24 Sep, 2020
Shoppers ringing up early recovery
Australian Business Review

Australians are shopping their way out of the sharpest economic downturn since the 1930s.

The country’s biggest retail bank said a surprisingly strong lift in spending by its millions of card customers over recent weeks suggests the economy will buck pessimistic Treasury forecasts and expand strongly through the September quarter.

Amid fears the COVID-19 recession would stretch to three straight quarters for the first time since the 1980s, Commonwealth Bank head of Australian economics Gareth Aird said he now expected real GDP would grow by 2 per cent, versus an earlier forecast that the economy would stall.

While growth in the order of 2 per cent is not the economic “snapback” Scott Morrison had hoped for when the country was riding high in June on an earlier than expected national reopening, it would still be the fastest quarterly expansion since 1995, when the economy grew by 2.3 per cent seasonally adjusted.

Mr Aird said he “had expected to see a modest rebound in household consumption over (the third quarter) as a lift in expenditure outside Victoria was partially offset by the lockdown-induced contraction in spending in Victoria”.

“But what has surprised us is the strength of spending outside of Victoria,” he said.

Weekly spending on CBA cards since June had been “materially” above the second quarter, Mr Aird said, averaging year-on-year growth in the order of 6.5 per cent versus around -3.5 per cent. Spending on the likes of homewares has stayed strong, while other areas such as entertainment have shown solid growth, even as they remained down on a year earlier.

By state, Queensland and Western Australia had led the growth in card spending.

“We now expect real household expenditure to post a chunky 5 per cent increase over the September quarter, following the 12.1 per cent contraction in the June quarter.”

The analysis chimes with profit figures from retailer Harvey Norman, which on Monday revealed sales had surged by an ­incredible 30 per cent over the 11 weeks to mid September.

The sharply upgraded outlook comes as the government grows more confident that Victoria’s shutdown won’t overwhelm a recovery outside the economically devastated state.

Treasury’s most recent estimate that national GDP would flatline or even contract through the September quarter is increasingly looking too downbeat.

The Prime Minister on Sunday said he expected the economy to add hundreds of thousands of jobs by Christmas, and walked back on official forecasts that the unemployment rate would approach 10 per cent.

Labour force figures released last week shocked economists when they showed the robust jobs recovery extended into a third month despite the drag from Victoria, with the unemployment rate plunging to 6.8 per cent from 7.5 per cent.

Despite warnings from Josh Frydenberg that the jobless measure would continue to climb in coming months, Mr Aird said unemployment had now peaked and would drift lower to 6.6 per cent by December.

As Victoria’s draconian lockdown measures appear to be suppressing the second wave of infections, allowing some easing of restrictions outside of Melbourne, the further lifting of restrictions through the final three months of the year would help national GDP lift by a further 1.8 per cent, alongside an increase of 140,000 jobs, Mr Aird said.

With expectations for an earlier recovery, Australia’s economy will shrink by 3.3 per cent in 2020, versus a previous estimate for a fall of 4.3 per cent.

24 Sep, 2020
$63b of travel spending has to go somewhere
Financial Review

Australians spent about $63 billion a year on international travel and domestic travel before the COVID-19 pandemic and stockbroking house UBS says a large chunk of that is now being diverted elsewhere, which should help underpin a solid 2021 for most retailers.

UBS analyst Aryan Norizi and a team of economists have closely scrutinised the spending habits of people before the pandemic. They say that with international travel banned and domestic travel still restricted, about 85 per cent of the funds previously spent on travel will find its way into extra consumer purchasing power.

They conclude that despite the rising unemployment levels and the staged phasing out of federal government spending programs like JobKeeper the spending outlook for consumers is broadly ''neutral'' for calendar 2021 when all the factors are taken into account.

UBS forecasts that an 85 per cent reallocation of travel spend suggests consumers have $52 billion in extra purchasing power.

Mr Norozi said stimulus was waning but he estimated about 15 per cent of the combined $50 billion in cash handouts by the government, home loan deferrals by customers and withdrawals of $10,000 tranches from superannuation funds was spent on discretionary retail between April and September.

UBS economists are expecting a 5 to 10 per cent decline in house prices and Mr Norozi said the direction of house prices was a ''key driver'' of retail sales because of the wealth effect. People feel better and more confident when the value of their house is rising, and the converse applies.

Mr Norozi also estimates there is a large amount of ''pull-forward'' in elevated retail spending between May to December this year.

UBS feedback for August and September is for strong retail sales outside of Victoria which has been in stage-four lockdowns.

The stockbroking house said a $74 billion build-up in household deposits from February to July this year made it more likely that much of the annual travel spend would find its way to the retail sector.

Mr Norozi said the preferred picks in the retail sector were manchester and towels retailer Adairs, electronics retailer Harvey Norman, fashion retailer Premier Investments, supermarket chain Woolworths and grocery wholesaler Metcash.

Consensus earnings for listed discretionary retailers were priced on a ''muddle-through scenario'', with calendar 2021 sales and earnings estimates between 5 percent and 9 per cent ahead of pre-COVID-19 levels.

"On the whole, we believe retailers' share prices are factoring robust trading conditions,'' he said.

He said the global financial crisis experience suggested relative P/E multiples retraced about 35 per cent from their post-stimulus peak.

The ''buy'' ratings on Woolworths, Harvey Norman, Adairs, Metcash and Premier Investments were built around attractive valuations and structural shifts toward online, and a rebalance in the retail and landlord relationship when it came to the sharing of profits. UBS also factors in medium and long-term growth opportunities.

Premier Investments, chaired by billionaire Solomon Lew, has been the most aggressive in trying to up-end traditional rental agreements with landlords, and has pushed for paying a rent based on the amount of sales a particular store is doing, instead of a fixed rent.

24 Sep, 2020
Hello Molly expands into $200 billion market

Australian eTailer Hello Molly has launched its own in-house activewear brand Elette Fit. 

The launch of the label follows the surge in demand for activewear during the pandemic, with the market now valued at AUD$222.3 billion according to Hello Molly. 

During the lockdowns, the business saw that Australians were searching for comfortable, fashionable, on-trend activewear that featured breathable fabrics, digital prints and colour-blocking elements. 

Capitalising on these trends, Hello Molly's Elette Fit is a 19 piece range that features mid to high-intensity sports leggings and sports bras along with a tracksuit, bike shorts and perforated training tees. 

The line features trend-driven elements such as pocket detailing, block-colours of bold blue and fuchsia and versatile silhouettes. 

Designer Catherine Ellul said that the new range offers pieces for both the lifestyle and fitness focused Australians. 

"Activewear is a category that is timeless, but it is having a real moment in the current COVID climate.

"As people are realising what a privilege it is to be able to go outside and be active, everyone is in demand for it, whether it be for functional or fashionable purposes.

"The collection offers a range of styles for the comfort aspect, which is a growing category for us, such as the jogger and jumper set.

"The focus on a healthy active lifestyle is met with performance leggings, crops and technical fabrics.

"Elette Fit has a piece for everyone and will satisfy what customers are looking for in today’s lifestyle," she said. 

Brand creative manager Jasmin Fraser added that the business developed Elette Fit to be its own standalone brand within the Hello Molly umbrella. 

"Instead of developing a collection branded as Hello Molly, we took the opportunity to define and carve out a new identity within this space, honing in to the ethos of fitness, femininity, boldness and feeling elite while really defining what that means and looks like.

"Elette Fit offers dedicated branding to directly inspire the customers in this space, which is new to us. 

"The Hello Molly girl can simultaneously be an Elette Fit girl, however, there are key aspects of the tone of voice, colour palette and branding where we saw an opportunity to dive in heavily to the performance activewear industry.

"Elette Fit being separate in a sense to Hello Molly allows us to explore that.

"We want to have just as strong branding in that space with Elette Fit as Hello Molly does in feminine dresses and party wear, without conflicting with our established Hello Molly identity," she said.

The Elette Fit range is now available to purchase from the Hello Molly website and retails for between $34.95 and $89.95. 

21 Sep, 2020
David Jones boss admits it has 'too many stores' as losses deepen
The Sydney Morning Herald

The head of struggling department store David Jones has admitted the company has "too many stores" and has stepped up plans to shut some and shrink its network by 20 per cent as losses are deepening in the COVID-19 crisis.

Roy Bagattini, the former Levi's boss who was recently appointed to head David Jones' South African parent company Woolworths Holdings, told The Age and The Sydney Morning Herald the upmarket department store chain was "overstored" and customers could expect a number of closures in the next 24 months.

"There's no doubt we have too many stores for what I think our business purpose is in Australia," Mr Bagattini said on Thursday in a telephone interview. "It is overstored...and I would expect to see a level of reduction coming through."

This could mean as many as 10 stores could close their doors, with Woolworths having previously touted plans to shrink more than 20 per cent of David Jones' floor space by 2025. However, Mr Bagattini said the COVID-19 crisis meant he now wants those plans accelerated and completed in the next two years.

"We've got to get there much quicker, so we have to accelerate our way through that. We have been engaged with all 12 of our landlords, and we've been having very good discussions and we're making good progress," he said.

Mr Bagattini's comments follow a tough year for David Jones, with the department store plunging to an adjusted operating loss of $33 million, a massive decline from last year's $37 million profit. Total sales fell 6.4 per cent to $2.06 billion, and comparable sales declined 6.9 per cent.

The company chose to trade through the initial COVID-19 lockdowns in March and April despite many of its retail rivals closing their doors. This meant David Jones' sales hit was not as pronounced as rival department store Myer's 15.8 per cent fall, though both retailers suffered significant hits to their earnings.

Mr Bagattini admitted the retail environment for department stores globally was challenging, but said he remained committed to the model, which he said he hoped to return to its roots by emphasising the retail experience they offer to shoppers.

"Our responsibility is to ensure that it is relevant in today's context, and that's through the whole brand environment, the store look and feel, the experiences, the services that all once made department stores a great place to shop," he said.

"Unfortunately, globally some of these large-format department stores have stepped away from these things and that's why they're in trouble. So that's really where we've got to get to for David Jones."

For the time being though, online sales were somewhat of a saving grace for the retailer, doubling for the year to now contribute 14.2 per cent of David Jones' total sales.

Woolworths' Australian fashion stablemate Country Road Group (CRG), which includes the brands Country Road, Trenery, Witchery, Mimco and Politix, fared slightly better, with its operating profit staying in the black at $40 million, though that was still down 60 per cent on last year's.


CRG's revenue dropped 14.3 per cent as its stores were shut for two months. Online sales only grew 15.4 per cent for the year, though CRG's online business is markedly larger than that of David Jones, comprising a quarter of its total sales.

Sales for the first 10 weeks of the 2021 financial year continued to be poor for both David Jones and CRG, down 11.5 per cent and 8.8 per cent respectively, which their South African parent attributed to the current Victorian lockdowns.

Mr Bagattini said the state's strict lockdown measures were "a little painful" for the retailer and he was hoping trade could resume on October 26.

Along with renegotiating its leases, David Jones is in the midst of disposing of its significant property portfolio.

The chief executive said there has been significant interest in its remaining Sydney and Melbourne flagship stores, the proceeds from which will be used to reduce the retailer's $500 million debt pile.

21 Sep, 2020
The Athlete’s Foot launches activewear online
Inside Retail

The Athlete’s Foot has stepped into a new category, now stocking activewear and performance clothing on its website.

The athletic and lifestyle footwear retailer will introduce items from 40 brands such as ASICS, Puma, Adidas, On Running, New Balance, 2XU and New Guard, as well as accessories such as socks, exercise bands, massage balls and bags.

“Apparel is a natural fit for The Athletes Foot. We have seen an undeniable increase in trends as more and more people are looking to incorporate workout and athleisure wear into their lives,” general manager of Accent Group’s performance division Steve Cohen said.

“People are looking for activewear that fits their lifestyle. I am beyond excited to add to our customer’s overall experience and can’t wait to provide people with a complete selection of products to help them keep fit and healthy.”

Parent company Accent Group purchased activewear business Stylerunner in late 2019 after it entered voluntary administration, in an effort to reach a new, predominately female audience while entering a new category.

“It was attractive to us that they had a great position with yoga wear and outerwear, and we’ve seen the wellness piece as a big growth market,” he told Inside Retail at the time.

“We think the name resonates with the consumer, and the market position it has is something we feel the market is missing at the moment.”

Agostinelli also said the business was considering Stylerunner-branded stores.

As a part of Accent Group, The Athlete’s Foot has seen significant digital investment in-store, with the brand’s MyFit3D technology launched across 140 stores in Australia and New Zealand – and is now available online through the launch of MyFit Virtual, which connects customers to a Fit Technician online.

10 Sep, 2020
New Seafolly CEO revealed: brand vows comeback

Brendan Santamaria has been appointed as Seafolly’s new CEO.

Santamaria has been earmarked to fix, reset and grow Seafolly, paving the way to recovery through the challenging COVID-19 retail landscape whilst tapping into the brand’s local and international growth potential.

Santamaria has over 15 years of CEO experience in the branded goods industry, leading brands such as Everlast, Lonsdale and Disney.

In his most recent role as CEO of Designworks, he transitioned a private label apparel business into one of Australia’s largest branded apparel and footwear wholesalers.

Santamaria said he is thrilled to be joining the team in the current global environment.

“I am excited to be joining the team at such a pivotal moment for the brand and the global retail environment.

"Now is the time to shake things up at Seafolly and I see real opportunity for Seafolly to emerge post Voluntary Administration as one of the world’s most iconic swimwear and beach lifestyle brands.

"To date the brand has established and nurtured a global loyal customer following especially here in Australia.

"Our goal is to grow this customer base further and set the brand back on its trajectory to global success, together with our partners.”

Commenting on the appointment, L Catterton ANZ head Ondrej Ruzicka welcomes him to the team.

"Brendan’s appointment comes as Seafolly embarks onto a new chapter in its journey to further grow and elevate the brand that has been leading the Australian swimwear market for the past four decades.

"Brendan’s extensive leadership and retail experience will be a huge asset to Seafolly in the next phase of retail post Covid-19 and in bringing it closer to becoming the world’s most iconic brand in this exciting category.”

10 Sep, 2020
Amazon eyes $1.5bn Melbourne tower as new home
The Australian

Online retail behemoth Amazon is negotiating a move to a new $1.5bn precinct being developed by the Charter Hall in Melbourne’s central business district in one of the largest office developments since the onset of the coronavirus pandemic.

The move would spark work on a 60,000sq m office skyscraper to be anchored by Amazon, with further space to be taken by government agencies, taking pre-commitments to about 40 per cent and allowing much-needed work to get under way across the city’s stalled economy.

The project was one of the largest fast-tracked by the Victorian government and is a boost for wider plans to reinvigorate the CBD after strict stage-four lockdown rules.

The project will create more than 2000 jobs during construction. Demolition of the site is well progressed and completion of the first stage is targeted for late 2022.

GDP figures released by the Australian Bureau of Statistics on Wednesday showed non-housing construction fell 3.1 per cent in the June quarter and was off 1.7 per cent on the year.

Amazon would come out of its existing building in Exhibition Street that is jointly owned by GPT’s Wholesale Office Fund and Singapore’s Keppel REIT. It d would be take expanded space of 12,000-14,000sq m in the Charter Hall project.

The impending deal is a sign that technology and co-working tenants could support the top end of the office market, with a series of commitments to new towers in Sydney and Melbourne keeping hopes alive even as vacancy levels are forecast to soar as white-collar employment shrinks and companies allow more staff to work from home.

In Sydney, flexible working group Hub Australia has signed up to the new Brookfield development above Wynyard station, and New York-based WeWork is forging ahead with plans to occupy an entire building, despite canning other city deals.

Technology players are also a big driver in Sydney, where there are relatively few other tenants in the market. Atlassian is developing a $1bn tower at a new tech precinct next to Central Station as it is looking to build up its office as a destination for entrepreneurship.

Amazon struck a deal two years ago to shift into a new Australian headquarters in a Charter Hall building in Sydney’s Market Street. It already occupies office space at 2 Park Street, jointly owned by Charter Hall and GPT.

Both Amazon and Charter Hall declined to comment.

Charter Hall in April won ­approval for the project at 555 Collins Street, Melbourne that will comprise 84,000sq m of premium office space and associated retail. Designed by Cox Architecture and Gensler, it has been pitched as a world-leading tenant workplace experience.

The first tower, at 555 Collins Street, will comprise about 50,000sq m across 34 levels and will house up to 5000 workers when completed. An adjacent tower 55 King Street tower will round out the precinct.

Charter Hall chief executive David Harrison at the time the project was approved said it was a “credit to the Victorian government that it is working to keep the economy moving by maintaining employment and investment and, in particular, to facilitate the recovery the Victorian economy will gain from shovel-ready projects”.

In Sydney, WeWork opened at heritage-listed 66 King Street, where it is anchor tenant following a $72m restoration. Owned since 2007 by property figure Phillip George, the 14-level art deco building on the corner of King and York streets spans 7300sq m.

Mr George backed the co-working concept, saying the building had been redeveloped as “an exciting co-working, retail and entertainment space” calling out the benefits of being in the middle of the city, near major transport and dynamic spaces.

Elsewhere in the city, Canada’s Brookfield signed up flexible workspace specialist Hub Australia to provide a free premium lounge to tenants in its $2bn Brookfield Place Sydney project above Wynyard station.

Hub Australia will take 4000sq m of space over two levels in the project’s new 27-storey office tower. Co-head at Brookfield Properties, Carl Schibrowski, said there were benefits of free breakout spaces for workers as well as access to premium, pay for service flex space.

“We wanted to bring a great flexible workspace offer to Brookfield Place Sydney to meet the growing demand from businesses for flexibility,” he said.

Brookfield Place Sydney will open in mid-2021.

10 Sep, 2020
David Jones poised for recovery despite costly missteps, says top investor
The Sydney Morning Herald

One of the key shareholders in David Jones' parent company is optimistic the struggling department store can return to former glory, blaming a number of poor investments and questionable strategic decisions for its woes.

David Jones was taken over by South Africa's Woolworths Holdings in 2014 for a massive $2.1 billion, with the international buyer touting plans to turn it into "one of the biggest retailers in the southern hemisphere".

At the time, it seemed like a good move to Quinton Ivan, a portfolio manager at South African investment firm Coronation, which owns 5 per cent of Woolworths. Yet despite some promising results in the early days, the tie-up quickly turned sour amid Australia's weak retail environment and some costly management missteps, he said.

"Trading performance took a turn for the worse in 2017 ... due to a deterioration in the Australian retail environment as discretionary spend came under pressure, exacerbated by high levels of consumer indebtedness," Mr Ivan told The Age and The Sydney Morning Herald.

"DJ’s performance was also adversely impacted by the failure of its private-label offering which never resonated with the Australian consumer, as well as several strategic initiatives which disrupted trade, added costs and placed pressure on its profitability."

Mistakes highlighted by the fund manager included the company's ambitious $220 million plan to refurbish its flagship Elizabeth Street store in Sydney, moving its head office from Sydney to Melbourne, and trialling a new upmarket food hall concept.

All those flops forced Woolworths to write down nearly two-thirds of its investments in David Jones, Mr Ivan said, with the company now valued at less than $1 billion.

Full-year sales at the retailer for the 2020 financial year are set to be down 8 per cent due to the impact of COVID-19 when the company reports its results later this month. Profit plunged 42 per cent last year, coming in at just $37 million.

Coronation is not the first major shareholder to criticise Woolworths' purchase and management of David Jones, with majority shareholder Allan Gray saying in June the department store had been a "very poor" investment.

The repeated writedowns on its initial investment have prompted speculation Woolworths may look to dump the department store chain. Instead, the South-African company has initiated a plan to close some of its 48 stores and sell $1 billion in property assets to reduce DJ's sizeable debt pile and cull any unprofitable stores.

One store, in Melbourne's Bourke Street, has already been sold for $121 million.

Outgoing chief executive Ian Moir said before his departure at the end of last year David Jones would focus on brand exclusivity as a way to return the company to growth and win back customers, with Woolworths pulling its Country Road Group brands out of competing retailers such as Myer and introducing 60 new brands exclusive to DJs in Australia - a strategy that is being continued under his successor, Roy Bagattini.

Online sales are also planned to become a major contributor to the group, with the company planning for online to be 20 per cent of total sales by 2025.

Mr Ivan said the plan to reduce the company's significant debt was a solid strategy and preferable to Woolworths either selling the chain entirely or injecting additional capital into the ailing business.

The fund manager said if Woolworths' plans for David Jones proved successful, the company could again become a valuable asset in its portfolio, though it is currently seen as next to worthless by investors.

"Despite department stores being under threat globally, we believe that DJ’s strategic initiatives appear sound [...] and should enable DJs to compete more effectively against online and specialist retailers," he said. "The investment in transformative projects and current strategy of right-sizing the DJ store footprint and continued investment in online is sound, and sets the business up well for the future."

10 Sep, 2020
'Retailers are angry': Businesses mull job losses, financial pain
The Sydney Morning Herald

Melbourne businesses have hit out at the Victorian government's staged coronavirus recovery plan, accusing it of being incomplete, unrealistic, and potentially devastating for businesses reliant on much-needed Christmas trade.

Struggling operators are now considering whether they will need to cut jobs as a result of the extension of the state's business closures and Melbourne's lord mayor Sally Capp has called for an urgent intervention to help traders on the brink of collapse.

Large retailers are concerned about the potential ‘double whammy’ of both the extended trading restrictions and the reduction of the JobKeeper program in late September, as many will be ineligible under the new turnover test due to better-than-expected trading.

Announced on Sunday, the Andrews government road map out of stage four restrictions will see non-essential retailers shuttered for an additional six weeks until late October, limited to just online orders in an effort to limit the virus' spread.

Caleb Brown, the chief executive of Superdry, Volley and Clarks operator Brand Collective, said the stimulus package ending was creating anxiety for retail staff, who face at least one month of closures without JobKeeper support.

"I think many retail staff are acutely aware of their company's own [JobKeeper] qualification criteria, and that's creating a lot of fear, panic and anxiety," he said.

"It's unfortunate that the governments haven't been able to work together more closely to have a more comprehensive suite of announcements, to provide the level of certainty that I think our workers and the general public are looking for."

Layoffs would be a "last resort", Mr Brown said, but the ending of the JobKeeper safety net could lead to job losses at other businesses if additional support was not provided.

Shell service station operator Viva Energy's chief executive Scott Wyatt said the company may be forced to permanently shut its Geelong refinery if the road map targets are not hit by November, putting 700 jobs at risk.

"They've provided a road map, but it's a long road map, and there are some high hurdles that we have to clear to get there," he said. "We all need a pathway out of this that we can be confident in and that seems realistic and achievable. And I'm not sure that hit the mark [with the road map]."

Small business Ombudsman Kate Carnell said the state government's targets for reducing restrictions seemed unrealistic and may give some small business owners no other choice but to shut up shop.

In those situations, Ms Carnell said the Andrews government should "pick up the tab" for the costs of breaking leases on property or assets such as cash registers.

"It's totally unconscionable for the state government to make these decisions and then not pick up the tab for the costs that this is going to impart on on small retailers," she said.

Premier Daniel Andrews said he knew there were a lot of businesses that did not get the news they wanted in the state government's plan.

"If we could have provided a different series of steps, more things opened faster and done that safely, then, of course, that's what we would have done," he said.

"But there's no other option and I think that's well understood by every member of the government and well understood, I think, by the vast majority of Victorians."

Lord mayor Sally Capp called on the state government to urgently provide immediate additional financial assistance for businesses prevented from operating due to the restrictions.

She also called for a more flexible approach which allowed businesses to reopen sooner in a COVID-responsible way.

"I am also calling for consistency," Cr Capp said. "If the national definition for hotspots is 10 cases per day for three days, why not use this benchmark for reopening businesses and industries such as retail and hospitality?"

Monday, September 7: There are 1781 active cases of COVID-19 in Victoria, including 259 among healthcare workers.

Mr Andrews said the government would continue to this week consult with a wide range of businesses about the type of assistance they believed would be of greatest benefit before announcing a rescue package.

"We'll be as quick as we can be, but we have to give businesses ... that very direct opportunity to feed in about the types of assistance they want. Because it may vary one sector to the other. We'll do
that as quickly as we can," he said.

Mr Andrews would not comment on whether he would ask the Prime Minister to extend JobKeeper payments, saying he did not believe it was proper to lobby the government from the podium.

Sia Psicharis, who operates a beauty salon in St Kilda East, said she was preparing for more bad news ahead of Sunday’s announcement, however, she was still shocked at how "incomplete and inconclusive" the state government’s plans were.

"We’ve been closed since March and we were really waiting for something positive, but to be given this and having it all left open-ended, it was devastating," she said.

The Melbourne small business owner estimates she’s lost tens of thousands in revenue since lockdowns began in March, and is pushing for beauty salons to be permitted to open with a COVIDSafe plan once stage three restrictions are re-introduced.

Under the state government’s current plans, only hairdressers will be permitted to reopen on October 26 when restrictions ease back to stage three, with the rest of the beauty industry forced to wait another month to November 23.

"We lost Mother’s Day trade, we lost Father’s Day trade, and we were relying on the Christmas trade in November and December to roll us through our quiet time in January and February," Ms Psicharis said.

"We’ve always been known as the ‘hair and beauty’ industry, and suddenly we’ve been left behind when the hair industry has been allowed to function."

Chief executive of the Australian Retailers Association Paul Zahra had been calling for a staged reopening to begin next week and said the "incomprehensible" new restrictions would be a "death sentence" for many Melbourne retailers.

"If you took an evidence-based approach, for retailers who comply with COVIDSafe plans shopping is one of the safest activities in the COVID world," he said.

"Retailers are angry, they feel like they've been let down."

10 Sep, 2020
July sees 7.1% increase in fashion retailing

Turnover in clothing, footwear and accessories retailing rose 7.1% in July, according to new stats from the Australian Bureau of Statistics (ABS). 

Department stores also experienced an increase in July, rising 4% on a seasonally adjusted basis. 

ABS director of quarterly economy wide surveys Ben James said that the reintroduction of COVID restrictions in Victoria significantly impacted the fashion and footwear category in that state. 

"Retail sales in July 2020 were 12% above July 2019, with sales in household goods particularly strong, 29.4% above the same month last year. 

"Turnover in clothing, footwear and personal accessory retailing (7.1%) and cafes, restaurants, and takeaway food services (4.9%) rose across the country, with the exception of Victoria, where the reintroduction of Stage 3 stay-at-home restrictions in July partially offset these rises.

"As was the case in April, restrictions led to significant falls in these industries in Victoria," he said. 

Overall, Australian retail turnover rose 3.2% in July, revised down 0.1% from the preliminary figure of 3.3%. 

Online sales made up nearly 10% of total retail turnover in July, with eCommerce's contribution sitting at 9.8%, a slight rise from 9.7% in June.

In July last year, online retail turnover contributed 6.3% to total retail.

The majority of states across the country rose, with New South Wales leading the bunch at 5.9%, while its southern counterpart Victoria saw a 2.1% decline in July. 

2 Sep, 2020
Noni B, Strandbags stores reopen as retailers reach deals with Scentre
Financial Review

Retailers Mosaic Brands and Strandbags have reopened almost 170 stores after being locked out 10 days ago by their landlord, Scentre Group, in long-running disputes over rent.

Mosaic Brands, which owns the Noni B, Katies, Rivers, Millers and Autograph brands, has reopened 129 stores in Westfield shopping centres that were locked by Scentre Group and Strandbags has reopened 38 Westfield stores.


Mosaic chairman Richard Facioni said on Monday the retailer had come to an agreement with Scentre Group but the terms of the agreement were confidential.

“We’re pleased to have reopened our Westfield stores over the weekend following a mutually agreeable outcome to our negotiations with Scentre Group," Mr Facioni said.

“We have had a long-standing relationship with Westfield enabling us to reach a solution that worked for both parties," he said. Mosaic shares jumped 18 per cent to 56.5¢ after plunging 33 per cent last week.

Strandbags managing director Felicity McGahan also did not give details of the terms of reopening the stores but said Strandbags continued to work with Scentre Group in relation to leasing arrangements.

The travel and luggage retailer, which has 279 stores in Australia and New Zealand, has been hit hard by bans on international travel and state border closures.

Mosaic Brands also suffered a significant drop in sales during the pandemic. It had been paying a proportion of rents and had put forward to landlords a new rent model based on sales and long-term sustainability.

Code of conduct

Mosaic believed its proposed model was in line with the government's code of conduct for small retailers, but Scentre Group, which is averse to proportional rents, disagreed.

The 129 stores, which accounted for about 10 per cent of Mosaic Brands' network, were boarded up on August 20, locking out about 400 Mosaic Brands staff.

Scentre Group chief executive Peter Allen defended the decision last week, saying: "Unfortunately in some cases, we’ve got to protect our security holders' interest."

Mr Allen made it clear last week that the group would not compromise on fixed rents because shopping centres had fixed costs and investors did not want to be exposed to the same risks as retailers.

It is understood that under the terms of the agreement Mosaic's rents will remain fixed but the retailer received concessions for the period stores were closed during the national COVID-19 lockdown.

Mosaic Brands chief executive Scott Evans said last week some landlords were refusing to recognise the retail sector had permanently changed because of the coronavirus pandemic and rental agreements struck in the past were no longer appropriate.

Mosaic has threatened to close between 300 and 500 stores over 12 to 24 months unless landlords reduce rents and negotiate new rents based on a percentage of sales.

The dispute underlined growing tensions between retailers and landlords over how risks and returns should be shared in the $315 billion retail sector as foot traffic in shopping centres remains subdued and sales increasingly shift online.

Small- and medium-sized businesses are protected from eviction under pandemic regulations, which allow for proportionate reductions in rent. However, larger retailers such as Mosaic, whose sales plunged 16.5 per cent to $726 million in 2020, have been left to do battle with even more powerful landlords.

Mosaic's Victorian stores remain temporarily closed for health and safety reasons.

28 Aug, 2020
City Chic says early part of FY21 results look positive
Inside Retail

Clothing retailer City Chic said it has continued to deliver positive comparable sales growth in the early part of FY21 and added that its Avenue customer base in the US shows continued resilience.

The company said the current market conditions are favourable to explore opportunities to expand the global customer base. 

“Following the acquisition of Avenue in October 2019, our online channels now represent two-thirds of our global business,” said Phil Ryan, City Chic CEO and managing director.

Ryan said in the past 12 months they have grown their active customer base by 278,000 and expanded their product offering into the everyday fashion category with Avenue and launched the intimates and playwear brand Fox & Royal which was developed from their acquired Hips & Curves brand.

“Our focus is on leveraging our offering across channels and regions as we continue to scale our business globally,” he said.

“The acquisition of Avenue has been successfully integrated within our operating structures and supply chain, with trading exceeding our expectations,” Ryan said.

“The success of this acquisition, which was earnings accretive in FY20, provides a blueprint for the potential purchase of the Catherines brand, which targets value-conscious women, but skews to different US states.”

The fashion retailer posted a 31 per cent increase in sales revenue in the 52 weeks to June 28 to $194.5 million with comparable sales growth of 0.4 per cent. 

It posted a global customer base growth of 72 per cent to 663,000 active customers with an online penetration of 65 per cent of total sales compared to the 44 per cent in the previous corresponding period. Underlying EBITDA was at $26.5 million, representing 6.6 per cent growth compared to FY19.

Normalised operating cash flow was at $20.9 million compared to FY19’s $21.5 million.

The company’s online website has grown globally posting 113.5 per cent growth compared to the previous corresponding period.

According to City Chic, its strong balance sheet has a net cash of $3.9 million as of June 28 and a debt facility of $40.0 million; further strengthened with $111.1 million equity capital raise post year end.

Sales in Australian and New Zealand fell by 4.8 per cent with sales growth of 9.9 per cent in the first half, followed by a 21.5 per cent fall in the second half driven by the impact of Covid-19 and store closures. ANZ trade improved with the reopening of stores, with sales down 26 per cent from the previous corresponding period in June 2020 compared to 47 per cent down from the previous corresponding period in April 2020.

US online websites, City Chic USA, Avenue and Hips and Curves, contributed sales of A$65.2 million in FY20 compared to A$10.7 million in FY19, largely driven by the expanded customer base from the Avenue acquisition for a 37-week contribution.

Ryan said the company is very well capitalised and remains focused on the execution of various growth initiatives including the potential acquisition and integration of the Catherines brand; improve engagement with, and experience of, the Avenue customer base, and migrate store customers to the online channel.

The company also announced it plans to continue expansion of lifestyles and categories online, expand into Everyday Fashion product stream in the southern hemisphere, drive brand awareness in the northern hemisphere, including adding new partners and building on trial in the UK and Europe, and continue to invest in enhancing customer touchpoints.

“In the early part of FY21, City Chic is pleased to advise that the company has continued to deliver positive comparable sales growth and the Avenue customer base in the US continues to be resilient,” Ryan said.

“However, City Chic acknowledges the economic impact caused by Covid-19 globally and the uncertain outlook for consumer demand.”

City Chic USA website’s strong growth momentum in the first half slowed and gross margins were heavily impacted in the second half due to Covid-19 and the drop in demand for City Chic’s major dress category in the US

28 Aug, 2020
Quick shift online helps Accent Group maintain momentum
Inside Retail

Strong digital sales throughout FY20 and a sharp increase in the final quarter, helped Accent Group maintain sales and profit momentum despite the impact of hundreds of stores being closed for more than a month in Australia and New Zealand.

The footwear giant posted a 1.5 per cent increase in underlying sales to $948.9 million in FY20, and a 7.5 per cent increase in underlying net profit after tax to $58 million, thanks to a significant increase in online sales in the year and a bigger contribution from higher-margin in-house products.

EBITDA increased 11.8 per cent to $121.7 million, and EBIT was $87.2 million, up 8.2 per cent. These figures do not include the impact of the new lease accounting standard to enable a more accurate comparison with the prior year.

Accent Group’s positioning in the booming fitness and athleisure categories during the Covid-19 lockdowns via The Athlete’s Foot and Stylerunner, the pureplay fashion business it acquired in FY20, also bolstered its results amid incredibly subdued consumer sentiment.

The company’s chief executive Daniel Agostinelli credited team members, customers, landlords and suppliers for the strong performance.

“The outstanding efforts of our team who have adapted quickly to a fast-changing environment, along with the support of our loyal customers, landlords, and supplier partners, have delivered another strong financial result,” he said in an ASX statement on Thursday.

Digital growth key to result

Key to this result was the group’s quick pivot to e-commerce when the board decided to close all stores to the public at the end of March, according to Agostinelli.

Accent Group, owns and operates over 420 shoe stores in Australia and New Zealand across several retail chains, including Platypus, HypeDC, The Athlete’s Foot, Subtype, The Trybe and most recently Pivot, as well as distributing popular footwear brands, including Skechers, Vans and Dr Martens.

Shortly after deciding to close stores to the public, the company transitioned its entire physical retail network to “dark stores” to support the delivery of online orders from customers shopping at home.

Digital sales grew to $65 million, or 35 per cent of total retail sales, in the fourth quarter alone, a 142 per cent increase on the prior year.

Most of the people shopping online with the Accent Group were new customers, and the momentum increased even after stores started to reopen in May.

The company reported that online orders grew from an average of $200,000 per day in April to between $800-000 to $1 million per day in June. And it had its biggest month of digital sales ever in May, with $29 million. Agostinelli earlier this year referred to a “seismic” shift towards e-commerce.

In FY20 overall, digital sales were up 69 per cent on the prior corresponding period, representing 17 per per cent of total sales.

While group sales fell $55.7 million March and April, leading the management to temporarily reduce their remuneration by 80 per cent, the company said sales recovered “strongly” in May and June, driven by the digital performance.

All stores reopened in May, although some stores in New Zealand and Melbourne recently shut again due to a second round of lockdowns.

Unlike the first lockdown when the company stood down staff due to the store closures, all staff remain stood up. Accent Group has received wage subsidies from the Australian and New Zealand governments, which it used to return all permanent ANZ staff to full employment across May and June.

The group opened 57 new stores in FY20 and closed 12 where required rent outcomes could not be achieved. Agreements on rent reductions have been reached with the vast majority of landlords covering the period from April to December 2020.

Targeting 30 per cent penetration

Looking ahead, the company said it has experienced a strong start to the year across the business, including its wholesale division, where Skechers, Vans and Dr Martens all had record sell-ins for the second half of FY21.

Growth opportunities include the new Pivot concept, which offers a mix of sports apparel, equipment and accessories and has potential to reach up to 100 stores. The first store recently opened in Shellharbour, NSW, and is trading ahead of expectations, as is the Stylerunner business, which Accent Group acquired in November 2019, after it collapsed into administration.

The popular online retailer is set to open its first bricks-and-mortar store in the Melbourne suburb of Armadale this quarter, with an additional five stores to open in the second half of FY21. There are also plans for Stylerunner to develop an in-house range of athleisure, part of Accent Group’s focus on growing its “verticals” business, which currently includes in-house products across shoe care, socks and accessories.

The biggest growth driver, however, remains digital, and Accent Group is targeting 30 per cent e-commerce penetration in future.

To get there, it will continue to invest in the online shopping experience and digital marketing initiatives and roll out a new virtual sales team who will sell directly to customers from dedicated showrooms and stores via video and chat.

There are also plans to launch new e-commerce sites for Pivot, Hype DC in New Zealand, Dr Martens in New Zealand and Subtype in New Zealand, and new loyalty programs for Skechers and Platypus.

“The management team remains focused on driving digital growth and continued innovation,” Agostinelli concluded.

28 Aug, 2020
Adore Beauty names new CEO
Inside Retail

For the first time, Adore Beauty has a CEO who was not involved in starting the business 20 years ago.

Tennealle O’Shannessy has taken on the top job at the fast-growing online retailer from Seek, where she was previously managing director of the Americas.

She has replaced James Height, one of the co-founders of Adore Beauty along with Kate Morris, who served as CEO for the past 2.5 years.

Morris, the face of the business, was CEO for most of the company’s history, before handing the baton to Height and transitioning into the role of executive director in January 2018.

Both Height and Morris will now serve as executive directors, though Morris will continue to be the face of the business.

“We are thrilled to welcome Tennealle to the Adore Beauty team,” Morris said in a statement about the appointment.

In addition to O’Shannessy’s expertise in business operations, strategy, leadership and business transformation, Morris said her values-led approach was an important factor in the hiring decision.

“We felt that Tennealle clearly shared our values and would absolutely be the right person to come onboard as our new CEO. I am looking forward to working closely with her,” she said.

Morris and Height have worked with Tennealle for the past few months to ensure a smooth transition.

“Having built this business from the ground up over a 20-year period, our commitment to supporting the future success of Adore Beauty is unwavering,” Height said.

The appointment comes nearly one year after the co-founders sold a 60 per cent stake in the company to Quadrant Private Equity to accelerate Adore Beauty’s growth in the booming cosmetics sector.

Justin Ryan, managing partner at Quadrant and chairman at Adore Beauty, said O’Shannessy “adds further strength” to the leadership team and enhances its “capability to deliver the company’s future growth potential”.

For her part, O’Shannessy said the company is “well placed for is next phase of growth” and is excited to be part of the journey.

“I have admired Adore Beauty as a disruptive digital business and have been impressed by Kate and James’ focus on values, execution and continuous innovation,” she said.

“They have built an incredible business that implicitly understands their customers’ needs in a unique and personal way.”

28 Aug, 2020
Adairs’ online sales double during bumper FY20
Inside Retail

Benefiting from the surge in purchases in homewares by Australians redecorating their homes during lockdown, Adairs saw group sales grow 12.9 per cent to $388.9 million during FY20 leading to a net profit of $35.2 million – up almost 16 per cent.

Online sales also grew 111 per cent to $124.2 million, and made up 32 per cent of total sales compared to 17 per cent a year ago.

“Despite the challenges and uncertainties placed on our industry and the broader economy by the Covid-19 pandemic I am pleased to report that FY20 was a good year for Adairs,” chief executive Mark Ronan said.

“Our CODB [up 1.8 per cent] benefitted from the receipt of Government subsidies, including JobKeeper, which have contributed materially to maintaining the employment of many of our team members.

“The government subsidies were helpful to our results, [though] it was clear that the company was performing well leading into this difficult period and would have delivered strong results had Adairs not been eligible for the subsidies.”

Adairs received $11.29 million in subsidies during the 52 weeks to 28 June, 2020. 

And while the Australian dollar fell slightly during the pandemic, the business’ underlying gross margin increase of 226 basis points more than made up the difference. 

This was attributed to a coordinated program of sourcing and retail pricing initiatives, combined with a focus on reduced depth and length of promotional activities.

However, Adairs is unwilling to commit to financial guidance for the coming year despite the fact it expects the increased focus on home renovation to persist while the pandemic remains due to the uncertainty in the market.

“We remain cautious about the next 12 months in light of the ongoing uncertain impact of Covid-19 on our industry in relation to severity and duration,” Ronan said. 

“FY20 showed that our business environment can change rapidly, however it also showed that the Adairs and Mocha teams can move quickly as circumstances require and that our omnichannel model gives us a competitive advantage in all markets.”

28 Aug, 2020
Harvey Norman trims final dividend despite bumper profits
Financial Review

Harvey Norman has trimmed its final dividend despite delivering bumper 2020 sales and profits – net profit rose 19.4 per cent to $480.5 million – fuelled by demand for furniture, appliances and consumer electronics during the COVID-19 crisis.

Sales at Australian franchised stores, which stayed open during the national lockdown in April and May, soared, offsetting patchy results at company-owned stores overseas, where some shops were closed for up to 10 weeks.

The strong sales growth continued into the new financial year, with Australian franchisee same-store sales jumping 40.9 per cent in July and 35.1 per cent in August - even though 18 stores in Melbourne are closed - after growing 30.3 per cent in the June quarter. Sales in Ireland have soared 59 per cent in the year to day and New Zealand sales by 23 per cent.

Total system sales rose 7.6 per cent to $8.23 billion over the year ending June (up 7.2 per cent on a same-store basis, excluding store closures). Company-owned store sales were up 3.7 per cent to $2.07 billion and franchisee sales rose 8.9 per cent to $6.16 billion.

The strong sales growth flowed through to profits, with earnings before interest and tax, (pre changes to lease accounting standard AASB16) rising 22.9 per cent to $654.8 million, beating consensus forecasts of $644 million.

The result included $22.3 million in wage subsidies overseas and subsidies of $7.6 million for Australian franchisees as well as $9.8 million in landlord support including rent abatements.

“Globally, the 2020 financial year was a year of unique challenges," said chairman Gerry Harvey.

"The drought and bushfires last summer, followed by COVID-19, had a significant impact in the eight countries where we, or our franchisees, trade," he said.

“Pleasingly, customers continued to engage strongly with our brands and importantly, as we are in the lifestyle/home retail space, the customer was appreciative of the shopping experience, spaciousness and easy parking at the physical franchised complexes and stores, whilst embracing the ease of connection to our brands digitally and the important convenience of home delivery and click and collect.

"The results achieved in 2020, are a testament to the strength of our model," he said.

Harvey Norman paid a 6¢ a share fully franked special dividend in June after cancelling its 12¢ a share interim dividend in April to preserve almost $150 million in cash amid uncertainty over the impact of the pandemic on trading.

The company trimmed the final dividend by 3¢ to 18¢ a share, payable November 2, taking the full year payout to 24¢ - a payout ratio of 65 per cent - compared with 33¢ - a payout ratio of 110 per cent - in 2019.

The efforts to preserve cash paid off. Harvey Norman had net cash of $15.3 million at the end of the year compared with net debt of $626 million a year ago.

Sales rose in Australia, New Zealand Slovenia and Ireland over the year but fell in Northern Ireland and Singapore.

Australia was the standout, with total sales rising 8.9 per cent after a soft first-half. Ireland also did well, with sales up 20 per cent. Sales in New Zealand rose 2.7 per cent despite a weak fourth quarter, when stores were closed for almost two months.

Profits from franchising operations soared 53 per cent to $348 million as franchisee fees rose 17 per cent and the level of tactical support for franchisees plunged. Franchise margins rose to 5.8 per cent from 4.4 per cent in 2019.

Profits from company owned operations overseas rose 23 per cent to $152 million as higher earnings from New Zealand, Ireland and Northern Ireland offset weaker earnings from Singapore and Malaysia.

Harvey Norman opened six new company-owned stores overseas, mostly in Malaysia, but five stores that were due to open in the June-half did not go ahead as planned due to
government lockdowns and business closures.

It plans to open fewer than expected stores overseas this year - 12 instead of 21 - including two in Ireland, one in Croatia, and three each in Singapore, Malaysia and New Zealand.

In Australia, the group plans to open a new Harvey Norman complex at Hornsby in October and upgrade other complexes.

27 Aug, 2020
The Iconic targets cost-conscious shoppers with new outlet store
Inside Retail

The Iconic has launched a new website called The Iconic Outlet, where an assortment of men’s, women’s and kids’ fashion and sport products are available at steep discounts.

Savings start at 50 per cent off or more, with some tops priced as low as $10 and shoes as low as $15 in a special launch offer.

Brands include popular Australian fashion labels, such as Mossman, Rolla’s, Talulah, Bec + Bridge, Shona Joy, Finders Keepers, Rolla’s, Outland Denim and Cotton On, as well as major international names like Calvin Klein, Tommy Hilfiger, Boohoo, Topshop and Adidas, and The Iconic’s private label brand Atmos & Here.

More brands, categories and tech features are slated to launch in the coming months.

“[I]t’s outlet shopping unlike we’ve ever known here in Australia and New Zealand,” Erica Berchtold, The Iconic CEO, said in a statement about the launch.

While The Iconic Outlet will operate as a separate site, it will offer the same fast delivery options and seamless customer experience as the main platform. It will also allow shoppers to use the retailer’s Considered function to shop by a range of environmentally friendly and ethical filters.

The outlet store had been planned for some time, according to Berchtold, but the company decided to fast track the launch due to the changing needs of consumers and brands in the aftermath of the global coronavirus pandemic.

Like traditional outlet stores, the new online store enables brands to clear end-of-season stock and reach more cost-conscious customers who may not buy their products at full price.

DFO regional manager Michael Quinn believes affordability is front of mind for shoppers even as life gets back to normal in some parts of the country.

“As life has returned to a relative normal pace across Brisbane, we’re seeing shoppers come back in-centre, which is fantastic to see, but it is affordability which is primarily driving their purchasing decisions,” he said in a media release.

DFO Brisbane has reported an uptick in demand across its fitness, apparel and homewares categories, with the owner of one homewares retailer seeing a 10 to 20 per cent sales increase for some products.

“Pasta machines, cocktail shakers, Spanish gin glasses, craft beer glasses, pizzas stones; these are a few of the items that we’re currently selling 10 to 20 times more than normal. People have started cooking again and are loving it,” Gordon McCone, the owner of Jones & Co and Lemon Ginger Kitchenware Outlet, said.

27 Aug, 2020
Mecca makes play for Chinese market
Financial Review

Jo Horgan's cosmetics empire Mecca Brands will launch into the lucrative Chinese market on Wednesday via e-commerce platform TMall Global.

Mecca, which has 100 retail stores across Australia and New Zealand, has traditionally invested heavily in bringing niche international brands to the domestic market. With China, it will showcase Australian beauty brands to the mainland Chinese population.

"China is the second-largest premium beauty market globally, behind the United States," said Ms Horgan, Mecca's co-CEO and founder. "In three years' time it's predicted to be the number-one market. And consumer dynamics in China are changing in Mecca's favour; there's a growing interest in niche, premium brands, in more international brands."

While skincare and cosmetics in China are usually subject to mandatory animal testing, Mecca has found a loophole in selling through TMall Global, an online marketplace that accounts for more than 30 per cent of the country's beauty sales and where testing is not required.

Launching the new market in the middle of a pandemic was "not ideal", said Ms Horgan. Lack of international flights has made distribution to China difficult, and Ms Horgan will attend the store's launch for more than 100 Chinese influencers and editors via live-stream from her home in Melbourne, where she is under stage four restrictions.

"It's a new way of operating, for sure. I will be in my front room doing a live cross to Shanghai. Because we're in stage four I'm doing my own hair and make-up … and it'll probably be my daughter holding my iPhone."

Customer service, said Ms Horgan, was key to the DNA of her company.

"We have been approached on so many occasions to go internationally in different shapes and forms. Our focus has always been on the customer experience, and we have the team and operations to support that in Australia and New Zealand. We've waited until we felt it was the right time to translate that to another market."

The brand has employed a team of dedicated Chinese staff on the ground, who were trained by Chinese-speaking Mecca employees from Australia and New Zealand.

Launching with 22 brands, many of which were founded in Australia including Frank Body, Goldfield and Banks and Go-To, the store will flip Mecca's tradition of bringing international brands to the Australian market, and instead focus on presenting young Australian brands to Chinese audiences.

"We started in 1997 with seven international brands that we loved and nurtured and grew," Ms Horgan said. "The Australian customer now understands those brands. That's what we are doing in China, where Australian brands are perceived as having authenticity and high quality."

As for opening a bricks-and-mortar store in China, Ms Horgan isn't saying no. "We’re firing our bullet. We will learn, through TMall Global, everything we can about our customers and market. We will make sure our offer hits the bullseye.

"If we are successful in that, it opens up every opportunity for us. We are a bricks-and-mortar operator, and we offer something very unique in-store. We would love to replicate that in other markets. But let's crawl first and then see if we can walk and run."

27 Aug, 2020
Marks & Spencer to axe 7,000 roles

The roles affected include those in the retailer's central support centre, regional management and in UK stores. A significant proportion will be through voluntary departures and early retirement.

The retailer said there has been a “clear … material shift in trade” to online, and the redundancies will reflect that change. More colleagues will “multi-task” and transition between the retailer's food and clothing and home business.

M&S also expects to create a number of new jobs as it invests in online fulfilment, a new ambient food warehouse and reshapes its store portfolio over the coming year.

Total clothing and home revenue was down 38.5% year on year in the 18 weeks to 8 August. In the eight weeks since stores reopened, total sales have been down 29.9% compared to 2019. During that period store sales were down 47.9%, while online continued to perform strongly with an increase of 39.2% on the previous year.

It said performance had varied across the store estate: some newer, out-of-town stores are close to last year’s trading levels in recent weeks, however, legacy town centre stores and some shopping centre fascias remain “heavily impacted” by social distancing and reduced footfall.

The retailer said its clothing sales mix has undergone a substantial shift from office dressing and formalwear to casual clothing and leisurewear.

As part of its ongoing transformation strategy M&S plans to deliver a higher proportion of sales through digital channels, and it will relaunch its data and CRM platform.

The retailer has acquired 1.9 million new online clothing and home customers since the start of the year. In the last eight weeks online sales have represented 41% of total clothing and home sales.

Chief executive Steve Rowe said: “In May we outlined our plans to learn from the crisis, accelerate our transformation and deliver a stronger, more agile business in a world in which some customer habits were changed forever. Three months on and our "Never the Same Again" programme is progressing, albeit the outlook is uncertain and we remain cautious. As part of the programme to embed the positive changes in ways of working through the crisis, we are today announcing proposals to further streamline store operations and management structures. These proposals are an important step in becoming a leaner, faster business set up to serve changing customer needs, and we are committed to supporting colleagues through this time.”

The group has performed ahead of its scenario planning announced at year end in revenue and cash.

27 Aug, 2020
The Reject Shop posts profit on strong demand for ‘essential’ products
Inside Retail

Discount retail chain The Reject Shop has reported a $1.1 million profit in FY20 off the back of strong demand for everyday essentials across the cleaning, grocery, pet care and toiletry categories.

The full-year result is a significant improvement from the $16.9 million loss the company recorded in FY19 and shows that the turnaround strategy – a three-phase plan to fix, reset and grow the business – is working, according to TRS chairman Steven Fisher.

“The new leadership team has stabilised the business – the company has returned to profitability, has significantly reduced its inventory and has a strong balance sheet,” Fisher said in a statement about the FY20 results on Wednesday.

First up, fixing the business

The company is currently in the fix phase, which is all about simplifying the business and cutting costs. This can be seen in the reduction of in-store labour costs from 15.4 per cent of sales in FY19 to 14.5 per cent in FY20, thanks to a new rostering system that uses machine learning, and a 20 per cent reduction in head office jobs in April, though this added $1.5 million in one-off redundancy costs in FY20.

Occupancy costs remained flat in FY20 at around 14 per cent of sales, which the company called “too high”. Leases will be renegotiated as they come up for renewal, with 87 leases in holdover or set to expire in FY21, and another 130 set to do so in FY22. The Reject Shop has 354 locations in total across Australia.

The company has also gained operational efficiencies from its new approach to merchandising, which includes using more shelf- and floor-ready products and displaying high-volume products on the pallets they arrive on.

Later, the reset phase will involve delivering on The Reject Shop’s lowest price guarantee, homing in a smaller number of core categories and rolling out a consistent and improved store layout across the network. The grow phase will involve initiatives to improve customer loyalty and drive new customer acquisition by opening new stores and ramping up online.

Chief executive Andre Reich said there is more work to be done in the fix phase before the company can focus on the reset and grow phases, but some of the groundwork for those phases has already been laid.

Shift in sales mix

The company launched a new e-commerce site this week, and it started the shift towards more essential products in the second half of FY20 in response to an uptick in demand during the global Covid-19 pandemic.

The company reported a material increase in sales in the second half of FY20, with the cleaning, grocery, toiletry and pet care categories performing particularly well. There was also increased demand for craft and stationery products, toys, garden items, furniture, electronics, hardware and kitchen items, reflecting the fact that many consumers were spending more time at home. At the same time, there was reduced demand for traditionally strong categories, including Easter-related products, luggage, party and events and cards and gift wrap.

Overall, FY20 sales were up 3.4 per cent on the prior corresponding period to $820.6 million. Comparable store sales were up 7.1 per cent in the second half, up from 0.5 per cent in the first half, equating to a 3.5 per cent year-on-year increase.

The shift in sales mix towards lower-margin essential products rather than general merchandise contributed to a decline in gross margin by 125 basis points to 40.9 per cent. This also reflects the impact of markdowns taken on aged inventory in Q4 and the expectation of further markdowns planned for FY21, as well as the higher supply chain costs associated with higher sales in the second half.

However, reduced shrinkage helped the company grow gross profit to $342.4 million, taking into account the new lease standard. This was up on FY19.

Thanks to the cost-cutting measures outlined above, The Reject Shop grew EBITDA to $123.4 million in FY20, taking into account the new lease standard.

Excluding the new standard, FY20 EBITDA was $23.7 million, up 30.1 per cent on FY19. The company did not receive any wage subsidies under the JobKeeper program in the second half.

Statutory net profit after tax was $1.1 million in FY20. Not including the new lease standard, NPAT was $2.7 million. Either way, the company is back in the black after recording a $16.9 million loss in FY19.

Well-positioned to navigate uncertainty

The Reject Shop ended the 2020 financial year with a net cash position of $92.5 million, including $24.1 million from an equity raising, and no drawn debt. It had $70.9 million in inventory, a 30 per cent reduction on the prior corresponding period. Its existing banking facilities have also been extended from March to August 2021.

The board declined to declare a final dividend in FY20, given the recent equity raise the company’s current focus on fixing the business.

“The Reject Shop is well positioned to navigate the uncertain trading environment with its improved profitability and strong balance sheet – though there is more work to do to fix the company before we reset and grow,” Reich said.


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