News

23 Apr, 2019
Ethical Fashion Report rates Australian fashion brands from A+ to F
SOURCE:
SBS News
SBS News

Fashion brands have been graded from A+ to F on their ethics in an annual report card released by Baptist World Aid.

Consumers are ramping up the pressure on fashion brands to ethically make clothes, resulting in a slow but significant shift across the industry, a report has revealed.

More than a third of brands have improved their rating since last year, according to the latest Baptist World Aid report.

But paying a living wage to workers continues to be a huge challenge for retailers, with only five percent of companies proving they were doing so at their final stages of production.

The sixth Ethical Fashion Report, released on Wednesday, graded 130 apparel companies, including 480 brands, from A+ to F on their policies, transparency, worker rights, and environmental management.

The 2019 report revealed Australia's best and worst performers alongside international brands, with Etiko, Outland Denim, Kookai, Cotton On and Country Road among those handed an A- or above.

Poor Australian performers included the Noni B Group, which owns brands such as Katies and Miller, swimwear company Tigerlily and discount clothing store Lowes.

Baptist World Aid CEO John Hickey says overall fashion companies have felt the pressure from consumers since the first report was released in 2013.

"People want to know they're not doing harm in what they're purchasing," he told AAP.

Last year there were 50,000 downloads of the organisation's ethical shopping guide, and thousands of others viewed the website and printed versions.

This year, the guide will be available through an app for the first time.

Governments are also turning up the heat through legislation.

The 2019 Ethical Fashion Guide is here! The Guide grades over 400 brands on their efforts to reduce the risk of child labour, slavery, exploitation, and environmental degradation. Order it now: Mr Hickey said the Modern Slavery Act, introduced on January 1, would make "waves" across the Australian fashion industry, which was worth close to $23.5 billion last year.

"The beginning of the supply chain is where the risk of child labour, forced labour and exploitation is most prevalent," he said.

The report revealed fashion brands rated most poorly on "worker empowerment", with a median D grade for this section of the report.

Nearly half of companies (48 per cent) had started to develop a living wage methodology, while 14 per cent of companies have projects to improve wages in the majority of factories, the report said.

Tanya Deans, Brand Manager at BONDS and its owner Hanesbrands, says working with third parties in the supply chain was one of the biggest challenges when aiming for ethics and sustainability.

Ms Deans said the company had scored an A partly because it owned a significant proportion of its manufacturing.

"If we own it, we can control workers rights in that process," she said.

While the company admits it's not perfect, Ms Deans said it was making a genuine effort to improve.

Some changes have come faster than others, with the company making big inroads in environmental sustainability by reducing greenhouse gases and water use, saving $10 million and reinvesting in local communities, Ms Deans said.

Brands with an A+ rating

Etiko, Freeset T-Shirts, Icebreaker, Kowtow, Liminal Apparel, Mighty Good Undies, Outland Denim, adidas

Brands with an F rating

Ally Fashion, Baby City, Bec and Bridge, Bloch, Camilla and Marc, C&M, Farmers, P.E. Nation, Lover, Cooper St, Rebecca Vallance, Jasmine & Will, Lowes, Beare & Ley, Merric, Pavement, Lemonade, Non Sense, Petals, Pom Pom, Co Co Beach, Zom-B, Scram, Wax, Showpo, 3 Wise Men, T&T, The Baby Factory, Cooper by Trelise, little trelise, Trelise Cooper, Jump, Kachel, Ping Pong, Wish

17 Apr, 2019
Mecca hits 100-store milestone with Adelaide flagship
Inside Retail

Mecca Brands opened its 100th store last Friday with the launch of a new flagship on Adelaide’s Rundle Mall.

The beauty giant, which operates the Mecca Maxima and Mecca Cosmetica chains, marked the occasion with gifts for the first 100 customers through the door, music, roaming drinks, free product trials and consultations and giveaways.

Seven News reported that customers lined up for 15 hours to be among the first to enter the 400sqm megastore, which stocks over 100 global brands across makeup, skin care, hair care, body care and fragrance.

The flagship reportedly combines the Mecca Maxima and Mecca Cosmetica concepts, which focus on broad range and expertise and luxury brands and high-touch service, respectively.

At the opening, Mecca Brands founder Jo Horgan recalled receiving a postcard 17 years ago, begging for a Mecca store in Adelaide, The Advertiser reported.

“I kept this as a motivator … I truly feel like this new space is answering the cry of that,” she said.

The flagship marks Mecca Brands’ 100th store across Australia and New Zealand, and its fifth store in South Australia.

CBRE’s Julia Pottenger, who negotiated the lease transaction, said Adelaide has become an attractive destination for international retailers, with Rundle Mall increasingly edging Adelaide Central Plaza as the most in-demand location.

“With H&M and Mecca now securing the hottest location on the mall, retailers understand that if they want to secure Rundle Mall, they need to consider every opportunity,” she said.

Pottenger believes the eastern part of Rundle Mall will strengthen in May this year with the opening of Romeo’s Foodland supermarket – driving more foot traffic through the refurbished Rundle Square into the 1500sqm supermarket and out onto Pulteney Street.

17 Apr, 2019
Best Buy appoints first female CEO in 53-year history
Inside Retail

US retailer Best Buy has appointed Corie Barry, the company’s chief financial and strategic transformation officer, as its new CEO, making her the first female to serve in this role in the company’s history.

Barry, who will take on the role effective June 11, will replace Hubert Joly, the company’s current chairman and chief executive. She will also join the board of directors, which will expand the number to 13.

Joly will take on the newly created role of executive chairman of the board once he steps down from his current position.

“Corie has played a critical role in developing and executing the proven growth strategy in place today, and I am confident she has the vision, skills, experience and leadership capabilities necessary to be our CEO,” Joly said.

“I look forward to working with her closely in my new role as we seek to continue Best Buy’s growth trajectory, deliver on the full potential of our strategy and create additional long-term value for our shareholders, employees and customers.”

According to Best Buy, Joly has led the company through its successful, customer-focused Renew Blue transformation, which delivered improved customer satisfaction, market share gains, comparable sales growth and improved margins, while achieving $1.4 billion in cost reductions and efficiencies to fund investments in Best Buy’s organic growth.

As executive chairman, Joly will continue to lead the board of directors while advising and supporting the CEO on key matters, such as strategy, capability building, M&A and external relationships. In addition, he is expected to assume certain responsibilities at the request of the CEO, in areas like government affairs, community relations and leadership development.

Barry, who joined Best Buy in 1999, said she is deeply honoured to have been appointed as the company’s new CEO, and that she looks forward to continuing the company’s momentum.

“Today’s technology and consumer landscape creates tremendous opportunities for Best Buy to further expand and deepen relationships with our customers and employees, while continuing to deliver shareholder value,” Barry said.

As part of the transition, the company announced an additional change to its leadership team, also effective on June 11. Mike Mohan, current US chief operating officer, has been promoted to president and COO.

Mohan joined Best Buy in February 2004 as vice president of the digital imaging business group and has assumed additional responsibilities throughout his career across nearly all of Best Buy’s product and business categories.

The company announced it will conduct an internal and external search for a new chief financial officer.

 

15 Apr, 2019
LK Bennett sold to Chinese franchise partner
Retail Gazette

LK Bennett has reportedly been sold to its Chinese franchise partner, placing some stores in the UK and Ireland up for potential closure.

According to Drapers, Rebecca Feng has bought the British and Irish and wholesale division of the upmarket womenswear retailer, which had entered administration in early March.

The transaction was done last night after Feng made an offer for LK Bennett last month via a newly incorporated company Byland UK.

Drapers reports that some UK and Irish stores could close as a result of the sale, although it is not yet clear how many would be affected.

Feng is also reportedly going to review the mainland European arm of LK Bennett as well as its US arm, which filed for Chapter 11 bankruptcy protection last week.

The result of that review is set to be revealed within eight weeks.

LK Bennett’s former chief executive Darren Topp and finance director Andrew Ellis both worked with Byland on the takeover offer.

LK Bennett had appointed joint administrators from EY for its UK business on March 7.

Founder Linda Bennett reportedly dropped out of the race to rescue her brand from administration, paving the way for Byland to win.

Other big names to have been linked with the LK Bennett’s bidding war included Sports Direct’s Mike Ashley, Edinburgh Woollen Mill Group’s Philip Day, and footwear retailer Dune.

LK Bennett employs almost 500 staff in the UK across 39 stores, 37 concessions and its London head office.

Globally, LK Bennett trades from around 200 branded stores.

According to its most recent available accounts, LK Bennett showed an operating loss of £5.9 million and a loss before tax of £47.9 million for the year to July 29, 2017.

15 Apr, 2019
Frugi family prepares for a growth spurt
Drapers Online

Under its new CEO, Hugo Adams, and chair Julia Reynolds, ethical kidswear brand Frugi is positioned for rapid growth. Drapers visits the brand’s headquarters in Cornwall to learn more about its expansion plans.

10 Apr, 2019
Investors’ Guide to Gen Z: Weed, Social Justice and Kylie Jenner
SOURCE:
Bloomberg
Kurt Woerpel

Move aside, millennials.

This is the year that Generation Z becomes the biggest consumer cohort globally, displacing millennials as a top obsession for investors trying to figure out how to cash in on their unique shopping, eating and media habits. While they might still be in school, they have spending power to the tune of $143 billion in the U.S. alone, leaving fund managers salivating at the chance to harvest some of that potential alpha.

“Gen Z has their finger on the pulse on the companies that speak to them, that they think are going to grow with them,” said Phil Bak, CEO of Exponential ETFs. “Therefore they’re probably better suited to pick those investments than some of the more seasoned financial professionals.”

Investors have always been interested in young consumers and how their habits might open up new opportunities, but much of the long-held thinking on college kids and tweens—invest in beer stocks or TV networks or junk food—don’t hold up today. Gen Z, roughly between the ages of seven and 22, were born after the internet went mainstream and occupy a world where marijuana is going legal. Anything and everything can be delivered to their front door with a swipe of a finger and they grew up on platforms like Snapchat and Instagram, where the influencer culture has taken hold.

For investors looking to factor Gen Z into their portfolios, here are some broad trends they may want to consider:

1. They Can Be Influenced 

While older millennials graduated college before the rise of Facebook, or even mobile phones, these new consumers live on Instagram and other platforms. In fact, 52 percent said they primarily find out about new products from social media, a jump of 10 percentage points from millennials and double the rate for their Gen X parents, according to a recent survey by Bloomberg News and Morning Consult.

That means influencers—celebrities or everyday people with big social media followings who are paid to promote products—can have an outsized impact with this cohort where nearly six out of 10 self-diagnose spending too much time on their phones. 

Take for instance Kylie Jenner, 21, who promoted her makeup line on Instagram and is now considered the youngest self-made billionaire. Her makeup line made its way over to Ulta Beauty Inc. last year and the company’s shares are up more than 40 percent in 2019. She’s so influential, one tweet from her in February 2018 disparaging Snapchat wiped out $1.3 billion in market cap.

Bloomberg recently constructed a hypothetical stock portfolio called The Influencer Economy ETF, or ticker GENZ. The fund is up about 15 percent since the start of 2018, outpacing the gain in the S&P 500 Index over the same period.  GENZ’s holdings are weighted based on the rank of their associated influencer, per Forbes.com, which incorporates social media followers and rankings from other agencies. The top holdings include Electronic Arts Inc.Nike Inc.Adidas AGCoca-Cola Co.T-Mobile US Inc.and Under Armour Inc. based off of partnerships with influencers such as Cristiano Ronaldo, Selena Gomez, Ariana Grande and Dwayne “The Rock” Johnson. 

2. They Have Different Vices

Younger consumers are wary of nasty hangovers and eager to wake up on the weekends feeling fresh so they can get outdoors and capture selfies. Beer in particular is going through a slump as Americans cut back on alcohol. That’s bad news for Anheuser-Busch InBev SA and Molson Coors Brewing Co., which make the mass-market brands like Bud Light and Coors Light that are getting hit the hardest.

Marijuana, meanwhile, is going mainstream. It’s perceived as healthier than alcohol by many Gen Z consumers and is now legal for adult use in 10 U.S. states. Gen Z consumers are coming of age in time when the decades of stigma around weed—think reefer madness—are fading away as more states legalize and stressed out, tired Americans look to cannabis compounds to alleviate insomnia and anxiety, or just unwind after a hard week of work.

Investors have two main options for betting on weed. They can invest in Canadian companies—think Canopy Growth Corp. and Aurora Cannabis Inc.—which benefit from federal legislation there but also are operating in a country with a population smaller than California.  There are also the so-called multi-state operators in the U.S., like Curaleaf Holdings Inc. and Green Thumb Industries Inc. The U.S. legal market is already larger than all of Canada’s, but federal prohibition creates hurdles for the American companies—and leaves some money managers wary of advertising their bets.

3. They Don’t Have to Go to Stores

Gen Z could be the first generation to truly embrace online grocery shopping—though maybe not yet. Just 83 percent of them said they primarily purchase groceries at a physical store, compared to 95 percent of baby boomers and 87 percent of millennials. Surveys have also indicated that Amazon is one of the favorite brands of Gen Z consumers, who’ve never lived in a time without the e-commerce giant.

It’s worth noting that the oldest members of Gen Z are barely out of college by most measures, not exactly peak grocery-buying age. Still, they’ve grown up in a world where digital shopping is ubiquitous. As of now, a tiny percentage of groceries are purchased online, because most people still want to touch their tomatoes. But since Amazon.com Inc. announced a deal to buy Whole Foods almost two years ago, Kroger and Walmart, the largest sellers of groceries in the U.S., have spent billions investing in technology and keeping prices low as they brace for the digital invasion. Whoever figures out the equation for grocery delivery—human-delivered or self-driving cars—will have a lot to gain.

4. They Choose Their Brand Loyalties Carefully

The rise of Gen Z could be bad news for traditional clothing retailers like Gap Inc. and Macy’s Inc., already battered by the shift to buying clothing online. The next generation is also embracing second-hand apparel, which will be bigger than fast fashion within the decade, according to Thredup’s 2019 Resale Report. Thredup, fashion resale website, says more than one in three Gen Z shoppers will buy used clothing this year, versus less than one in five boomers or Gen X consumers. That seems to stem, in part, from the generation’s interest in environmental issues and ethical shopping.

Apparel brands looking to connect with younger shoppers have tried embracing edgier brand ambassadors, a departure from the days when consumer companies went to great pains to avoid politics. That's because Gen Z actually wants corporations to take a stand on issues, with 40 percent saying they’d pay more for a product if they knew the company was promoting gender equality issues and 42 percent for racial justice initiatives.

Nike understands. Last year, it released an ad featuring Colin Kaepernick, and while the inclusion of the controversial quarterback-turned-activist initially spooked investors, the shares have since rebounded. And there are indications that ads have helped boost sales.

“A lot of times in this industry people want to overcomplicate the process of picking stocks,” Exponential ETFs’ Bak said. “We think that there’s a pretty high correlation between companies that from your personal experiences you think are good and high-growth companies.”

5. They Eat (Somewhat) Differently

Gen Z consumers are more likely to skip meat than the older U.S. cohorts, the latest dining disruption with big implications for fast-food restaurants and packaged-food giants. Burger King this week announced a test of a plant-based Impossible Whopper, another sign that even the purveyors of indulgent onion rings and big burgers see a shift ahead.

It’s more Big Food that's feeling the pain. Large packaged-food makers like Kraft Heinz Co. and Campbell Soup Co. have been battered in recent years by the shift away from traditional brands that dominated grocery stores for decades. They’ve tried to reshape their portfolios, but have struggled to resonate with younger consumers.

Meatless Monday

More Gen Z Americans choose to skip meat compared to other cohorts

So what does this all mean for savvy investors trying to tap into Gen Z’s buying habits? People in generational cohorts are never as uniform as marketers would like, and with the youngest still in elementary school, there's still some time before the preferences of the wider generation shake out. But for some forward looking investors, now’s the time to start thinking about how to structure a portfolio for a post-boomer economy.

“Gen Z are likely still on the younger end to consider investing in their consumption patterns,” said Jay Jacobs, head of research and strategy at Global X, which created a millennial-tracking ETF called MILN. But “the millennial demographic tells us that there can be clear and obvious differences in the ways that certain generations spend their money. As Gen Z eventually enters their prime earning years, some of these trends could start to become more concrete and visible.”

 

9 Apr, 2019
Afterpay inspires US rival Sezzle to list on ASX
Financial Review

US Afterpay competitor Sezzle is set to become the latest buy now, pay later, fintech to list on the ASX, with the Minneapolis-based start-up inspired by the success of its local rivals.

Having already raised $US5.6 million ($7.9 million) in a pre-IPO round, led by Chicago-based institutional investor Continental Investors, Sezzle intends to list within the next few months and representatives were travelling around Australia last week meeting with local investors.

Speaking to The Australian Financial Review, co-founder Charlie Youakim said Sezzle was modelled on local company Afterpay, with the co-founders wanting to bring the buy now, pay later model to the US.

"We started out going down a slightly different path. We saw data in the US saying that young people were paying more with debit than ever before ... so we started out offering bank payments. It was like a Venmo at the checkout," he said.

"But after we launched we struggled to find product market fit, so we flipped the coin and realised it was not a preference, there was a lack of access to credit.

"We looked at what was going on and saw Afterpay in the early days of 2017. We loved the model, loved what was happening here in Australia, and we wanted to bring it to the US."

The advantages of being a second mover

Sezzle's model is very similar to Afterpay (which has been part of a Senate inquiry into the sector), although at this point it only operates online. It too has late fees, but it makes the majority of its revenue by charging retailers for offering its service.

Shoppers who use Sezzle must pay 25 per cent at the time of purchase, but have their payments split into four and paid over six weeks.

Like Afterpay, whose late fees are now below 20 per cent of its income, in the last month Sezzle's late fee revenue came in at 18 per cent.

 

It has also created ways for consumers to have more opportunities to pay back their money and avoid late payments, letting them extend the time of their repayments by two weeks on request and forgiving failed payment fees if the company is contacted with 48 hours. Its late fees are also capped at $10, while rescheduled payments incur a $5 fee.

Being the second mover in a market has given the company some advantages, according to Mr Youakim, who started the company alongside his university friend Paul Paradis.

"The primary reason we’re here locally is we know the investors really understand the model. They get it – well ahead of US investors," he said.

"People ask us who your comp [comparable stock] is in the US and it’s obvious for us, it’s Afterpay. It's here so it makes a lot of sense to be on the same market.

"We’ve looked back at how we compare to them at IPO and we compare quite favourably. Our viewpoint is that given everything at hand, it looks like a good decision for us."

Australian expansion possible

Sezzle has 226,000 active users in the US and almost 3000 merchants, that are mainly online small- to medium-sized enterprises. In February its underlying monthly sales were $US9.6 million.

As part of the company's non-deal roadshow, it met with 70 local funds. It has appointed Ord Minnett as the lead manager for the float.

After listing, it hopes to go after larger retailers and also begin offering an in-store checkout product.

Sezzle could not disclose how much it would raise or the valuation it would target through the float, but on its current metrics it will come to market with significantly more users, more merchants signed up and higher underlying merchant sales.

When Afterpay released its prospectus it had 38,000 users, 100 live retail merchants and it was doing $2.8 million in monthly merchant sales. It floated with a market capitalisation of $125 million and an issue price of $1 in May 2016 and today is valued at $5.6 billion.

Similarly, earlier this year competitor Splitit, which has a different model using a customer's own existing line of credit, also went public and since listing in January it has gone from only 20¢ to more than $1.30.

Sezzle has no plans to operate in Australia at this point, despite having 150 local merchants, but did not rule out expanding to the market in the future.

Mr Paradis said Australia was years ahead of the US when it came to payments technology, with tap-and-go tech still not mainstream there.

"As a market the US is probably two to three years behind Australia, and really that's from an overall payments standpoint," Mr Paradis said.

"We're seeing a lot of traction. The whole space is wild fire ... we're doing well, Afterpay is doing well there, and there's another competitor now called QuadPay – the entire sector is growing," Mr Youakim added.

9 Apr, 2019
Amart Furniture signs 10-year pre-commitment with Goodman Group
The Financial Review

Growing affordable furniture retailer Amart Furniture has struck a 10-year lease pre-commitment with Goodman Group over a new distribution centre in the Connectwest Industrial Estate on Logistics Drive, Truganina, in Melbourne's west.

Goodman will build the  $65 million state-of-the-art property, which  is scheduled for  completion in 2020.

The 48,770 sq m purpose-built facility will serve as headquarters for Amart, as well as accommodate the company’s anticipated growth.

Amart Furniture chief executive Lee Chadwick says the property will replace an existing disparate cluster of warehouses in Somerton, Victoria.

“The new distribution centre will provide a modern, safe and flexible workplace for our warehouse team,” Mr Chadwick said.

“This was one of our top priorities when designing the facility.”

The distribution centre will also increase delivery times and streamline the business' supply chain network by allowing and speeding up direct-to-customer or warehouse-to-home deliveries on sales either in-store or online, Amart Furniture COO Scott Pears said.

The rise of e-commerce is set to make industrial property one of the better-performing property asset classes, just as appetite for retail shops and shopping centre properties takes a dive.

The advent of online shopping means the demand for large distribution centres will continue to grow and landlords such as  Goodman will continue to reap benefits.

On the international scene, bigger investors and private equity groups like Blackstone and Prologis are buying big to capitalise on this demand, with tenants such as  retail giant Amazon leading the charge in the industry.

Amazon has already underscored its entry into Australia with the lease of two large distribution centres in Sydney and Melbourne, both with similar sizes to Amart's new property.

When completed, Amart's Truganina distribution centre will have a significant racked storage to house an extensive range of products, a drive-around design with dual loading faces, a mix of recessed loading docks and on-grade roller doors and a cross-docking facility design with two large staging areas for inbound and outbound freight.

Property and supply chain firm, TM Insight evaluated Amart's space needs and helped Amart with closing the deal with Goodman.

Amart Furniture is backed by Quadrant Private Equity. The pair are in the process of a debt refinance as Amart's debts approach maturity.

5 Apr, 2019
Consumer spending bounce back takes pressure off RBA to cut rates
SOURCE:
The Age
The Age

Australian consumers have shown unexpected resilience in the face of the falling house prices and gloomy economic headlines pouring enough money through cash registers in February to give the reserve bank breathing room ahead next month's call on interest rates.

Australian Bureau of Statistics figures released on Wednesday show retail sales grew 0.8 per cent in February, in seasonally adjusted terms, ahead of economists' expectations for a 0.3 per cent increase.

And the country's beleaguered retail sector is expected to receive a much-needed short in the arm later this year from measures in Tuesday's budget to put money in consumers' pockets and encourage small businesses to spend.

ANZ senior economist Felicity Emmet said February's broad-based bump across sectors and states suggested the improvement was more than just a “flash in the pan”, and narrowed the likelihood the RBA would cut interest rates in May.

"Their [the RBA's] concerns have really been centred on household spending and the impact from falling house prices, as well as ongoing low wage growth, so I think they will be a little bit relieved to see this pick up," she said.

"The growth is OK - it’s not spectacular - but it does suggest consumers are still out there, they’re still spending, they haven’t disappeared altogether."

BIS Oxford Economics chief Australian economist Sarah Hunter said the retail numbers were due to bounce back after weak results in December (-0.4 per cent) and January (0.1 per cent), which had been thrown out by the increasing popularity of November's "Black Friday" promotions that pulled forward sales from Christmas and Boxing Day.

"If we hadn’t have had a bounce back, and we got another weak month, that would have been very worrying," she said.

"If you average things out, it looks like things are trucking along as they were at the end of last year. But it doesn’t look like it’s deteriorated, which is the key takeaway."

The retailers themselves are tipped to be licking their lips at the prospect that tax cuts of up to $2160 for some families unveiled in Tuesday's federal budget, and the expansion the instant asset write-off scheme for small businesses from $25,000 to $30,000, will lead to a bump in sales.

Macquarie analysts said the tax-write offs would spur investment in new IT equipment, furniture and other office equipment at the likes of Harvey Norman, JB Hi-Fi and Officeworks.

Despite that, JB Hi-Fi and Harvey Norman’s shares both sank as much as 4.5 per cent on Wednesday, after each rising about 8 per cent in the month leading up to Tuesday’s budget.

Citi analyst Craig Woolford said listed retailers’ shares had rallied partly in anticipation of budget tax cuts, and would struggle to move further "given the lack of significant surprises in the budget".

Mr Woolford said the tax cuts could boost retail spending by 1 to 1.5 per cent in the September quarter, when payments start landing in bank accounts.

But that boost had to be viewed against the backdrop of households increasing their level of savings and the government lowering its forecasts for GDP growth and consumer spending, he said.

Meanwhile, car sales have slowed for the third consecutive month this year, with the peak industry body reporting a 7.1 per cent overall sales decrease in March over the same period in 2018. Sales dropped by 9.3 per cent in February and 7.4 per cent in January compared to the previous year.

“This is not surprising given the number of economic headwinds in the Australian market," said Tony Weber, chief executive of the Federal Chamber of Automotive Industries.

 

5 Apr, 2019
Myer shareholders have fewer reasons to frown
The Australian Financial Review

Solomon Lew may never recoup his full $101 million investment in Myer but other shareholders have fewer reasons to frown after a 75 per cent share price rise.

Myer shares have rebounded from a 12-month low of 36¢ in February to 63¢ this month following better than expected first-half results that showed the beleaguered retailer is capable of boosting profit in the absence of sales growth – at least in the short to medium term.

Chief executive John King delivered the first underlying profit growth in eight years by pulling back on discounting to raise gross margins, increasing sales of higher-margin private label brands, and exiting unprofitable products such as furniture and cutting costs and debt.

Underlying net profit for the six months ended January 26 rose 3.1 per cent to a better-than-expected $41.3 million and earnings before interest and tax rose for the first time since 2011, climbing 2.8 per cent to $63.8 million.

Net debt fell $57 million after Myer stopped paying dividends and, for the time being, the retailer is well within banking covenants, giving Mr King headroom to pursue his turnaround plan.

Since the interim report, Myer has further cut costs, announcing another 50 job losses late last month in marketing, merchandising and store administration following the loss of 30 executive and senior management roles last August.

It also announced plans last month to stop selling Apple products because it "could not reach acceptable commercial terms that were in the best interests of the company and shareholders".

In September, Myer is expected to reveal the outcome of talks with landlords to shrink Myer's physical footprint by handing back surplus selling space – for example, closing one or two floors of a multi-level store.

Myer is in negotiations with landlords to reduce floor space by about 30,000 square metres, or about 4 per cent, in the short term and by as much as 20 per cent longer term.

This would reduce top-line sales, which have been in decline for 20 years, but improve sales per square metre and productivity.

"Reducing space continues to be a massive priority for us," Mr King said. "Supported by a full offer online, that gives us the opportunity to significantly improve the profitability of our space."

Analysts and investors say Myer cannot rely on cost cutting to drive earnings growth in the long term.

One of Mr King's strategies to boost sales is to bring in about 20 new brands, including a suite of labels from the UK and Denmark, to plug holes in the range left by the exit of Country Road, Mimco, Politix, Saba and Nike.

Country Road, Mimco and Politix are owned by David Jones' parent, Woolworths Holdings, and have pulled out of Myer in favour of an exclusive relationship with David Jones.

Mr King, a former chief executive of UK department store House of Fraser, is confident the new brands, including British labels Oasis, Warehouse and Whistles, will be popular with Myer customers.

"Oasis and Warehouse I know of old because they were sister companies to to the House of Fraser, we had the same shareholders," he told The Australian Financial Review.

"They're one small cog in a big wheel – there's also Danish brands [Jack and Jones, Vero Moda] from the Bestseller group," he said.

Myer decided to introduce these brands after holding customer feedback sessions around the country and tracking online orders for these brands from Australia.

"They're selling here through their home websites," Mr King said. "We know which postcodes they sell into in Australia so we've matched our store distribution with those postcodes."

However, some investors have questioned whether demand for these brands will be sufficiently strong to counter the loss of sales from Country Road, Mimco and Politix and say Myer faces the added complication of reverse seasonality.

"They're bringing in brands from overseas that nobody has ever heard of," one critic said.

"There's no way you can recover the loss of Country Road, Politix and Mimco in sales and margin – they're too iconic."

Sources say Myer also needs to invest heavily to improve its capabilities in private label clothes, accessories and homewares, which Mr King wants to lift to 20 per cent of total sales from about 17 per cent in 2018.

Mr King agrees. "We'll have better products and we'll execute better with regards to our private labels," he said.

"We know which ones work, we know there's an opportunity to extend ranging into other categories, particularly accessories and footwear, with the right partners.

"We have put in menswear designers and use freelance and permanent people to help us design better quality product and we're sourcing direct from factories so we can deliver improved margins," he said.

While the new brands, the private label strategy and handing back of floor space have yet to be proven, investors are increasingly confident Myer will survive.

Veteran fund manager Geoff Wilson, for example, increased his stake to 6.6 per cent from 5.5 per cent last month after buying into Myer in June 2018 following Mr King's appointment.

"We started buying Myer at 40¢ in June last year and the catalyst for us was the new management team team led by John King," Mr Wilson said on Thursday.

"In an incredibly difficult retail environment we're starting to see the fruits of his labour or the benefits of his management style.

"We're of the view that he'll continue to be able to improve the business by taking costs out and improving margins, even though it still is a difficult environment.

"We're backing the management team and they're starting to deliver. Our view is they'll continue to deliver over the next one to two years and the share price will be a lot higher," Mr Wilson said.

If Myer shares continue to rise Mr Lew, who bought his stake through Premier Investments at $1.15 a share two years ago, might decide to sell out and put the funds to better use elsewhere.

Premier's 10.8 per cent stake is now worth $55.6 million, up from $31.8 million in February, but less than the $101 million it paid.

 

 

2 Apr, 2019
Business conditions bounce, but companies still urging caution
The Australian Business Review

Business conditions have bounced, with companies reporting improved sales, profits and hiring, easing concerns of a downturn.

The National Australia Bank’s monthly business survey shows the number of companies reporting improved conditions outnumbered those reporting a fall by seven percentage points in March, up from four percentage points in the previous month.

NAB chief economist Alan Oster said that while profits and sales were now in line with their long-term average, the number of companies reporting increased hiring was about four percentage points above average, which suggests the strong employment growth of the past year was set to continue.

“The increase in business conditions is a welcome development after the weakening trend over the past six months,” he said, while noting the survey still contained some worrying indicators.

A narrow majority of firms reported their forward orders had fallen, while the level of idle capacity has risen from 17.9 per cent last November to 19 per cent in the latest survey. The survey also indicates companies are becoming less committed to raising investment. In November, 15.8 per cent of firms were planning to lift investment, however the latest survey shows that has dropped to just 3.4 per cent.

Business investment will be a key variable in today’s federal budget, with Treasury expecting firm growth of 4 per cent this year and 5 per cent next when it last reviewed its budget forecasts in December.

Although companies are seeing better sales and profits, business is less confident about the outlook. The survey shows companies are equally divided about whether conditions will improve or deteriorate over coming months.

NAB estimates employment should continue rising by about 20,000 positions a month. Although this is below the levels of the first half of last year, it should be sufficient to keep the jobless rate at its 4.9 per cent level.

The Reserve Bank board, which meets today and is expected to keeps the cash rate at 1.5 per cent, will be reassured by these results. The RBA is puzzled over the split between strong performance of the labour market and relatively weak overall economic results.

Mr Oster said the survey still showed sectors of the economy remained weak, particularly retail and wholesale, which were affected by soft consumer spending, while the strongest industry was resources, which was benefiting from strong demand from China.

New Chinese business surveys are also encouraging about the outlook, showing that its manufacturing sector has pulled out of last year’s slump and is growing again, helped by government stimulus measures.

Matching business surveys elsewhere in Asia also showed a lift in business conditions, although a majority of firms in both Japan and South Korea is still contracting.

2 Apr, 2019
Volte locks in cash as declutter craze drives business
The Australian Business Review

Australian dress rental platform The Volte has raised $700,000 as the start-up that touts itself as the “Airbnb of fashion” looks to make the most of our sudden obsession with decluttering our lives. 

Founded in 2017 by friends Kym Atkins, Bernadette Olivier, Genevieve Hohnen and Jade Hirniak, The Volte is a marketplace for women to loan out their unworn and barely worn clothes.

The start-up’s focus is on designer dresses. Ms Atkins said Volte had been buoyed by the “Marie Kondo effect”, the latest lifestyle craze sparked by the decluttering mantra of “tidying” coach Marie Kondo.

Kondo’s Netflix show, Tidying Up, proselytises the joy of clearing out excess stuff from our homes and lives. Transactions on The Volte platform has shot up 30 per cent and traffic ratcheting up 50 per cent since the show debuted this year. “There was a real spike because of the show, almost a fashion detox,” Ms Atkins said.

“More people are considering whether it’s worth buying an expensive dress when they can rent it. Conversely, our platform also turns expensive dresses into an asset.”

Valued at $10 million, The Volte has more than 100,000 active users a month, with more than 14,000 listings.

The average retail price of dresses on The Volte is $1000 and, while most users bring their own wardrobe, the platform also allows small rental boutiques to hire out their wares.

“We have 200 corporate lenders and most of our members put on a 25 per cent rental price that range between $20 and $2000 per hire,” Ms Atkins said.

“We looked at the rental boutiques in Australia when we launched and realised only 5 per cent had an online presence.

“By joining The Volte, we are able to give these rental boutiques a 24/7 national exposure, helping their bricks-and-mortar business survive and thrive.”

Like most sharing-economy businesses, The Volte relies on a rating system to keep lenders and borrowers in line.

“We have an extensive verification system, lenders and borrowers are rated on quality and delivery,” Ms Atkins said.

“If there is any damage the dresses are covered by lender insurance.”

With the value of Australia’s sharing economy expected to hit $55 billion by 2022 and more than two-thirds of Australians using a sharing-economy service, Ms Atkins said that the new funding had come at an opportune time for The Volte.

“The funding, raised from a consortium of angel investors, will be used for technical upgrades to the platform and improve the buying and selling experience, as well as expand our teams in Sydney and Perth,” she said.

“We recognised early on the potential the sharing economy held for the fashion industry, and our rapid growth — 400 per cent growth in revenue in 2018 — and proven business model show that demand is only increasing.

“Partnering with the right investors was very important to us, and each investor is bringing a diverse range of skills, connections and strong mentorship to help us steer the company in the right direction.”

2 Apr, 2019
Kathmandu releases an all-weather wedding dress - and it's surprisingly gorgeous!
Now to Love

Mention the brand Kathmandu and you don't naturally make the leap in your mind to 'wedding dresses'. 

Tramping socks, yes. Puffer jackets, yes. But, bridalwear... that would be a no.

However, the popular outdoor adventure-wear brand has released its first all-weather wedding dress, and it's white and flowy and everything. 

The one-of-a-kind dress was created as an April Fool's Day joke but it is both gorgeous and functional, and is being auctioned off on Trademe with the proceeds going to charity.

The Kathmandu All-Weather-Wedding-Dress is a collaboration between Kiwi fashion designer Tanya Calrson, Kathmandu, and GORE-TEX fabric, which is used extensively in the Kathmandu clothing range.

Designed by Carlson, the size eight creation is being auctioned on TradeMe with a start price of $1. The money raised will go to the New Zealand Himalayan Trust.

True to brand it is weather-proof, packs down into a travel-size bag and has many pockets and hidden zips. 

The gown's features include:
• Design engineered with GORE-TEX® product, enabling the dress to be waterproof yet functional
• A train that transforms into a cape with hood (take that, unexpected heavy rainfall)
• Large storage pockets inside the dress
• Internal zips that transform the length of the dress, taking the bride from altar to first waltz with ease and style.

Inspired by Carlson's Demi-Couture and wedding gown ranges, as well as the cleanly-angled mountains from the Kathmandu logo, the dress uses seven metres of GORE-TEX fabric cut and draped in a continuous line to create a classic Carlson silhouette with minimal seams. 

Inside, the gown is lined in fine blue merino wool.

The lucky bride who wins the auction will "now have the chance to choose from the world's most remote locations for their big day", and "feel prepared to take on any adventure", enthuses Kathmandu General Manager – Product , Ben Ryan.

And her wedding guests will just have to come, well, prepared for any weather.

2 Apr, 2019
Store closures could be a pointer to Big W sale
Google Images

Australian supermarket giant Woolworths appears to be poised to revisit a sale of Big W.

Its investment banking adviser has been testing buyer appetite for the discount department store in the past 10 days.

It is understood Citi is the bank that has reached out to sound out prospective acquirers in what is a strong signal that a sale process for the business could soon be under way.

Citi is known to be close to the retail giant. The US-based investment bank sold Woolworths petrol stations for the group last year to EG Group for $1.725 billion.

It is also working on a prospective sale of its pub and liquor division ALH Group, which it owns with publican Bruce Mathieson.

Private equity funds were circling Big W about three years ago, including Kohlberg Kravis Roberts, TPG Capital and Blackstone as expectations grew at that time Woolworths would divest the business, and suggestions at the time were that Woolworths was offered more than $1bn.

However, Big W has amassed about $350 million of pre-tax losses over three years and has $2.7bn of lease commitments lasting nine years on average.

It is a business that has faced strong competition from global fashion brands that have entered the Australian market and online retail websites.

At that time, former Oroton boss Sally Macdonald was brought in to help turn around the operation. But she left in late 2016 due to what may have been a differing view with Woolworths executives as to how she should take the business forward.

Compounding matters at that time was that Amazon was entering the Australian market in a bigger way. Many believed that would be a crushing blow to Big W and its Wesfarmers-controlled rivals Kmart and Target, and earlier global private equity suitors then shied away.

Yet the feared impact on discount department stores from Amazon has failed to eventuate, which may mean the time could now once again be right to place the operation on the market.

Yesterday’s news that Woolworths was closing 30 stores to boost profitability perhaps acts a precursor to a sale.

The thinking now is that opportunistic buyout funds like Platinum Equity and Oaktree would be more likely buyers of Big W.

Macquarie Group analysts say the cost of the Big W network closure would be $2.3bn, with losses running at about $330m per annum to justify the outlay, but they suggest the business would be likely to return to profit, which means a total closure is not justified.

29 Mar, 2019
Harvey Norman adds independent director to board
Inside Retail Australia

Harvey Norman on Wednesday added a new independent non-executive director to the board.

John Craven, a former partner at Andersen Consulting (now Accenture), joined the retailer’s board, effective March 27.

This marks the retailer’s first appointment of an independent director in several years,  following more than a year of pressure from shareholders and the Australian Shareholders Association to add new faces.

In 2017, then ASA monitor Allan Goldin said directors shouldn’t stay on boards for too many years because they “start to identify too much with the company and executives and stop looking at it from a shareholders’ perspective.”

Gerry Harvey, the chairman of Harvey Norman, said in a statement that the new director would further strengthen the board’s mix of skills, knowledge and experience.

“John has advised and assisted a number of organisations in the private and public sectors to harness and govern technology and digital investments,” he said.

Craven has been actively involved with innovation and growth particularly in technology empowered industries for the past 20 years. He is chair of Specialisterne Australia, which is part of a global not for profit organisation working to enable one million jobs for people on the autism spectrum, and is a member of the global board of the Specialisterne Foundation, based in Denmark.

He is also a member of the board of Social Venture Partners Melbourne, a philanthropic investment

27 Mar, 2019
Starbucks' new 32,000-square-foot store in Tokyo is its biggest in the world
CNN Business

New York (CNN Business)Starbucks has opened its biggest Roastery in the world in Tokyo.

Roasteries — large, lavish Starbucks stores that feature specialty coffees and teas, on-premise roasters and massive coffee casks where freshly roasted beans are held — are a way to "celebrate the romance of coffee," CEO Kevin Johnson told CNN Business. 

The 32,000-square-foot Tokyo Roastery opened to the public on Thursday morning. It overtakes the one in Shanghai as the biggest Starbucks on the planet. The company has just three others, in Seattle, Milan and New York City. 

After Tokyo, Starbucks plans to open one more Roastery, in Chicago.

Roasteries are designed to solve a problem all retailers face: How to make the in-store experience unique and exciting enough to lure in customers. Starbucks is also using the Roasteries to test out design concepts and menu items — and to double down on its promise of offering a "third place" between home and work, even as it focuses on speed and convenience elsewhere.

"The Roasteries are brand amplifiers for us," Johnson said. "That is their primary objective."

The Tokyo Roastery 

In Tokyo, customers who visit the Roastery will be able to order elaborate drinks like black tea lattes garnished with turmeric cotton candy and jasmine teas topped with popsicles. They'll be able to gaze at cherry blossoms through glass walls, and sip beverages on an outdoor terrace.

The four-story shop boasts a number of superlatives. It's the first Roastery to be designed from start to finish with a local designer, architect Kengo Kuma, and the first Starbucks location with a dedicated "inspiration lounge" to host events. It's home to the world's largest Teavana tea bar. And Starbucks also hopes that it will one day become the first of its stores to be certified by the Specialty Coffee Association, a non-profit membership group, to train coffee professionals. 

But the Tokyo location also shares many elements with its four predecessor locations, like the cask — though at over 55-feet tall, Tokyo's is biggest. It also shares distinctive design features like a split-flap sign, called a clacker board, which displays the coffee being roasted in the roasters. Like every Roastery, the Tokyo location has series of overhead pipes that shoots beans throughout the building, sells customized merchandise and incorporates Princi bakeries into the stores. It also has an Arriviamo cocktail bar like the New York and Milan Roasteries.

Retail theater 

The first Roastery opened in Seattle in December 2014. "This is a real-life Willy Wonka experience with coffee as the heart and soul," said Liz Muller, now Starbucks' chief design officer, in a statement at the time. Muller has gone on to lead design on each Roastery. 

Howard Schultz, then CEO of the company, said in January 2015 that the location's opening was the strongest in the company's history, "well exceeding even our most optimistic projections." 

From the beginning, the Roasteries were designed to have a theatrical air. Customers are invited to explore the space, try new concoctions and learn about Starbucks' coffee supply chain. The more each Roastery has to offer, the more likely it is that customers will visit, spend and stay. 

"Personally, I feel that the Roastery is the finest, most creative, and immersive experiential retail environment of any in the world today," Schultz said in 2015. "It should be no coincidence that the Roastery opened in the same year that we identified and shared with you the urgent need for retailers to elevate, deepen, and ultimately redefine how they were emotionally connecting with their customers." 

By the end of 2016, it seemed that Starbucks' big bet was paying off. The company reported in November that sales for the year were up 24% compared to 2015, mostly because Roasteries customers spent four times as much as customers at regular Starbucks locations.

"In Milan, even today, we have lines around the building on the weekends," Johnson noted this month. 

Starbucks has always been "a more affluent brand," said Morningstar analyst R.J. Hottovy. The Roasteries take it "even more upstream," he said.

Menu and design innovations

In addition to offering a premium experience, the Roastery also serves as an innovation lab, Johnson said.

Starbucks has rolled out new beverages nationwide after testing them out at Roasteries. The Juniper Latte, last year's holiday beverage, was inspired by a drink that debuted in the Seattle Roastery the previous year. The Cascara Latte, which tastes like the coffee cherry, was introduced at all stores in 2017 and also inspired by a drink first unveiled at the Seattle Roastery.

 

The Roasteries are also where Starbucks tests out design elements it adopts not only in other Roastery locations, but at Starbucks' Reserve Bars — high-end coffee bars that aren't as elaborate as the Roasteries, but serve premium-blend coffee and are fancier than your corner Starbucks location. Starbucks has over 200 Reserve bars worldwide, most of them in Asia. 

"There will be a halo effect," Muller told CNN Business soon after the New York City Roastery opened in December. There will be "lots of learnings from here." 

The Roasteries have also served as inspiration for new Starbucks concepts, like the "coffee sanctuary" that opened in Bali in January. That store has a 1,000-square-foot coffee farm out front and a nursery where customers can plant seeds. Customers at the store, called the Starbucks Dewata Coffee Sanctuary, can take coffee tasting and preparation classes and virtually participate in the planting process through an interactive digital wall.

The third place, revamped

Starbucks has always promised to be a "third place" where people can spend time. It recommitted to that vision last year, when it codified a policy allowing people to use the bathroom and hang out at Starbucks locations even if they don't order anything. 

At the Roastery, people are encouraged to explore the space. 

"This is a slower experience," Muller said in December. "Come and stay longer, meet with your family or friends, relax." 

Meanwhile, Starbucks is also trying to make sure that customers who went to get their coffee quickly are satisfied. The company is expanding its delivery services worldwide, investing in its app — which lets people order online and pickup in stores — and opening more drive-thru locations.

"Trying to balance those two is very difficult for the company," said Hottovy. By splitting up the business into slower, upscale locations and smaller-format stores built around convenience, Starbucks may be able to tackle the problem, he said. And it could help prevent Starbucks stores from cannibalizing each others' business. 

Starbucks once had ambitions for 1,000 reserve bars and more Roasteries after Chicago. Today, Johnson says there are no definite plans for Roasteries beyond that city.

"Right now we've committed to these six," he said. "We're very pleased with how they're performing."

27 Mar, 2019
Caltex goes hi-tech to change how we buy petrol
Financial Review

Caltex Australia is driving up its investment in technologies including petrol payment apps and automatic number plate recognition that could bill drivers without them having to leave their cars. 

The chain's chief information officer Viv Da Ros said three million Australians use Caltex each week, but it needed to focus on a growing demand for convenience and rethink how it engages with drivers to increase loyalty.

Mr Da Ros was recruited by Caltex in 2016 to spearhead a tech overhaul and said it had made a concerted effort to challenge traditional concepts of what a petrol station can be, and was now trialling number plate recognition technology so customers can be billed automatically rather than having to stop to pay at the petrol station.

Mr Da Ros said he hoped the number plate technology would eventually be rolled into a monthly bill so drivers would no longer have to pay each time they fill up.

"We anticipate change well. We have the humility to change, and we are early adopters of technology, I would say, in order to drive and deliver that vision," Mr Da Ros said.

"We want to make it really simple for our customers to shop with us just like the way that you pay for your TV subscription or utilities bill at home ... You don't pay for it each time you use it, you use it and you get a bill at the end of the month, so why can't we do something similar?"

Family advantage

Mr Da Ros said Caltex's app would also now let drivers pay for their petrol quickly at the bowser, rather than having to go inside the petrol station, something that would make life easier for those with children in the car.

"If I go to the [petrol] station with my two girls in the back of the car, I can fill up. I don't need to unbuckle them out of their safety seats and take them into the shop to pay. I can pay on my app," he said.

 

As part of the tech improvements, Caltex has migrated almost all of its digital infrastructure to Microsoft's Azure cloud, which Mr Da Ros said had enabled it to develop new digital services faster.

"Over the last two years, we have really focused on setting up what we call a 'digital enterprise architecture' from a technology perspective, which is really the foundation enabler of all the wonderful things we want to deliver to our customers," he said.

Mr Da Ros declined to say how much the project had cost Caltex, but said the tech side of the business gets a "significant piece" of the petrol company's spending.

'Convenience business'

Caltex has also sought to rebrand itself as a convenience business rather than simply a petrol station in consumers' eyes.

In 2016, Caltex's chief executive Julian Segal told The Australian Financial Review he wanted to introduce technology that would allow customers to use the app to organise their dry-cleaning and choose what they wanted for dinner. They could then drive to Caltex to be greeted by an attendant who would deliver their order, along with their favourite coffee.

Although Caltex now has 59 so-called "Foodary" outlets across Australia where customers can order coffees through the app and buy fresh food, Mr Segal's plans have not yet come to fruition.

"That is our company vision. Vision by definition is aspirational. I think we are making some very good headways in that direction," Mr Da Ros said.

27 Mar, 2019
Officeworks’ massive new store was designed with online shoppers in mind
Inside Retail Australia

The biggest Officeworks store in Australia and biggest office supplies store in the world, according to the retailer, began trading on Saturday, March 23, in Mentone, Victoria.

At nearly 6500sqm, the store is four times the size of the average Officeworks, and its range of 35,000 products, double that of the average store, includes a huge assortment of educational materials and art supplies – new categories the retailer entered last year – office furniture, technology products, professional printing and copying services and more. 

It’s a new “more is more” approach for the retailer, and if all goes well in Mentone, it will apply learnings from the store throughout its network and open additional XXL-format stores around Australia in the coming years. 

“It isn’t just about one shop or a handful of shops, it’s about what we can do for the 165 other stores we’ve got around Australia,” Sarah Hunter, Officeworks’ managing director, told IRW. 

The Mentone store is notable at a time when many other retailers are shrinking their store footprints – both in terms of number as well as overall size – to combat increasing rents and slowing foot traffic and to take advantage of the growth of online shopping.

But according to Hunter, who took over from long-time CEO Mark Ward earlier this year, the decision to go big makes sense for Officeworks on multiple fronts. 

For one thing, the massive store enables the retailer to show customers that it sells more than just office supplies. A customer who comes into the Mentone store to pick up some paper for their at-home printer might realise they can also buy office chairs for their small business and canvases for their child who is into painting, rather than going to a specialty store. 

Other Officeworks stores don’t have the space to showcase the retailer’s full range. And while customers can shop the full range online, Hunter believes some online shoppers aren’t in the frame of mind to browse and discover new products on the website, and others still want to touch and feel certain products before purchasing. 

“It’s about helping the customer reimagine what we could be…they could have bought a lot of this product online already from us, so it will be interesting to see how physically being able to see it changes their behaviour,” she said.

“If they thought we had art , but didn’t understand we had this range of more professional supplies – which is an area we’ve really expanded in – they wouldn’t necessarily think about buying from us online. Whereas if they see it in-store, the chance of conversion both in-store and online is greater.” 

The store also serves as a second fulfilment centre in Victoria and enables same-day delivery to the entire Mornington Peninsula. This is increasingly important for Officeworks, as more than 20 per cent of total sales now occur online.

“That’s about us meeting our customer needs effectively,” Hunter said. 

“Customers aren’t one or the other. We’ve got to offer choice around how customers shop with us, so they can shop with us whenever they want and however they want, and then provide options around delivery so it’s convenient for them.” 

A place to create things

The idea for the XXL-format store originated about three years ago and was inspired by a trip around the world to see what overseas retailers were doing in the space, according to Officeworks’ head of merchandising, marketing and supply chain, Phil Bishop, who spoke at the opening of the Mentone store last week. 

“We asked [ourselves] why can’t we be something bigger than we are?” said Bishop, who is also the retailer’s interim head of retail, B2B, e-commerce and customer experience. 

“Why can’t we be the biggest art store in Australia? No one owns that category…We want to be more than just a place to print and copy. We want to be known as a place to create things.” 

While this shift to become more of a “one-stop-shop” could see Officeworks competing with more retailers in more categories – such as Spotlight and Lincraft in the arts and crafts space, and Temple & Webster in commercial office furniture – Hunter isn’t worried. 

“We’ve always had a very fragmented competitor base, so arguably adding a few more doesn’t really make a difference,” she said. 

“We’re only going to go into categories where we feel our customers are asking for it. Not just things…we think are interesting. 

“It’s customer-led. That really has been the hallmark of Officeworks’ success over the last decade, and there’s a whole lot more we can do.”

26 Mar, 2019
Sportility announced their new Ambassador
Sportility Twitter

The team at Sportility are thrilled to announce that NBA Golden State Warriors newest player and NBL's Most Valuable Player, Andrew Bogut has a joined forces with us to help foster the future of sport in Australia.

What an awesome segment this morning on sunrise with Kochie and Sam. Andrew Bogut nailed the explanation of what we do and how we're changing the game within grassroots sports sponsorship!

25 Mar, 2019
Bunnings targets tradies and downplays muscle
Australian Financial Review

Bunnings reckons every customer who walks into its stores will spend $150,000 over their lifetime. It’s a stretch but a powerful tool when teaching staff that the person buying a couple of nails is worth more than the $3 being spent that day.

Each person has a much bigger value over a lifetime for the store as they mature — from a child making a cubbyhouse to a home builder working on the deck or painting the house.

More than 70 per cent of the 10 million homes in Australia are more than 20 years old, so they need some work, while the 450,000 homes being built each year need outdoor furnishings and plants.

Its boss, Mike Schneider, has his mind set on grabbing a bigger share of what he calls the commercial market, which includes the tradesmen who are tied to the likes of plumbing retailer Reece, but can be courted by Bunnings.

The reality is that Bunnings is the nine hundred-pound gorilla in its space, which is why Schneider keeps releasing graphs showing Bunnings has only 19 per cent of the so-called home and lifestyle commercial market.

The last thing he wants is for the ACCC to think he is the dominant player in the market.

Depending on how big a slowdown we get, that power may well be tested, because the reality is with $13 billion in revenues, $1.6bn in earnings and 11.7 per cent margins on JPMorgan’s numbers, Schneider can withstand a little pain.

Not so a struggling supplier or rival specialist, so any downturn is the ideal time for Schneider to flex his muscles.

If the Bunnings person knocks on the door with a tempting offer when the specialist plumbing firm has done it tough for a couple of years, suddenly that will look very attractive.

The Bunnings competition pitch, of course, is that it has but a fraction of a much bigger market.

The push into the trade market is being worked through companies such as the hipages group, established 15 years ago by David Vitek and Roby Sharon-Zipser.

Their website helps you find a tradesperson in your neighbourhood at the right price.

If a toilet costs $300 and another $500 to install, then rather than letting the tradie mask the price, Bunnings will advertise instead a package deal — a fixed $800 so everyone knows where they stand.

And Bunnings wins, too — it gets to sell more toilets.

Bunnings will roll out more products online as it broadens its offering to try to maximise sales through as many channels as possible.

The big prize is the trade market, which is in part help by product specialists such as Reece.

Bunnings has a Power Pass card that lets tradies stock up on goods and then skip lining up at the cash register by simply swiping their card.

There are still a number of product ranges that Bunnings has yet to conquer, such as flooring, in which it has less than a 5 per cent share, kitchens (less than 10 per cent), bathrooms (less than 10 per cent) and window dressings (less than 10 per cent).

In round terms Bunnings retail generates $9 billion in revenues each year, while the commercial market is worth $4 billion.

Schneider showcased his plans to the market this week and given he accounts for 50 per cent of Wesfarmers’ earnings and 44 per cent of revenues, Wesfarmers boss Rob Scott will be cheering him on.

Xenith boss’s green light

Xenith chairman Sibylle Krieger has made her decision and will proceed with an April 3 vote on the proposed $1.73-a-share scrip merger with fellow patent lawyer Qantm.

This is a brave call given IPH has a $2-a-share bid on the table for Xenith, which includes $1.30 a share in cash.

That deal was subject to ACCC clearance in May, by which time, if all goes to plan, shareholders will have already approved the Qantm deal and the IPH offer will be dead in the water. That, of course, depends on the vote in next month’s meeting, so the ball is now in the shareholders’ court.

The Xenith board had rejected the IPH offer as inadequate.

The ACCC yesterday said Xenith and Qantm can merge with a combined market share of 30 per cent to be the market leader ahead of IPH on 22 per cent.

This suggests that in early May, it will also approve the IPH bid for Xenith, which would give the combined firm 37 per cent of a wide open market.

IPH earns 40 per cent of its income in Asia, which explains why it has a market value of $1.3 billion against about $300 million for Xenith.

IPH wants the Xenith vote delayed until May 3 to give shareholders a choice but Krieger and her comrades have rejected this suggestion.

However, that is not a good decision, because shareholders should be given the opportunity to choose — but now Xenith shareholders don’t have an option to walk.

That may explain why Xenith closed down 1.7 per cent at $1.80 on the ACCC clearance — which was actually good news.

Banks’ differing paths

Westpac’s decision to hive off its financial advisory unit to Viridian has definite appeal from the bank’s perspective but is it really in the customer’s best interest?

That is a somewhat surprising question as the big banks work overtime to meet remediation demands and follow Westpac’s Brian Hartzer on the road to simplicity.

Historically, banks have proved very good at taking your money but not so good at giving it back but in the post-royal commission climate, customers are on a new, hopefully sustainable, pedestal.

Just how to get there depends on the bank.

NAB’s Phil Chronican thinks it’s all about reliability — doing what the customer expects and doing it well.

Hartzer thinks it’s all about knowing your customer’s aspirations and helping them achieve those aims.

Hartzer argues the bank is good at products but advice is not so suited to a big bank — in part because it is a bespoke art and given compliance rules the most one adviser can handle is 100 customers.

Big banks like saleable businesses.

If you are a big bank customer now you can be almost assured that dodgy financial advice will be remediated, because as tattered as big bank reputations may be, they want to show they are sticking with the customer.

Viridian, the house taking on the Westpac advisory arm, will have the same commitments, or maybe better, to customers.

But it doesn’t possess the same financial resources as a NAB or a Westpac and so arguably in their drive to simplicity, banks are dudding customers.

Theoretically they are not because they are separating a heavily conflicted division but practically speaking it may be the customer will miss the big bank muscle.

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