pay, and training.

Deliveroo has 6500 riders in Australia and said 67 per cent of all sessions, measured by the duration that people are logged into the app, are for under three hours.

On average Deliveroo said its riders work 15 hours a week, earning over $22.00 per hour on average.

In the submission, Deliveroo pointed to riders rejection of orders as a sign of the flexibility offered.

“Riders frequently reject orders, for example, because they’re currently completing an order for another platform or restaurant and the offer isn’t convenient for them,” the submission said. “In the last six months, 93 per cent of riders rejected at least one order and on average each order was rejected once before it was accepted.”

The average amount of time a rider works with Deliveroo is only five months which Deliveroo attributes to “many riders see riding as a short term opportunity rather than a long term commitment”.

A spokesperson for Uber said the transport and food delivery platform would also make a submission to the inquiry before 20 February.

"We recognise this is a complex policy area and any reforms will require input from workers, the community and business," the spokesperson said.

Jim Stanford, economist and director of the Centre for Future Work, said the push for legislation from "a rear guard action by Deliveroo to head off what it fears."

"The business model of companies like Deliveroo, Uber and Lyft is completely dependent on their ability to assign workers as contractors not employees," he said. "If these companies had to pay minimum wage and other normal conditions of employment they would not be viable."

Mr Stanford said the offer by Deliveroo to provide benefits in exchange for workers not being employees is a "token promise".

"In general that is window dressing to try to make the current situation, which is very exploitative, more tolerable.  Real benefits would be minimum wage, overtime, paid holidays and sick leave," he said.

"I also note it would be tied to work performed rather than time spent and that is a huge distinction as these companies depend on the free time of gig workers waiting for the next job."

In general that is window dressing to try to make the current situation, which is very exploitative, more tolerable.

Jim Stanford

Tony Sheldon, co-ordinator on the on-demand economy for the Transport Workers Union said Deliveroo is "throwing workers a bone to try and shut them up" and "inventing new ways to keep underpaying its workers."

Mr Sheldon said last year workers woke up to a 30 to 40 per cent pay cut when Deliveroo increased delivery distances without warning.

"This is another public relations exercise to try to hide the exploitation that goes on every day,” he said.

11 Feb, 2019
JB Hi-Fi first-half profit rises 5.5pc to $160.1m, full-year sales affirmed
Financial Review

JB Hi-Fi is stocking more fast-growing goods such as mobile phones, gaming and internet-connected homewares to insulate sales and margins as consumers become increasingly cautious amid falling house prices and rising living costs.

Australia's largest consumer electronics retailer managed to defy the slump in pre-Christmas foot traffic to deliver a better than expected 5.5 per cent increase in net profit to $160.1 million in the December-half by keeping costs in check and focusing on higher-margin products to offset pricing pressure.

However, same-store sales growth slowed in January at the company's eponymous stores and chief executive Richard Murray says the trading environment is becoming increasingly volatile, with more consumers chasing discounts.

"There is a lot of noise out there at the moment and you can understand how consumers are probably more cautious at the moment and that must flow through - we have 300 stores across the country, we're going to be impacted by general sentiment," Mr Murray told The Australian Financial Review.

"The offset to that is [fast-growing categories like] the connected home and connected technology and where technology fits in the household - when people have money they want to spend it." 

Analysts believe JB Hi-Fi, with its low cost of doing business and strong trading culture, is faring better than Harvey Norman as falling house prices, rising living costs and lacklustre consumer sentiment dent demand for discretionary purchases and lead to a spate of profit downgrades among listed retailers.

Mr Murray reaffirmed guidance for full-year sales growth of 3.6 per cent to $7.1billion and expects net profit for the year to grow by between 1.6 per cent and 5.1 per cent to between $237 million and $245 million.

The top of the range exceeds consensus forecasts around $240 million but is a fraction of the retailer's 15-per cent average annual profit growth over the last 10 years, underlining tough retail conditions.

"That's a wider range than usual and reflects there are a lot of moving parts," Mr Murray said. The top end of guidance implies June-half profit growth of 4 per cent but the bottom end implies a 6 per cent fall in profits.

The better than expected guidance sent short-sellers scurrying. JB Hi-Fi, which is the third most-shorted stock on the ASX, jumped as much as 7 per cent before closing up 1.5 per cent at $22.92.

"They were able to cycle really tough comps [comparable store sales] and the guidance is strong ... given the volatility of trading we see this as a very credible result," said JP Morgan retail analyst Shaun Cousins.

"The JB Hi-Fi result was solid in a challenging domestic retail environment," said Tim Carleton, of long-short manager Auscap Asset Management. Mr Carleton named JB Hi-Fi as his preferred long at the Sohn Hearts and Minds investment leaders conference last year.

"It demonstrated again why they are a best-in-class operator. Sales, earnings and cash flow were all strong," he said.

 

Mr Murray said JB Hi-Fi and The Good Guys would have to "work hard as always" and leverage their strengths in stores and online to defend market share "in a sensible and measured way".

The retailer is increasing floor space in JB Hi-Fi stores for mobile phones, gaming and connected technology such as internet-connected doorbells and security cameras by between 50 and 100 per cent to counter weak demand for software such as music and DVDs.

It is testing a new e-commerce platform designed to make online shopping easier and enable the company to analyse spending so it can start making direct offers to customers based on past purchases.

Online sales rose 21 per cent at JB Hi-Fi but fell 2.4 per cent at The Good Guys due to weaker sales on eBay, where sellers have been discounting heavily to compete with Amazon.

 

JB Hi-Fi's interim financial results.  

To further differentiate itself from Amazon and online-only rivals, JB Hi-Fi has also started trialling services such as television installation.

At the same time the company is aiming to reduce costs by simplifying its supply chain - merging the JB Hi-Fi and Good Guys' support centres into a single site at Southbank in Melbourne - and benchmarking suppliers to identify underperformance and get better deals.

Revenue in the six months ended December 31 rose 4.2 per cent to $3.84 billion as six new stores augmented solid same-store sales growth in Australia and New Zealand.

Earnings at JB Hi-Fi Australia rose 4.5 per cent to $192 million as total sales rose 4.7 per cent to $2.6 billion and same-store sales by 3 per cent.

Same-store sales growth slowed to 2.8 per cent in the December quarter from 7.8 per cent in the year-ago period and slowed again in January, to 1.5 per cent, less than half the 4.8 per cent growth in January 2018.

JB Hi-Fi New Zealand returned to profit under new managing director Cherie Kerrison, earning $NZ1.1 million as total sales rose 5.8 per cent, same-store sales by 12.6 per cent and online sales by 65 per cent after the launch of a new platform in 2017.

At The Good Guys, which is run by former JB Hi-Fi CEO Terry Smart, EBIT rose 4 per cent as margins stabilised and sales rose almost 3 per cent, buoyed by two new stores and demand for French-door refrigerators, washing machines, large-screen televisions, stick vacuum cleaners and computers.

Same-store sales growth accelerated to 1.9 per cent in the second quarter from 1 per cent in the September quarter and were up 0.3 per cent in January after falling 4.7 per cent in January 2018.

JB Hi-Fi lifted its interim dividend by 5¢ to 91¢ a share, payable on March 8.

8 Feb, 2019
David Jones CEO departure, Woolworths returns source of department store gloom
Financial Review

t was arguably the most glamorous, and certainly the most expensive, new season launch in the history of Australian fashion.

This week David Jones flew more than 50 A-listers – journalists, fashion industry representatives and social media influencers – from across Australia to Tasmania for a two-day party to promote its autumn/winter collection and new focus on health and wellness.

Dubbed The Art of Living, the immersive experience, a collaboration with the Tasmanian government, was a big shift from David Jones' more sedate biannual fashion parades in Sydney and Melbourne.

 

Models Victoria Lee, Gemma Ward and Jessica Gomes strut their stuff in front of the influencer crowd during David Jones' Autumn/Winter 2019 collections launch at The Void, MONA in Hobart this week. Sarah Rhodes

 

On Tuesday, guests nibbled on confit Tasmanian salmon, slow-cooked Robbins Island sirloin and a decadent whisky, chocolate and berry dessert over lunch at the Museum of Old and New Art before watching models Jessica Gomez and Victoria Lee strut their stuff at a fashion parade at MONA's sandstone Void bar.

The party continued on Wednesday, when guests were treated to vitamin smoothies, massages and meditation at MONA's Faro restaurant and checked out the retailer's new food appliances and homewares before returning to the mainland on Wednesday night.

But behind the glitz and glamour, David Jones' executives were harbouring a secret.

Their chief executive, David Thomas – who was noticeably absent from the event – had been accused of discrimination by a staff member in November and had been the subject of an external investigation handled by law firm Ashurst.

According to a David Jones spokesman, no evidence was found to support the claim, the nature of which was not disclosed.

Thomas resigned on Thursday morning for "personal reasons" that were completely unrelated to the dismissed complaint and despite being cleared of any wrongdoing.

 

David Jones CEO David Thomas resigned on Thursday, the fourth CEO to depart in less than five years. He was notably absent from the Hobart event. Janie Barrett

 

It is understood a small settlement was paid to the unidentified complainant, who is believed to be a member of David Jones' visual merchandising team. 

There was no admission of any liability or wrongdoing by Thomas. Settlement payments are often made for a variety of reasons, including to avoid the cost of litigation.

Thomas is not the only senior David Jones executive to be parting ways with the retailer.

Regional chief financial officer Ashley Gardner is leaving at the end of the month following a management restructure and won't be replaced, while chief people officer Karen Lonergan is leaving to join Stockland Group in March.

 

Guests of David Jones enjoyed lunch at the Museum of Old and New Art as part of the two-day 'Art of Living' promotion. Mark Nolan

 

Their departures follow tough Christmas-New Year trading, when David Jones' same-store sales growth tanked, and reports of a $50 million blow-out (which David Jones denies) in its $400 million refurbishment of the flagship Elizabeth Street store in Sydney's CBD.

The venerable 180-year-old department store arguably is faring better than its cash-strapped rival Myer, which has shed another 100 middle-management and store jobs last month in an attempt to cut costs and keep banks at bay.

However, David Jones has failed to deliver the profit boost Woolworths was hoping for when it outlaid $2.1 billion for the grande dame of Australian retailing in 2014.

After a promising start, David Jones profits have more than halved since the takeover, falling from $161 million in 2015 to $63 million last year, with further falls expected this financial year. Woolworths had originally forecast earnings growth from David Jones of between $130 million and $170 million by 2019.

 

Another year, another CEO

The retailer has now lost four CEOs in less than five years: Thomas, John Dixon, Iain Nairn and Paul Zahra. 

The next senior executive departure could be Woolworths chief executive Ian Moir, who has made big promises to shareholders about the value that would be created through the David Jones takeover and merger with the Country Road Group.

South African investors are unhappy with Woolworths' and David Jones' performance and have been calling for heads to roll after a 50 per cent fall in the Woolworths share price in two years.

Asief Mohamed, chef investment officer at Aeon Investment Management, doubts Woolworths will earn a satisfactory return on its investment.

"We are indeed disappointed with the David Jones acquisition, as management expectations and guidance has disappointed," Mohamed tells AFR Weekend.

"Woolworths management generally continues to surprise to the downside. The 7 billion rand ($712 million) impairment of David Jones is testimony that Woolworths overpaid for David Jones," he says.

"We are doubtful that satisfactory returns will be achieved on a sustainable basis on the original purchase price of David Jones."

Mohamed says Woolworths needs to deliver a few consecutive quarters of better-than-expected results before it can be trusted again and regains investor confidence.

"There are some green shoots in David Jones in the latest results with the revenue decrease now abated."

Merger rumours debunked

However, he is not counting on a merger of David Jones and Myer – proposed by an increasingly desperate Myer board in late 2013 but rejected by David Jones – to resolve the problems confronting the two department stores, which are losing market share to specialty and online retailers.

"A merger of Myer and David Jones is not our base case. We believe such a merger to be unlikely unless the price dynamics are significantly in favour of Woolworths," he says.

Cassie Treurnicht, portfolio manager at Gryphon asset management, says Woolworths bought David Jones at the top of the retail cycle and paid too much, pointing to the $712 million goodwill writedown last year, which dragged Woolworths into the red for the first time in more than decade.

"We believe they overpaid for it – not only overpaid, but you don't buy at the top of the cycle," Treurnicht says.

Woolworths has also made mistakes, he says, pointing to a failed private label and pricing strategies, and needed to get basics right before splashing more cash.

Treurnicht doubts Woolworths will make a decent return from the $400 million being spent refurbishing the Elizabeth Street store, which has been largely funded by the sale of DJs Market Street store nearby, but says Woolworths is in too deep to start pulling back on capital expenditure.

"There are signs [David Jones sales] are stabilising but they need to spend with their eyes wide open," he says. "It's unfortunate but they're so far down this path they don't have a choice but to make something of it."

5 Feb, 2019
4 Ways Revolve Is Winning Australian Customers
SOURCE:
Ragtrader
Ragtrader

US-based etailer Revolve has upgraded its service proposition to Australia, with a four-prong approach.

The etailer has now introduced a free return service to the market, with a host of local events planned to celebrate the launch.

The move will supplement other services such as ugraded free express shipping, a toll free customer service number and pricing shown and charged in local currency. 

The platform offers over 500 designer labels and counts Australia as its top international market by 2018 net sales.

Revolve international vice president Kai Li said it is always looking to exceed expectations.

"It is extremely challenging to deliver this promise on a global scale so we are thrilled to lead the way by offering free returns in our furthest market.”

Revolve will celebrate the launch by hosting over 10 industry influencers for a week-long celebration split between the Whitsundays and Sydney.

The influencers include Shanina Shaik, Natasha Oakley, Devin Brugman, Aimee Song and Elle Ferguson.

Private industry events include a welcome party on The Island, a takeover of Bondi Icebergs, an event with Australian brand Spell & The Gypsy Collective, a beach party at Watsons Bay Boutique Hotel and more.

Revolve was on track to clock $1 billion in sales last year.

 

5 Feb, 2019
Private equity targets struggling retailers
AAP

The struggling Australian retail sector is emerging as a private equity hotspot and deal makers expect activity to remain strong, led by firms keen to turn around major brands.

Retail sales in Australia have remained sluggish in the past few months and the most recent figures for March showed zero growth for that month.

Spending on clothing and ac­cessories, household goods and department stores all slowed during the month and economists have warned that a sudden jump in sales is unlikely.

However, private equity funds have poured more than $1.5 billion into the retail sector in just a few months and are expected to remain active buyers.

Figures compiled by The Australian showed that in the past six months at least six major retail deals involved private equity funds buying out companies.

The largest transaction, involving skin and hair care manufacturer BWX, emerged last week when Bain Capital teamed with the company’s management to offer $860 million for the firm. The offer was made at a 50 per cent premium to the company’s last price on the ASX.

The deal came a fortnight after Noni B and its major shareholder Alceon paid $31m for a portfolio of five brands from the embattled Specialty Fashion Group.

The Australian Private Equity and Venture Capital Association (AVCAL) estimates that last year funds invested $720m in consumer good and retail businesses, which accounted for 19 per cent of total spending.

KPMG mergers and acquisition partner Luke Lawrentschuk said the demand from private funds for Australian retail was expected to remain strong, even though the sales forecast in the sector were weak.

He said funds would be keen to buy Australian business that could be easily expanded and in sectors favoured by consumers.

“There’s been a track record in Australia of successful retail deals being carried out. I think the business models of companies or brands which are being bought is very important,” he said.

“They need to be relatable, they need to be easy to understand, the business model should not be complex and they should be able to be scaled up.

“That’s the play book of private equity.”

Mr Lawrentschuk said he believed that most retail-focused private equity investment in the future would be in lifestyle, entertainment, and food and nutritional product firms.

In New Zealand, Comvita, which manufactures manuka honey, last week revealed it had received a takeover offer from a mystery bidder but it had fallen through after the parties could not agree on price.

Mr Lawrentschuk said the number of funds active in Australia was higher now, as the local private investment industry had matured.

“There is a lot of dry powder in Australia in private equity because there is a lot of money that has been raised,” he said.

“The private equity industry has gone through a number of stages. There were a large number of very big funds that had developed five to 10 years ago.

“Now there are a lot of smaller funds which have been set up by people who have left those bigger organisations.”

Allens partner Tom Story said Australian fashion labels were also increasingly likely to be on the radar of private buyers keen to expand the businesses overseas.

In the past two years, Collette, Tigerlily and swimwear designer Zimmermann stakes were sold to private equity buyers.

Mr Story said he thought it unlikely that private equity buyouts of “bricks and mortar” retailers like Myer or David Jones would be on the cards, primarily because of the high property leasing costs involved.

However, he said future investment would be targeted.

“I think a big buyout fund would find it very challenging buying into traditional retail,” he said.

“There’s a range of retailers that have found it very tough but there are aspects of retail that are very attractive to turnaround-type or distressed-asset investors.

“There has been success in buying high-end fashion brands ... the buyers have looked to expand into Asia and the US and that has worked where there’s been a very successful brand.”

31 Jan, 2019
Napoleon Perdis collapses into voluntary administration after sales
The Australian Business Review

Makeup company Napoleon Perdis has entered into voluntary administration after several months of trying to sell the cosmetics business fell flat.

All stores are continuing to trade, as administrators assess whether the business can be restructured or if a buyer is found.

Directors in the company today appointed administrators Simon Cathro, Chris Cook, and Ivan Glavas of Worrells Solvency Accountants today.

“We expect the appointment will generate significant interest in the sale of the business,” Mr Cathro said.

Accounts filed with ASIC reveal the company has been under pressure for a number of years, with the latest figures filed showing a $154,808 loss for the 2015 fiscal year and a $1.6 million loss the year prior.

The company’s founder of the same name said the brand is still in high demand and that a restructure would put it in a prime position to continue to evolve, either through continued trade or in a sale.

“My family and I are 100 per cent committed to achieving the best outcome for all stakeholders,” Mr Perdis said.

“We are fortunate that throughout our business, we have staff and teams who have not only underpinned the business success, but who are our extended family.

“Their unwavering contribution will undoubtedly pave the way for the successful and strategic trade on.

“As we work towards our goals, we ask customers, suppliers and other interested parties to continue with their valued support of the brand.”

Mr Perdis is an internationally renowned makeup artist who has appeared on a number of reality TV shows.

His makeup chain first opened its doors in 1995 and now has 56 stores nationally, as well as an exclusive agreement with pharmacy chain Priceline.

Mr Perdis opened the renowned Napoleon Perdis Makeup Academy in Sydney in 1993, which has educated over 25,000 students.

Priceline vouched its support of the business during the administration process.

Last year, Napoleon Perdis pulled out of David Jones after 14 years and stripped products from more than 250 independent chains and salons, as part of a new strategy.

The company decided to stick with Myer.

A report by IBISWorld released earlier this month concluded that conditions in the cosmetic and toiletry retailing industry had been challenging over the past five years, partly due to the mature and saturated nature of the market.

“Rival external retailers, including bricks-and-mortar stores and a growing number of pure-play e-tailers, have negatively affected industry retailers’ sales,” the report said.

“In particular, supermarkets and online discount cosmetics stores have taken advantage of variations in consumer sentiment and associated shifts in discretionary spending over the period.”

Worrells said that the company’s extensive structure, distribution network and stockist agreements would mean that establishing its financial position is a complex process.

The stores would be closed for stocktake today and reopen for business tomorrow, with an expected sale campaign occurring.

The administrators are expected to meet with the company’s creditors in the coming days.

The collapse of the beauty business follows the entry of foreign-owned cosmetics stores such as Sephora (owned by French giant LVMH) into the Australian market in recent years.

Among the broader retail market, recent entrants including Swedish department store H&M, Spanish fast fashion chain Zara and Japanese department store Uniqlo are thriving in the local market as other stores wither.

Brands including Topshop, Marcs, David Lawrence, Rhodes & Beckett, Roger David and Oroton have entered into administration recently, some shutting their doors for good.

23 Jan, 2019
Retail unwraps lacklustre Christmas sales numbers
The Australian Business Review

Retail spending over Christmas was “fairly weak” according to the National Australia Bank as spending was dragged forward by the increasing popularity of Black Friday and Cyber Monday sales, as stagnant wages growth and sliding property prices have made shoppers more reluctant to spend money on discretionary items.

It reinforces fears that the nation’s $310 billion retail sector is in for a horror 2019 after a downturn in sales for the critical Christmas and New Year trading period will leave many retail balance sheets stretched, with men’s fashion chain Ed Harry already collapsing and others likely to follow.

The NAB Cashless Retail Sales Index, released yesterday, rose 0.9 per cent in December on a month-on-month basis, up from a 0.4 per cent (revised) increase in November. However, NAB data mapping suggests that the official ABS measure of retail sales will record a negative in December, forecast to be down 0.3 per cent.

“These results suggest that retail spending for Christmas 2018 was fairly weak,’’ the NAB said.

“While some Christmas spending was brought forward to November by way of the ever more popular Black Friday and Cyber Monday sales, the reality is that consumers were reluctant to spend over Christmas and that underlying spending is lacklustre, underlined by a number of retailers starting the Boxing Day sales before Christmas itself.”

There were a number of factors now pinching consumer spending, especially over Christmas when shoppers usually are more liberal with their spending patters.

“Low wage growth, high personal debt levels and a weakening housing market — particularly in Sydney and Melbourne — have made consumers reluctant to spend on non-essentials,’’ said NAB chief economist Alan Oster.

“The Australian economy is still growing, although we revised down our GDP growth forecasts somewhat last month, as wealth effects of lower house prices and slower housing construction bear more on the outlook. We now no longer expect any movement in the cash rate until the second half of 2020.”

Mr Oster said consumers were also changing the way in which they spent their money, directing spending to other sectors and away from traditional areas once favoured over the holiday season.

“Furthermore, consumer preferences continue to trend towards experiences at the expense of traditional consumer goods. Cafes, restaurants and takeaways remains the strongest performer on a year-on-year basis, followed by food, while department stores, clothing and footwear, household goods and other retailing are growing much more slowly.”

These forces now awash in the retail sector have been evident in the spate of profit warnings and downgrades from retailers since the start of the year with Kmart, Kathmandu, PAS Group and Gale Pacific all blaming a downturn in sales for weaker earnings outlooks. Upmarket department store David Jones last week revealed that its sales growth had slowed almost to a complete halt in the months leading into December.

The NAB Cashless Retail Sales Index was up 9.9 per cent year-on-year in December. Year-on-year growth is positive for all six NAB Cashless Retail Index major industry groupings. Cafes, restaurants and takeaways remains the fastest growing category (15.9 per cent year-on-year), followed by food (10.0 per cent), department stores (7.4 per cent), clothing and footwear (7.1 per cent), household goods (5.0 per cent), and finally other retailing (4.7 per cent).

23 Jan, 2019
Sky-high rents crunching retail profits: Macquarie survey
The Australian Business Review

Out-of-control rents and reduced sales volumes are placing pressure on the profit margins of the nation’s listed retailers, with a growing number of businesses planning to close loss making stores in the face of the crippling headwinds, says a new survey from Macquarie Wealth Management.

Indeed, underlining the concern over how sky-rocketing rents are crunching profits, almost one quarter of retailers surveyed said they planned to decrease shopping centre space over the next 12 months by shrinking floor space.

In a new report to its clients, the financial adviser also argues that a time when the consumer backdrop is challenged by a range of factors there is “a lot to worry about” as households remain cautious about the year ahead.

Macquarie Wealth Management said its retailer survey (taking in around 2300 stores) showed that Christmas was not jolly and things could get worse as 49 per cent of retailers indicated trading was negative for retail sales (versus 28 per cent a year ago), with apparel particularly weak, food mixed, and electronics a bright spot reporting stable conditions.

But it was then the survey dug deeper to see what forces were pinching profit margins for Australia’s retailers that the survey revealed excessive rents had risen to become one of the most painful areas for retail tenants.

“We asked each retailer to list the key factors currently contributing the greatest pressure on margins. Amongst all respondents, reduced sales volumes were cited in around 33 per cent of responses causing the greatest pressure on margins, compared to rent at 26 per cent and wages at 22 per cent,’’ Macquarie the report said.

But the issue of excessive rents has rocketed up the charts for retailers in terms of the greatest pressure on profits, with rent only featuring as a factor for 11 per cent of those surveyed in 2017. For large retailers the high cost of rent ranked equally with the sales downturn (25 per cent) for causing the most margin pressure at the moment.

The survey found that 8 per cent of retailers are looking to close down loss making stores, up from no respondents last year, as they scurry to slash their rent bills.

“Retailers are far less bullish on their space requirements today than they were five years ago, when we first conducted this survey. Only around 7 per cent of large retailers currently intended on increasing space on a one-year view.

“This compares to around 61 per cent back in 2014. In fact, 24 per cent expect to decrease space over the next 12 months.’’

Some shopping centre landlords were acting by offering rental incentives to some retail tenants.

“A key change from when we first completed this survey in 2014 is the level of incentives paid by landlords to tenants. In 2014, 12 per cent of respondents stated landlords were paying incentives of over 10 per cent of rent. This has now changed to 21 per cent of tenant’s receiving an incentive of over 10 per cent.’’

Shopping centres are feeling the hurt of reduced traffic at their sites which is encouraging many retailers to demand lower rents. Last week one of the nation’s leading corporate restructuring experts, Ferrier Hodgson partner James Stewart, warned that the collapse in shopping centre traffic in the two weeks before Christmas is the worst he has seen in more than 20 years.

Shoppertrak, an analytical tool widely used in the retail sector, particularly by shopping centre landlords, showed foot traffic in the last two weeks of 2018 was down 15 per cent and 23 per cent respectively.

In November retail billionaire Solomon Lew, whose Premier Investments has hundreds of stores under brands such as Just Jeans, Portmans and Peter Alexander, said his company would close down its Dotti, Smiggle and Just Jeans stores in Chapel Street, adding to the more than 40 empty shops along the prime Melbourne shopping destination.

Mr Lew said at the time of announcing the closures, “If landlords don’t understand that they need to reduce the rent in the competitive landscape, well then we will just vacate stores.’’

In March last year Mr Lew’s top fashion retail CEO Mark McInnes flagged Premier Investments would escalate closures if it did not get fair rent deals.

“In particular, we sought, and we continue to seek, rents in line with centre performance,” the Premier chief said.

22 Jan, 2019
Super Retail taps outdoors boss Anthony Heraghty as next CEO
The Sydney Morning Herald

The group behind Rebel Sport and Supercheap Auto has tapped the head of its outdoors division to take over from long-standing boss Peter Birtles as chief executive.

Super Retail Group said on Monday that Anthony Heraghty, who oversees the BCF (Boating, Camping, Fishing), Rays and Macpac chains, will be elevated to the top job at the end of March.

Anthony Heraghty will take over as CEO of Super Retail in March.CREDIT:JESSICA HROMAS

 

Mr Birtles has been CEO at the group for the past 13 years, and announced his retirement in October.

With no successor in place, that announcement spooked investors and sent its shares plunging 21 per cent over five days, from $9.35 to $7.38.  The stock has slid further since then, and on Monday closed at $6.90.

Super Retail's chair Sally Pitkin said a global search had identified a number of candidates, but it was determined that Mr Heraghty was best placed to "lead the next era of growth for the Super Retail Group".

“Anthony is a trusted and respected leader with a track record of delivering improved business performance, coupled with an absolute commitment to and understanding of customer needs," she said.

Super Retail's brands include Rebel Sport, Supercheap Auto, Macpac, BCF and Rays Outdoors. CREDIT:DANIEL MUNOZ

 

Mr Heraghty joined Super Retail in 2015. He previously held senior roles at Bonds' owner Pacific Brands, and oversaw the evolution of the iconic underwear brand from a wholesale operation to a direct-to-consumer retail business.

Prior to that he was the global marketing director at Foster's Group.

"With changing customer expectations, we are being challenged to innovate and modernise our business to ensure we are fit to compete in the even more competitive retail environment of tomorrow," Mr Heraghty said.

“I’m excited about the opportunity to navigate a great Australian company through the radical changes rapidly reshaping the retail sector."

Mr Heraghty drove the acquisition last year of New Zealand outdoors brand Macpac, which is now being merged with its existing camping supplies chain Rays.

Mr Heraghty will take a slight pay cut from his predecessor, with a base salary of $1 million a year compared to Mr Birtles'  $1.23 million, with annual short- and long-term bonuses of up to $1.6 million.

Mr Birtles will stay on to present the group's first-half results in February.

22 Jan, 2019
Super Retail Group names Anthony Heraghty as new CEO
Inside Retail Australia

Super Retail Group has appointed Anthony Heraghty as CEO, effective 31 March 2019. He will replace outgoing chief executive Peter Birtles.

Heraghty is currently the group’s managing director of outdoor retailing, and is responsible for the BCF, Rays, and Macpac businesses.

In a statement to investors, Heraghty said he aims to modernise Super Retail Group to compete in a changing retail.

“With changing consumer expectations, we are being challenged to innovate and modernise our business to ensure we are fit to compete in the even more competitive retail environment of tomorrow,” he said.

He added that he plans to build on the group’s culture of teamwork and team member pride to position the business to grow and deliver for shareholders.

“In an era where customers have greater demands and choice than ever before in what, where, when and how they want to buy, our customer-centric approach and engaged team can help differentiate Super Retail Group and drive the next phase of growth around our four core brands,” he said.

Super Retail Group chair Sally Pitkin called Anthony a trusted and respected leader with a track record of delivering improved business performance and a commitment to and understanding of customer needs.

“Fresh thinking, embracing innovation, and harnessing data and technology are trademarks of his leadership,” she said.

Birtles will work with Heraghty over the coming months to ensure a smooth transition, and will present the group’s first half results in February.

“I can assure you that Super Retail Group is in good hands,” Birtles said.

“I’ve worked closely with Anthony for four years, he’s a strong and experienced leader who has helped to modernise the business. Not only does he have a terrific grasp of the business but he knows what drives our customers and understands what we can offer them.”

Birtles said he was proud of the financial success of the business during his tenure, and attributed this success to the engagement of Super Retail Group’s team members.

“I remain very optimistic about the future for Super Retail Group, and will be working hard to ensure a seamless handover,” he said.

Super Retail Group earnings before interest and tax has seen a “near seven-fold” increase under Birtles leadership, which has spanned 18 years – 13 of which were spent as group managing director and chief executive.

21 Jan, 2019
Sportswear manufacturer SKINS applies for bankruptcy in Swiss Court
The Sydney Morning Herald

Sports compression manufacturer SKINS has filed for bankruptcy in a Swiss court, with its chairman Jaimie Fuller pointing to the global financial crisis as the beginning of the end.

A trustee will be appointed to assume responsibility for the company with almost immediate effect, Mr Fuller announced on social media and his ‘watercooler’ SKINS website.

The Australian businessman and sports activist, often described as the ‘Bob Geldof of sport’, bought SKINS in 2002 and positioned himself as an advocate for stamping out corruption within the sports industry.

The brand has attracted a cult-like global following, selling in 31 countries. It started in Australia in 1996 by ski enthusiast Brad Duffy, with its headquarters now in Switzerland.

"My management team and I have left no stone unturned in an effort to avoid this,” Mr Fuller said in his statement.

“I am enormously regretful and sad that it has got to this point. Even as late as yesterday [ January 16] it looked like there was an option for avoiding this action but events conspired against us and left us with no option at all.”

Mr Fuller pointed to 2008, when the global financial crisis hit, that led to the company’s eventual downfall this year.

He said he sold a portion of SKINS in the midst of the GFC to a private equity firm and added he “made a lousy deal”.

And in a bid to get out of that arrangement once the crisis ended, the company borrowed heavily to buy out the private equity shareholder.

“To my enormous regret, those borrowings have become unsustainable and while we have been working for some time now to try to avoid what is happening today, in the end there was no choice,” Mr Fuller said.

Mr Fuller positioned himself as an activist, advocating for the stamping out of corruption within the sports industry and backing a range of causes, including the #RainbowLaces campaign that tackles homophobia in sports.

He claimed the company’s brand positioning was around “changing the world through sport”.

“It’s what we set out to do; to help level the playing field on and off the field through championing important issues and holding sport to account for being everything we love about it - competitive, fair, based on teamwork and good sportsmanship, dedication, commitment, integrity,” Mr Fuller said.

“They were all traits that were - and are - important to us. We worked to help bring sports back to its basic tenets, fuelled by the spirit of pure competition.”

The brand is expected to continue under new owners.

Mr Fuller thanked the staff who worked “diligently, astutely, loyally [and] tirelessly” and apologised for the insolvency.

“I am so, so sorry that this has happened and am simply devastated,” he said. “Please be assured that I have tried everything possible to avoid having to take this action today. Absolutely everything.

“In sporting terms, I left nothing out on the park.”

18 Jan, 2019
Afterpay shows Millennials the new force in markets
Financial Review

The early success in the United States of buy now, pay later payments company Afterpay is a reminder to investors of the power of the new global force in financial markets – Millennials.

Afterpay's shares surged almost 14 per cent on Friday after an ASX announcement revealed its US platform processed $260 million in underlying sales in the six months to December. It took 28 months for Afterpay's Australian and New Zealand business to process a similar amount of underlying sales.

The company added 650,000 new customers in the US in the half year and 1400 new retailers transacted with Afterpay in the period. It is forecast to have 1.2 million users by June, according to Goldman Sachs analyst Ashwini Chandra.

 

When Afterpay listed in May 2016 the executive chairman Anthony Eisen and CEO Nick Molnar had shares worth $121.5 million. They are now worth more than $700 million. 

Chanticleer understands the US customer base of Afterpay is similar to the Australian and New Zealand user base, which is heavily weighted towards Millennials. About 70 per cent of the 2.5 million Australians who use Afterpay are below the age of 34. The average age of a customer using Afterpay in the US is 33, which fits the Millennial definition of being born between 1981 and 1996.

In Australia the average age of an Afterpay user has increased because the younger generation has educated others about the product, according to sources close to the company.

The financial power of Millennials and their potential to influence the governance of multinational corporations was brought home this week by Larry Fink, the chairman and CEO of BlackRock, the world's largest investment manager with $US6.28 trillion ($8.7 trillion) in assets under management.

In his annual letter to the CEOs of the world's largest companies, Fink said Millennials would put pressure on boards of directors and managers to ensure companies "fulfil their purpose and responsibilities to stakeholders".

He says Millennials, who represent 35 per cent of the workforce, would "express new expectations of the companies they work for, buy from, and invest in".

"In a recent survey by Deloitte, Millennial workers were asked what the primary purpose of businesses should be – 63 per cent more of them said "improving society" than said "generating profit," Fink said.

"In the years to come, the sentiments of these generations will drive not only their decisions as employees but also as investors, with the world undergoing the largest transfer of wealth in history: $US24 trillion from Baby Boomers to Millennials. As wealth shifts and investing preferences change, environmental, social, and governance issues will be increasingly material to corporate valuations."

Chanticleer believes there are at least two ways for investors to play the Millennial investment game.

First, buy companies that rely on Millennials for their profits. This is risky because you would be excluding Baby Boomers, the richest cohort of consumers.

Afterpay has performed well since listing in May 2016 at $2.70 a share. The share price rise since then has lifted the value of shares owned by the executive chairman Anthony Eisen and CEO Nick Molnar from about $120 million to more than $700 million.

But other Millennial-focused companies have not done so well. Shares in Raiz Invest, which helps Millennials to round up their spare change and invest it in the sharemarket, have fallen 72 per cent since listing on the ASX six months ago. Nevertheless, the business is expanding, with $254 million in funds under management compared to $200 million when it listed.

The Raiz business model is sound judging from research commissioned late last year by Afterpay to ascertain the attitude of Millennials to managing money. It found they are turning away from credit cards, are savvy at managing money, are saving more than their parents, and using technology to do household budgeting.

AlphaBeta CEO Andrew Charlton, who did the research for Afterpay, said Millennials had long been misrepresented as a young, narcissistic generation that spent frivolously. But using data from surveys and a range of official sources, Charlton found a generation with a greater willingness to save, a reluctance to use revolving credit on credit cards, and delaying the purchase of a family home.

"While it is true that Millennials manage and spend their money differently from their parents, their priorities are driven largely by new financial burdens they face," the report said.

"While Baby Boomers lived through an era of free education and affordable housing, Millennials are not as lucky. In 1970, Baby Boomers could buy a house for around five times the average household income. Generation X faced house prices of six times income. For Millennials today, houses now cost eight times the average household income.

"Similarly, Baby Boomers enjoyed free university education. By contrast, university-educated members of Generation X entered the workforce with more than $10,000 of HECS debt. Millennials now face twice the HECS debt of their predecessors, at $19,000."

Millennials are not spendthrift according to the AlphaBeta research. The areas of spending for Millennials that have experienced the biggest increase have been public transport (up 24 per cent) and private health insurance (up 23 per cent). Their frugality and health consciousness is clear from the study's findings that they spend 16 per cent less on alcohol and 71 per cent less on cigarettes than previous generations.

It is noteworthy that Charlton's research found Millennials have a high level of distrust of banks. Also, they don't think banks have been helpful in managing their finances.

When you combine these findings with the predictions by BlackRock's Fink, it is fair to assume that disruptive and innovative fintechs that invest with social purpose will do well. 

A second Millennials investment strategy would be to buy companies run by Millennials. This is based on the idea that Millennial CEOs should be on the same wavelength as their peers and more likely to make money than out-of-touch Baby Boomers.

Chanticleer found 167 Millennial CEOs running public companies in Australia, New Zealand, Singapore, the US, France, Germany, Hong Kong, Japan, the United Kingdom and Canada, using the global data base of S&P Capital IQ. The data is limited because 2200 of the 2500 CEOs captured by the analysis did not reveal their age.

The S&P Capital IQ data on the age of CEOs shows at least half a dozen Millennials running marijuana related companies in the US and Canada.

The youngest CEO of an Australian listed company is 35-year-old Rohan Hockings, who runs Phylogica, a biotechnology company with a drug discovery platform to discover novel peptide therapeutics. The stock has slumped in the past 12 months.

The next youngest CEO of an Australian listed company is Jacky Chan, 36, who runs Amani Gold, a gold exploration company. But the stock has plunged over the past year.

At the other end of the age spectrum of CEOs is legendary investor Warren Buffett, who is aged 88. His advice to anyone looking to invest, no matter what their age, is to put the money in index funds.

17 Jan, 2019
Michael Hill’s marketing, promotions helped boost holiday sales
Inside Retail Australia

Jewellery retailer Michael Hill posted an increase in total sales and same-store sales for the November and December period, buoyed by marketing and promotions in the lead-up to the holidays.

The retailer posted a 2.9 per cent increase in total sales and 1.3 per cent rise in same store sales for the combined November and December period.

The jewellery chain’s branded collection rose by 11 per cent to a 20 per cent share of total product sales, up from 18 per cent in FY18.

E-commerce sales soared 59 per cent to $8.1 million representing 2.6 per cent of total sales.

Quarterly group sales from continuing operations slipped 1.3 per cent, and saw a 2.9 per cent decrease on a same-store basis. For the half-year, sales fell 4.2 per cent to A$309.5 million and were 6 per cent lower at A$292.7 million on a same-store basis.

Recently appointed CEO Daniel Bracken said the company’s performance during the key November and December trading period was encouraging.

“A refined approach to our event and promotional activities resulted in a lift in sales during our two busiest months,” Bracken said.

“This was a good outcome in a challenging retail environment and demonstrated the capability and cohesion of the executive and retail management team.”

The retailer announced it is continuing with its planned closure of the Emma & Roe brand. Four Emma & Roe stores closed during the first quarter as planned and previously announced. Two Emma & Roe stores and the Emma & Roe website continue to trade while store closure negotiations progress with landlords.

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