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Wesfarmers chief executive Rob Scott says retail trade remains robust so far this year, but shopping patterns indicate some customers are becoming more price sensitive as they try to manage squeezed household budgets and rising energy costs.

The Western Australia-based conglomerate owns key retail brands Bunnings and Kmart, but also is pushing into lithium in its $1.9 billion Mount Holland project and new health division. 

Mr Scott told shareholders at the group’s annual meeting in Perth on Thursday Australian consumer demand continued to be supported by low unemployment and high levels of accumulated household savings, but rising interest rates and the impact of inflation were starting to affect consumer behaviour.

Mr Scott said Wesfarmers was well-placed to meet shoppers’ needs as they looked for value, and the combined sales growth for Kmart and Target in the year-to-date was strong, even when adjusting for the impact of lockdowns a year ago.

“Kmart’s market-leading value and low price points position it to meet customer needs and profitably grow its market share in an environment where shoppers are more focused on value,” he said.

“Target continues to benefit from good progress in delivering on quality and style at affordable prices.”

Mr Scott said at hardware giant Bunnings, sales in recent months had been hurt by the wet weather, but overall sales growth for the year-to-date remained resilient and supported by strong demand from commercial customers. DIY sales growth was positive, but moderated from the high levels experienced through COVID.

Officeworks’ sales for the year-to-date remain broadly in line with the prior year, while the industrial and safety division has continued to improve, with sales growth recorded across all business units through the year-to-date.

Sales at Catch marketplace have declined so far this year following a surge in pandemic-led spending a year ago for most online players. But Catch was a serious underperformer for Wesfarmers in its first half of 2022 when sales fell 4.3 per cent and earnings were hit by more discounting.

The newly appointed Catch CEO, Brendan Sweeney, joined this month and will focus on improving the customer offer while managing the ongoing investment program to support scalability and growth.

Mr Scott called the 2023 year “foundational” for the OneDigital division as the vertical invests in systems and capabilities to support its data and digital ambitions. Wesfarmers expects OneDigital to post an operating loss of $100 million for the financial year, excluding Catch.

Mr Scott said the chemicals, energy and fertilisers division had continued to benefit from strong customer demand and elevated commodity prices, and development of the Mount Holland lithium project was progressing well.

In about two years, Wesfarmers will be selling lithium hydroxide, refined at Kwinana in Western Australia, to support the accelerating global uptake of electric vehicles.

“Each year, the production from our lithium hydroxide project, on a 100 per cent basis, will be equivalent to powering 1 million battery electric vehicles, resulting in annual savings of around 1.8 million tonnes of emissions,” Mr Scott said.

Chairman Michael Chaney said hopefully there would not be a recession in Australia, albeit “we will likely have a slowdown in economic activity from next year”.

Mr Scott warned that elevated supply chain costs, rising wages and surging utilities, together with a weak Australian dollar, would impact the group’s businesses in the 2023 financial year.

But overall the Wesfarmers’ balance sheet is strong and holds a diverse portfolio of high quality, cash-generative businesses, so it is well-placed to weather any storm next year.

“While there are some risks on the horizon – including elevated inflation, rising interest rates and geopolitical tensions, I continue to believe that Wesfarmers is well positioned for this environment and has the capacity to effectively manage a range of economic scenarios,” he said.

Speaking after the meeting attended by almost 900 shareholders, Mr Scott said rising power bills were a key component of the cost pressures being faced by Australian households.

“The cost pressures on consumers are increasing, and energy cost are a key part of that and I think that is why we are already starting to see consumers be more value conscious,” he said.

Asked if he expected Bunnings earnings to come under pressure with inflation hitting 7.3 per cent, a softening in house prices and post the DIY boom during COVID-19 lockdowns, Mr Scott said the hardware chain had shown itself to be resilient business through economic cycles.

“In tough markets, consumers put a greater focus on price and value so often in the tougher markets Bunnings tends to outperform,” he said.

“Like any retail business, we are not immune from a slowdown in the economy, but we feel Bunnings is a very resilient business and well-prepared in a downturn.”

Myer has commenced its “biggest transformation” in store technology in recent years, with the move set to see a 20% reduction in transaction times. 

The 18-month transformation will deliver new Zebra TC57X mobility devices and new NCR point of sale to all stores.

The mobility devices are aimed at improving receiving and dispatch, stock take, online fulfilment and inventory enquiry/pricing.

Its “One Device Strategy” will see all core business applications bundled into the Mobility device, including a new Push-To-Talk application which will connect team members across the store.

The NCR point of sale registers will be rolled out in FY23 with new software, which is expected to enhance customer experience at the checkout.

This is in addition to Myer’s leading M-Metrics team member application, which provides team members with real-time digital communications, product knowledge and performance recognition. The app displays customer feedback and provides a wide range of learning moments, including video content.

“Myer is embarking on our biggest transformation of store technology in recent history, ensuring a better experience for customers in store,” Myer GM of retail operations Gary Stone said.

“Our new registers will ensure simpler and quicker transaction times – approximately 20 percent faster, and through our new Zebra devices we can provide on-the-spot assistance with stock availability, as well as team members being able to connect to provide faster service and assistance to our customers.

“This step-change in technology will ensure Myer remains Australia’s favourite and most trusted department store into the future.”

Store transformations

As well as improving in store technology, Myer is also preparing for continued refurbishments and strategic footprint reduction in FY23.

Toowoomba and Albury stores have recently seen refurbishments, with a re-layering taking place at Chadstone and Fountain Gate. There is further space optimisation planned at an extra 17 stores in FY23.

Through strategic footprint production, Myer has closed Knox and Blacktown in 2022, with space reductions conducted in Toowoomba, Chermside and Eastland stores.

Its Frankston department store has been scheduled for closure in January 2023.

In total, Myer has exited or announced a reduction of 119,534 square metres GLA (11.1%) of space since the first half of 2018, with a further 69,000 square metres in preparation.

The company cites the reducing of CODB as the reason for these strategic store closures.

The Medibank cyberattack has taken the heat off a data breach at Woolworths’ new online marketplace, MyDeal, but retailers remain on high alert after a string of hacks that have stolen the data of more than 16 million consumers in a month.

With their reams of personal and credit card data from loyalty schemes, e-commerce sites, online marketplaces, subscription-based delivery services and point of sale systems, retailers have emerged as irresistible targets for hackers.

The shift from cash to credit cards and digital wallets, and the implementation of multiple technologies as retailers digitise their operations and move from bricks and mortar to online, have given cyber criminals ever more ways to exploit the sector’s defences.

Cybersecurity experts say the $400 billion sector’s so-called “attack surface” – the outward-facing parts of their business that can be accessed and exploited – is growing as retailers seek to boost sales by making more targeted offers to customers, collaborate with suppliers and partners, and reduce costs by implementing new data-driven technologies.

“The breaches we’ve seen recently are a wake-up call for all businesses to ensure they’re doing everything they can to safeguard customer information,” says Australian Retailers Association chief executive Paul Zahra. “Cybersecurity remains a huge focus for retailers and will require ongoing attention.”

Arjun Ramachandran, principal at cybersecurity firm elevenM, says retailers are being specifically targeted because they hold large stores of valuable data, and their data protection and cybersecurity systems might not be as robust as those in other sectors such as banking and telecommunications.

“Retailers have always had to hold and handle financial and transactional data like payment information and credit cards, but the recent breaches have illuminated the broader value of the customer data they hold to hackers and attackers,” Ramachandran says.

While four million Medibank Private customers are understandably worried about the theft of confidential health information, major retailers such as Woolworths, Coles, Wesfarmers, Endeavour Group and Myer are storing vast amounts of customer data that is equally sensitive, ranging from their names, addresses, phone numbers, drivers’ licences and date of birth to the pharmaceuticals and health care products they use, the amount of alcohol they consume and even the size of their bras and underpants.

Retailers claim their loyalty data is de-identified, but if their systems can identify customers by name and email address and track their spending, it’s not hard to imagine increasingly sophisticated hackers will find ways to put two and two together.

“De-identification is not a panacea,” says Ramachandran. “There’s plenty of research showing that information that’s been purportedly de-identified has been very readily re-identified. That’s an incredible risk.”

Ten years ago The New York Times published an article revealing that US retailer Target was using predictive analytics to pinpoint when customers became pregnant – even before they had told their families – and predict their due date based on changes in their spending habits. Target sent them coupons and offers including discounts on maternity wear, vitamins and nappy bags.

Most large retailers are now using predictive analytics to track and forecast customer spending, but to do so accurately they need more customer data. This data is gold in the hands of cybercriminals, who sell the information on the dark web, rack up bills on credit cards, steal identities to commit other crimes, or withhold the data and hold companies to ransom.

Customers trust their data will be protected and when this trust is broken, they are likely to stop scanning loyalty cards – depriving retailers of precious insights – or stop shopping with the retailer altogether.

Hackers moved too quickly

It’s too early to tell if the cyberattack on online marketplace MyDeal, barely a month after Woolworths acquired an 80 per cent stake, will deter customers and lead to a decline in sales.

Woolworths’ chief security officer Pieter van der Merwe, told The Australian Financial Review last week the retailer had started strengthening MyDeals’ cybersecurity systems after identifying areas of weakness during due diligence for the acquisition.

But the hackers moved too quickly, breaching MyDeal’s customer relationship management system in mid-October. About half of the 2.2 million customers affected had their email addresses exposed. For the other half, names, phone numbers, addresses and birthdates were exposed, but no payment details, passwords, drivers’ licences or passport details were accessed.

Woolworths chief executive Brad Banducci apologised at the annual meeting on Wednesday, saying the retailer took cybersecurity and data privacy seriously.

“We were weeks away from all the remedial action being done to lift it to the standard we would expect at Woolworths. It wasn’t that it was a poor standard, but there were things to be done,” Banducci said.

“But as a major public company, we are going to be targeted. Going forward, if we ever found ourselves in this situation again, we’d make sure that at the point of completion it was at our standard, the work was under way to get to our standard. So, it has been a real lesson for us.”

Woolworths is doubling its spending on cybersecurity and core IT, testing APIs (the apparent entry point hackers used to penetrate Optus’ defences), testing penetration protections and reviewing all its datasets and data retention policies.

“This is an area we have to be absolutely vigilant over all the time and you can’t relax,” said outgoing Woolworths chairman, Gordon Cairns.

Coles is also reviewing cybersecurity following the MyDeal, Optus and Medibank and Vinomofo attacks.

“As soon as something happens we look at what’s happened and are we exposed in the same way or not,” says Coles chief executive Steven Cain.

“It’s a continuous investment program. No one is bulletproof. The hackers are becoming more sophisticated over time as well.”

Many major companies, including Coles, benchmark themselves against the Australian Cyber Security Centre’s Essential Eight framework, which outlines a minimum set of preventative measures designed to make it harder for adversaries to compromise systems.

However, Essential Eight will not mitigate all cyber threats and the ACSC says organisations may need to implement additional measures and security controls where they are warranted by their environment.

The Essential Eight mitigation strategies include patching applications and operating systems, restricting administrative privileges, regular system backups and implementing multifactor authentication, including one-time codes to supplement passwords and usernames.

“A lot of organisations recognise its value and commit to applying it, but many find it difficult to achieve full maturity against all eight measures,” says Ramachandran.

It appears that in the Medibank and MyDeal attacks, data was accessed by unauthorised users using “compromised” or through stolen credentials. This suggests multifactor authentication was not implemented, or the hackers found ways to bypass these protections, perhaps by accessing the details of a contractor or supplier with access to systems.

Nine years ago, US retailer Target’s point-of-sale systems were breached when the user account of an air-conditioning mechanic was compromised. The attackers used his account to work their way through other systems, eventually stealing customer credit card details.

Many retailers rushed to digitise and enable employees and suppliers to work from home and access their systems remotely during the pandemic, opening up more potential points of attack.

“Supply chain security is really hard one – it’s hard enough for organisations to understand their own organisation’s security and fix it, now they have to think about the suppliers they’re using as well,” says Ramachandran.

Experts say multifactor authentication is crucial, but retailers also need to invest in training so employees, contractors and suppliers are aware of risks such as phishing emails designed to steal passwords and suspicious behaviour, such as staff seeking more access to sensitive information and systems. Retailers should also adopt the concept of least privilege, where individuals only have access to systems they need to do their jobs.

While MyDeal, Medibank, Optus and Vinomofo have attempted to absolve themselves of blame, pointing the finger at cybercriminals, consumers will hold businesses accountable for safeguarding the data they hold and will punish those that fail to protect it.

If the loss of customer trust isn’t punishment enough, hefty remediation and compensation costs, the potential loss of precious customer data and new fines ranging from $50 million to as much as 30 per cent of revenues might prompt retailers to take cybersecurity even more seriously.

Multi-brand fashion retailer Mosaic Brands says sales have increased 64 per cent since the start of this financial year driven by the rebound of in-store shopping.

The group owns labels including Katies, Millers, Noni B, Rivers, Rockmans, Crossroads, Autograph, W Lane, EziBuy and Beme.

In an ASX filing, the business reported in-store comparable sales for the first quarter were registered at 22 per cent, as sales momentum was unimpeded by the impact of Covid-related lockdowns.

“Notwithstanding our strong rebound of in-store shopping, we have seen our online brands, excluding EziBuy, buck this national trend and achieved comparable sales flat to the previous corresponding period or the first quarter.”

Last year, the business agreed to purchase the remaining 49.9 per cent of EziBuy for $11 million. EziBuy is one of the largest multi-channel retailers in Australia and New Zealand, generating approximately NZ$135 million of revenue, of which over 80 per cent is through its digital platform.

“The EziBuy brand has performed in line with its peer pureplay online retailers, with year-to-date sales up 42 per cent.”

The business says it is “well-positioned” for the Christmas trading period and is well-stocked with fresh summer collections in line with expected trade demand.

Amazon on Thursday forecast a slowdown in sales growth for the holiday season, disappointing Wall Street and warning that inflation-wary consumers and businesses had less money to spend.

Amazon’s 12 per cent extended-trade stock drop erased about $140 billion in its market capitalisation, greater than the entire value of companies such as Morgan Stanley, Netflix and Lockheed Martin.

For months, the world’s biggest online retailer has fought against troubling macroeconomic tides. It hosted not one, but two cornerstone sales events in a year: Prime Day in July, and the Prime Early Access Sale this month.

For the summer event, it sold more items than ever before to its Prime loyalty shoppers, and, meanwhile, the company sought revenue from higher Prime subscription fees and a surcharge on some merchants.

Net sales were $127.1 billion in the third quarter that ended Sept. 30, still a little lower than the $127.5 billion analysts expected, according to IBES data from Refinitiv.

But the macro outlook has not brightened. In a call with reporters, Amazon Chief Financial Officer Brian Olsavsky said the company was bracing for slower economic growth.

“We are seeing signs all around that, again, people’s budgets are tight, inflation is still high, energy costs are an additional layer on top of that caused by other issues,” he said. “We are preparing for what could be a slower growth period, like most companies.”

European consumers in particular have spent less than their American counterparts, pinched by the war in Ukraine and higher fuel costs, which likewise increased Amazon’s expenses, he told reporters and analysts. The company’s international-segment operation loss widened to $2.5 billion in the third quarter from $0.9 billion a year prior.

While Amazon would continue to fund earlier-stage businesses like its lucrative cloud-computing and advertising divisions, it would question costs elsewhere and proceed carefully on hiring, Olsavsky said.

Wedbush Securities analyst Michael Pachter said, “It’s possible that retail sales will decline year-over-year. I don’t actually believe that will happen, but the market definitely doesn’t like it.”

Amazon forecast net sales of between $140 billion and $148 billion, or growth as little as 2 per cent from a year earlier. Analysts were expecting $155.2 billion.

Prior holiday quarter sales growth was 9 per cent in 2021 and 38 per cent in 2020.

Cloud misses

Across the retail sector, US online sales are expected to rise at their slowest pace in years this holiday season. Consumer goods company Unilever PLC likewise believes “sentiment in Europe is at an all-time low,” its chief financial officer said earlier.

Results in the tech industry were just as poor this week for cloud-computing rivals Microsoft Corp and Alphabet Inc’s Google, adding to recession fears. US consumer confidence did a U-turn in October.

“Big tech companies are not impervious to slowdowns in the economy, particularly if they are consumer driven,” said Rick Meckler, partner at Cherry Lane Investments in New Jersey.

Amazon Web Services (AWS), the company’s lucrative data-storage and computing division serving enterprises, only helped so much. While it provided much-needed operating income, just like rival Microsoft’s Azure cloud, Amazon fell short of estimates.

Amazon’s cloud sales growth has ticked down consistently in the past year. Net sales there grew 28 per cent in the July-September period versus 39 per cent a year earlier, when adjusted for changes in foreign exchange.

Paolo Pescatore, analyst at PP Foresight, said, “With so much unpredictability there is huge concern, which is impacting confidence among enterprises to invest. In turn, it is hitting the broader cloud sector and companies such as AWS and Azure.

Facing high inflation and receding consumer demand, Amazon’s Chief Executive Officer Andy Jassy has raced to control costs across the company’s vast array of businesses.

Amazon has slowed warehouse openings and refrained from filling some open positions. It announced it would shut down its virtual healthcare service by year-end, and it is scaling back a long-touted effort to deliver goods via small autonomous sidewalk cars

Still, worldwide shipping costs grew 10 per cent in the third quarter to $19.9 billion. Amazon’s net income also decreased to $2.9 billion in the third quarter, while beating analysts’ average estimate of a $2.2 billion profit, according to IBES data from Refinitiv.

In a statement, Jassy said, “There is obviously a lot happening in the macroeconomic environment, and we’ll balance our investments to be more streamlined without compromising our key long-term, strategic bets.”

Trans-Tasman electronics retailer JB Hi-Fi says it is “pleased” with its first-quarter performance as it built continuing sales momentum across the business.

For the three months to September 30, sales growth compared with the June quarter was 14.6 per cent for JB Hi-Fi Australia, 12.3 per cent for The Good Guys and 27.7 per cent for New Zealand.

However, when compared with the same quarter a year earlier, like-for-like sales were down 7.9 per cent in Australia, 6.4 per cent in New Zealand and 6.1 per cent at The Good Guys.

Group CEO, Terry Smart, said that in an uncertain retail environment with household budgets under increasing pressure, customers gravitate to trusted value-driven retailers.

“Our ongoing strategy of providing customers with the best value and outstanding service every day will ensure our brands continue to deliver for our customers.”

Analyst Ben Gilbert, head of Australian research for Jarden, said there are few signs of a slowing in overall consumer spending and he expects JB Hi-Fi to trade well over Christmas.

“Our industry discussions suggest the market remains rational, with the mix unchanged, suggesting gross merchandise sales likely in line with the previous corresponding period.

“High-frequency data suggests household goods trends are moderating with house prices as one of the single biggest drivers of spending.”

As businesses recover from the disruption of the pandemic, new research shows Australians prefer the online shopping experience more than that inside bricks-and-mortar stores.

The annual Retail Monitor survey from the Australian Consumer and Retail Studies (ACRS) unit of Monash Business School found that customers preferred online shopping due to product availability, promotions, product ranges and sales.

In the three months to September this year, about 70 per cent of Australians purchased clothing, footwear and accessories in-store or online, 49 per cent personal care items and 42 per cent household items.

Eloise Zoppos, a principal research consultant at the ACRS, said prior to the pandemic a “clear divide” between physical and online shopping experiences was common amongst shoppers.

“During Covid, online became the main non-grocery retail channel out of necessity and the majority of Australian shoppers turned to online methods.

“We’re now seeing the return of a preference for physical stores and shoppers are moving between the offline and online worlds more seamlessly than ever before.”

Alongside purchases, the survey also found that customers were more likely to return items bought in-store (about 66 per cent) compared to online (at 42 per cent).

Zoppos said it is “increasingly important” now that retailers provide shoppers with a “seamless returns experience” in order to meet expectations.

“Rather than seeing returns as a problem, retailers should look at returns as an important stage of the customer journey – when done right will result in customer loyalty, advocacy, and a cycle back to the purchasing stage.”

Anna Carrabs has stepped down as the CEO of Australian furniture retailer King Living, after seven years in the role.

The Australian-owned company manufactures and sells indoor and outdoor furniture.

“It has been a privilege to have been the leader of a company that has grown and prospered and to have worked with a team that has helped create the platform for the future growth of the company,” said Carrabs.

David Woollcott has taken over operations from Carrabs and will move back to Sydney from the UK at the end of November.

“King Living has a remarkable history, true design and engineering pedigree and an extraordinary future ahead of it,” he said.

Myer has released its annual Christmas marketing campaign, with catchlines including 'Grab Christmas by the baubles'.

Myer CCO Geoff Ikin said the creative encourages Australians to embrace the chaos of the Christmas season. 

“The campaign has been created to cut through the noise in typically the most cluttered media environments at Christmas," he said.

"It's fun, engaging, irreverent and offers what our customers love – a little surprise and delight. Australians love to celebrate Christmas, and so do we!”

The campaign, 'Let the Season be the Reason', launches with a film that is set on Christmas eve.

The assets will be delivered across TV, BVOD, OOH, digital, social, online, in-store VM, gift wrapping and team member uniforms.

Campaign tag lines include; ‘Stuff the turkey, stocking and self-control’, ‘Grab Christmas by the baubles’, and ‘Deck the halls, kitchen and living room’.

"When it comes to Christmas no one does it better than Myer," Ikin said.

This year we’re approaching the festive season with more confidence than ever knowing Myer is unmistakably the trusted home of all Christmas gifting and entertaining needs. 

“From our much-loved Melbourne Christmas Windows, which will feature iconic scenes in celebration of Disney’s 100 years of wonder, to our national Santalands, curated Giftoriums and our Myer one VIP shopping nights, we are there to help our customers celebrate this festive season.”

Japan’s Fast Retailing Co, owner of clothing brand Uniqlo, is expected to post a record annual profit on Thursday as the yen’s slump has boosted the value of its overseas sales even as soaring living costs dampen prospects for retailers.

The company, Japan’s biggest retailer, has posted strong performances in North America and Europe in the first three quarters of the fiscal year that ended in August, but investors will look for signs of a recovery in China, its biggest foreign market with nearly 900 stores.

Operating profit for the fiscal year is expected to rise nearly 17 per cent to 291 billion yen (US$1.99 billion), according to an average of 12 analyst estimates from Refinitiv. Fast Retailing has forecast 290 billion yen.

That would exceed the previous profit record of 263 billion yen in the year ended in August 2019.

For the fourth quarter, analysts expect a 7 per cent drop in profit.

The company, founded by Japan’s richest man, Tadashi Yanai, is a bellwether for global retailers operating in China, the world’s second-biggest economy but where sales and profits have been hurt by strict Covid-19 control measures.

As its Chinese operations slumped, Fast Retailing has put increased focus on North America and expects to turn an annual profit in the region for the first time this year.

But even in the United States and Europe, people are avoiding shopping for clothes, hurting sales at companies including H&M and prompting retailers to slash prices to clear inventory.

“China is continuously failing to live up to the company’s expectations and the only factors holding Uniqlo’s share price from breaking down are the North America growth and the yen depreciation,” LightStream Research analyst Oshadhi Kumarasiri wrote in a report on the Smartkarma platform.

“Those too are now under threat, with a looming recession and Fed rate hikes failing to curb inflation,” he said.

The yen slid to a fresh 24-year low against the dollar on Wednesday. Fast Retailing’s shares are up 18% in 2022, compared with an 8.5 per cent drop in the benchmark Nikkei index.

Yanai, who founded the company and owned about 21 per cent of it as of February, and his family had a net worth of $23.6 billion as of May, according to Forbes.

Seven & I Holdings, another Japanese retailer with a large US footprint, raised its full-year profit forecastlast week, citing the weak yen and strong fuel sales at its convenience stores in North America.

Infant and baby goods retailer Baby Bunting says its first-quarter performance has been “below expectations” in a trading update.

In the year-to-date data to October 7, sales grew 12 per cent, with transactions up by 15.2 per cent.

Comparable-store sales growth was 7.6 per cent while online sales represented 19.6 per cent of overall revenue, compared to 28.6 per cent in the same period last year.

At the company’s annual meeting, Matt Spencer, Baby Bunting’s CEO & MD, said the retailer is currently focused on growing its market share, emphasising on providing “value” in a competitive environment.

“Over the last few years, we have made significant gross margin gains. However, in the first quarter, the gross profit margin was 37.2 per cent, which is down 230 basis points against the first quarter of FY22.

He added the business has suffered “unrecovered cost increases” where input costs have risen faster than retail prices like higher domestic freight charges and foreign exchange movements.

“Given the continuing economic uncertainty, inflationary pressures and other global challenges, we will not be providing any further guidance about FY23 earnings at this time.”

The retailer opened three new stores during the first quarter and anticipates opening another five this year. A Baby Bunting marketplace will be launched in the second half of this year.

Asos, the one-time British poster child for the shift to online fashion retailing, will overhaul its business model after the economic crunch and a string of operational problems hammered its profits.

New CEO José Antonio Ramos Calamonte said that while Asos’s core business in the UK remained strong, returns from its international operations, particularly from the United States, were unsatisfactory and needed to be addressed.

He vowed to re-vamp Asos’s “inefficient” supply chain, find a way to re-engage its 20-something customers, better leverage its data, cut costs and refresh its culture.

“The plan over the next 12 months is going to be focusing on simplifying the business and making it more resilient and more flexible,” Ramos Calamonte told Reuters.

“We want to be able to deliver more relevant stock and faster to consumers.”

Shares in Asos were up 8.8 per cent at 1138 GMT, as investors welcomed the shift and a new deal with lenders, paring 2022 losses to 78 per cent.

Asos and rival Boohoo grew rapidly as young customers around the world snapped up their fast fashions, and demand surged again during the coronavirus pandemic when high street rivals were closed.

But supply chain issues, increased competition and the sharp downturn in the economy have badly affected its business model. The perennial problem of managing customer returns has also weighed on the business.

Ramos Calamonte said he was committed to free returns.

Boohoo, which does charge for returns, warned on the outlook last month.

ASOS made adjusted pretax profit of 22 million pounds (US$24.9 million) in the year to Aug. 31, in line with guidance that was lowered last month and down from the pandemic boosted 193.6 million pounds made in 2020-21.

It forecast a first half loss as it cuts prices to clear old stock, requiring a non-cash write-off of up to 130 million pounds. Some 40 million pounds of other restructuring charges will also be booked.

In the second half, ASOS will begin to operate with lower stock levels as lead times on orders and deliveries are reduced. It would also benefit from reduced freight rates and cost cuts.

ASOS did not give profit guidance for the full year. Prior to the update, analysts on average were forecasting an adjusted pretax profit of 61 million pounds.

It said while trading was volatile, September had showed a slight improvement relative to August.

Ramos Calamonte said that with cash and facilities of more than 650 million pounds, ASOS had ample room to manoeuvre and did not need another equity raise.

Capital expenditure for 2022-23 was guided at 175-200 million pounds, down from 200-250 million pounds, with the phasing of automation projects under review.

The CEO said he was not concerned by the threat of a takeover bid and did not obsess over the share price.

Jewellery and apparel sales are leading the post-pandmic purchase charge, according to the latest Mastercard SpendingPulse. 

Jewellery sales were up 107% in August compared to a year ago, with apparel coming up 83%. 

Overall retail trade increased 25.1% in August compared to the same month last year, while sales were also up 27.4% compared to pre-pandemic levels. 

The data, which measures in-store and online retail sales across all forms of payment, showed most retail categories recorded significant year on year sales growth. 

Australian Retailers Association CEO Paul Zahra commented that retail sales have strong momentum for now but cautioned there could be a slowdown in spending as we head into 2023.

“In August last year, our two largest states were in lockdown, so it’s not surprising to see discretionary retail categories record such significant growth compared to 12 months ago. What’s pleasing though is that sales are also up compared to pre-pandemic levels across most retail categories,” Zahra said.

“While consumer spending is strong for now, the concern is that we haven’t seen the full impact of the interest rate hikes hit household budgets. According to the government, inflation is also yet to reach its forecast peak, so we could see a softening of sales as we head into 2023.

“While the retail sector is performing well overall from a sales perspective, the results remain uneven with small businesses more acutely challenged by inflationary impacts and rising costs associated with fuel, energy, supply chains and rent. The government’s fuel excise cut is also about to come to an end, adding further pressure to businesses and consumers.

“It’s incredible to see retail sales perform so well in the face of cost-of-living pressures, however the coming months could prove to be more challenging with household savings starting to erode and mortgage holders being squeezed even tighter,” Zahra said. 

Retail spending remained buoyant in August, rising 0.6 per cent to a record $34.8 billion despite the Reserve Bank of Australia embarking on the most aggressive interest rate hiking cycle in almost three decades.

The larger than expected result was the eighth consecutive monthly rise, and suggests households are yet to feel the full brunt of the RBA’s four back-to-back interest rate rises to the start of the month.

Commonwealth Bank senior economist Belinda Allen said the strength in spending was likely due to a delay in higher borrowing costs being passed on to mortgage holders.

“In August households on floating rate mortgages only just began feeling the May 25 basis point rate hike,” Ms Allen said, adding that the lag time for customers of the nation’s largest lender was about three months.

Barrenjoey chief economist Jo Masters said sales should remain strong until the end of the year, bolstered by the strong labour market, wages growth and the flow of tax offsets and refunds.

“We expect this current strength in retail trade will weigh on future growth in consumption in 2023 as consumers run down the flow of household savings and the full force of monetary policy begins to bite,” she said.

Rachel Turner, cofounder of rock candy maker Sticky, said her store in the Rocks in Sydney was still trading solidly above pre-pandemic levels, which she hoped would continue into the new year.

“Downturns have always been OK for us because people say: ‘I may not be able to afford my mortgage but, damn it, I can afford a bag of lollies.’”

Ms Turner, who founded the company with her husband about 20 years ago, found success internationally during COVID-19 thanks to her candy-making videos becoming popular on social media. Sticky now has 6.5 million followers on TikTok and more than 2 million on YouTube and Facebook.

While lockdowns effectively ended all retail income for the small business, a surge in overseas orders from the United States not only helped keep the company afloat, but also exit the pandemic in a stronger position.

The development of a strong US customer base is now bolstering revenue as a falling Australian dollar against the US greenback increases the purchasing power of overseas customers.

“With the Aussie dollar coming down, people are buying more from the Australian store (online),” Ms Turner said, and while Sticky does now have a US footprint, online shoppers prefer candy made Down Under.

But inflation and higher borrowing costs are pushing up wages as the firm fights to attract and retain staff in the extremely tight labour market.

Wages rose by 4.1 per cent year-on-year in August, according to the Xero Small Business Index, led by construction and manufacturing salaries. It was the second-highest result since the series began in January 2017.

“Whilst faster wage increases add to running costs, higher wages also reflect the underlying health of the small business sector,” said the cloud accounting platform’s chief economist, Louise Southall.

The overall index, which is compiled using anonymised data from Xero customers, rose 7 points over the month, following a sharp slump in June. The rise was attributed to an increase in jobs, wages and a 16.3 per cent bump in sales over the preceding 12 months.

Overall retail sales are up almost 20 per cent over the same period, according to the ABS.

Growth in August was driven by food categories: cafes, restaurants and takeaway food services were up 1.3 per cent and food retailing was 1.1 per cent higher.

How much of this was due to turnover versus inflation will become clearer on Thursday with the release of new monthly inflation data. Food and non-alcoholic beverages inflation hit 5.9 per cent in the year to June 30.

The prospect of David Jones falling into new ownership has kicked up a notch, with the boss of its parent company telling investors that all options are on the table regarding the department store’s future.

Chief executive of South African retailer Woolworths Holdings, Roy Bagattini, said in the company’s annual report that DJs was now in “better shape than it had been in some time”, paving the way for it to consider how best to return value from David Jones back to Woolworths Holdings’ shareholders.

“David Jones is now debt free, self-funding, and has a clear road map to improving profitability,” he said.

“We are in a favourable position to explore all future options in respect of this business, and how best to further unlock value for the Group and our shareholders.”

Speculation about the sale of David Jones emerged after the company’s full year financial results in September.

It also reignited the prospect of David Jones and its rival Myer being owned by one entity, since any private equity interest in David Jones could also be tempted to snap up Myer.

Bagattini also told his investors that there would be no more capital flowing from its South African business to help David Jones, noting the company had “repatriated” 1 billion rand ($86.2 million) from David Jones during the year.

Woolworths Holdings’ ownership of David Jones Group includes the department stores and the apparel brands under the Country Road Group banner, including Country Road, Witchery and Trenery.

The company’s annual report suggests Woolworths Holdings sees more potential in these clothing brands and wants to hang onto them for the longer term.

“[Country Road Group] has a portfolio of leading Australian brands, and as the country’s preeminent omnichannel player, with a strong growth trajectory, we expect it to become an even bigger part of our group going forward,” Bagattini said.

David Jones reported a 2.6 per cent drop in turnover for 2022 as lockdowns affected results. Operating profit came in at $83.7 million.

By comparison, fellow department store Myer recorded its best numbers since 2017, with a 5.7 per cent profit jump to $49 million.

Myer’s toughest critic, retail billionaire Solomon Lew, told this masthead last week that Myer still has more work to do to turn around the business.

Lew’s Premier Investments, which owns close to 23 per cent of Myer, will nominate former Myer Grace Bros boss Terrence McCartney as a director at Myer’s annual general meeting in November.

David Jones declined to comment on a possible sale of the business but said its stores were in a strong position for growth.

“David Jones’s current Vision 2025+ strategy is delivering on its turnaround, with a solid profit, a strong balance sheet, and its status as a self-funding business underpinning its capacity for future growth and innovation,” a spokesman said.

Steve Madden is preparing for future growth through new category launches and concept stores in Australia according to Signal Brands, the licensee for Steve Madden in Australia.

Speaking with Ragtrader, Signal Brands marketing and PR manager Casey Pascoe-Webbe said extending Steve Madden’s category offering in the country is the “number one” priority. This is followed by growing its wholesale partners and opening “more and more” doors.

Currently, Steve Madden sells footwear and handbags with Signal Brands Australia.

"Each brand at Signal Brands Australia - Steve Madden, Guess and Nine West - have their own team that follows international guidelines for each brand,” Pascoe-Webbe said.

"In the case of Steve Madden, our product range will be extended towards the end of the year to include hats, watches and eyewear.”

According to Pascoe-Webbe, the eyewear range is pending Australian regulation sign off.

As the licensee for Steve Madden in Australia, Signal Brands operates Steve Madden and Madden girl labels. Pascoe-Webbe said that it also works on Dolce Vita “from time to time” for its wholesale partners.

She also noted that Steve Madden harnesses three core customer demographics: an “on-trend girl”, a “pump girl” and a “sneaker girl”.

According to Pascoe-Webbe, Steve Madden’s online market in Australia “generally hits that on-trend girl” as she is likely to wear boots all year round.

In regard to the price points of its Steve Madden range, particularly online, Pascoe-Webbe said there is a gradual curve upwards “for all the usual reasons.”

“I guess the customer can tolerate those increases though - because the brand personality and the cutting edge styling of Steve Madden footwear, in particular, always wins out with that customer.

“The Signal Brands Australia/Steve Madden website has always been a leading online channel for Steve Madden.

“We're driven really heavily by our socials - we invest really heavily in our online marketing as well - but our social and organic following is really real.

“That's where we see a lot of our growth coming from.”

As well as focusing on new categories, Pascoe-Webbe said the brand is also expanding its physical footprint.

Recently, Steve Madden opened a new concept store in Doncaster, Victoria, with another on the way for Shellharbour in NSW in November.

The new concept for these stores are seen in its “elevated finishes,” while still retaining the Steve Madden brand identity, Pascoe-Webbe said.

“So it's a mixture - or fusion - of different substrates. We've got metals, backward terrazzo; backs with iridescent walls, really large LED screens, and neons that talk about the brand personality.”

Currently, Steve Madden has six standalone stores across Australia, and a “handful” of factory stores as well. This includes a new outlet opening in Canberra. Its products are also stocked in David Jones, Myer, The Iconic, and "a number of" chain store streetwear retailers.

“So it's very much around the footprint of the store,” Pascoe-Webbe explained, “from the owned retail channel perspective.”

“Signal Brands is on quite an aggressive store opening growth strategy on a whole, actually.”

As well as new locally opened stores, Steve Madden is also preparing to launch another in Dubai Mall in the UAE “in the coming months.” It will be the same concept as those launched in Sydney and Melbourne.

“The Dubai Mall store is unrelated to the Signal Brands Australia operation, although we all are custodians of the Steve Madden brand,” Pascoe-Webbe said. “But it really takes that whole elevated, but still on-brand, experience that one step further.

“They've got chainmail walls, full iridescent walls, stadium style revolving LEDs. So globally, we're really excited to be right on the forefront of what's happening with the brand.”

“We're really thankful at Signal Brands Australia that it has continued to trade really strongly throughout.”

The Myer board led by JoAnne Stephenson has challenged Solomon Lew’s Premier Investments to make a full takeover for the retail company instead of creeping up its share register.

The board also declined to back the appointment of Terry McCartney, the billionaire’s long-time lieutenant, to the department store as a non-executive director.

In a tense exchange of letters before the November 10 annual general meeting, Premier Investments did not agree to Myer’s plea to stop buying shares unless a full takeover offer were made; it called the request “surprising and inappropriate”.

Mr Lew has been a thorn in Myer’s side on and off since the 1990s. His Premier Investments has been buying the maximum allowed – 3 per cent every six months – and has doubled its stake to 22.87 per cent from 10.77 per cent in July 2021.

Mr McCartney is a non-executive director of Premier and its wholly owned subsidiary, Just Group. He joined the Just Group board in 2008.

In August Myer said Mr Lew was seeking a board seat in his target. Mr Lew declined to comment on Monday.

On Monday, Myer revealed in its AGM notice to shareholders that it had written to Premier on September 7, raising concerns about a conflict of interest and possible sharing of confidential information.

Premier responded on September 20 that if Mr McCartney were to join Myer’s board, it had no expectation he would share any confidential information with Premier.

Premier declined to comment on Myer’s policy that at all times the majority of the board should be independent directors with an independent chairman.

Premier also did not agree to a standstill on buying shares, labelling the request as “surprising and inappropriate”, Myer’s statement said.

In notes accompanying the AGM notice, Myer said: “The board has therefore not made a recommendation as to whether shareholders vote in favour or against Item 4, being the election of Mr McCartney.”

At 3.40pm AEDT, Myer’s shares traded 0.9 per cent lower at 60¢, about double their 52-week low.

Premier planned to tout Mr McCartney’s retail experience, telling Myer shareholders that since joining the Premier board in 2016, its market capitalisation had increased more than 30 per cent to $3.3 billion as at July 30.

Premier successfully operates a portfolio of well-recognised brands through the Just Group, including Just Jeans, Peter Alexander and Smiggle.

“During this time, Premier has distributed over $640 million in fully franked dividends to its shareholders. Since 2016, Premier’s net profit after tax has increased over 160 per cent, to $271.8 million for the year ended 31 July 2021,” the Myer statement said.

While Myer’s board has maintained it is open to discuss appropriate board representation of Premier, it said any change of control should not occur without realising the inherent value of Myer for all shareholders.

Ms Stephenson, who is up for re-election and survived a board spill push by Mr Lew a year ago, said in the notice of meeting any Premier-nominated director would be required, along with other board members, to comply with the company’s conflicts of interest policy.

Confidential information restrictions

After receiving the nomination of Mr McCartney, Myer wrote to Premier in September advising that the board would need to be satisfied that existing and potential commercial conflicts of interest would be managed appropriately. There would also need to be restrictions on the disclosure and use by Mr McCartney of Myer’s confidential information.

Myer said it had no objection to Mr McCartney’s election as a director based solely on his credentials, and would be willing to work with him. However, since Premier would not agree to two significant points in its letter, the matter should be determined by the shareholders.

Ms Stephenson said Myer’s fortunes had turned, pointing to its recent full-year results. The company said in mid-September it had posted its best sales start to a new financial year since 2006 and tipped strong Christmas trade.

“Myer’s FY22 results reflect a stronger and more agile business that continues to gain momentum as we deliver against the Customer First Plan,” she said.

The board also recommended that shareholders re-elect independent non-executive director Jacquie Naylor; adopt the remuneration report; and grant performance rights to chief executive John King.

Ms Stephenson has been a Myer board member since 2016 but was acting chairman from October to September 2021, when she became chairman. Myer’s annual meeting is due to take place on November 10 at 2pm in Sydney.

Mr Lew was unsuccessful in ousting part of the board after Myer received a “second strike” against its remuneration report at its annual meeting last year.

It is not the first time Mr Lew has sought to install Mr McCartney to Myer’s board. The billionaire retailer put up the former managing director of Myer Grace Bros, as well as Steven Sewell and former UBS banker Tim Antonie in 2017 to then Myer chairman Paul McClintock, but it was never put to a shareholder vote.

Collapsed luxury footwear and streetwear retailer Sneakerboy has been sold to UK-listed apparel and sportswear firm Frasers Group for an undisclosed sum.

Multiple sources told The Australian Financial Review that staff members have been informed about the sale of Sneakerboy, which has been run by insolvency firm Hamilton Murphy since it collapsed in July.

Frasers Group will keep Sneakerboy staff and run the business. It will assume employee entitlements, but it will not take on any other liabilities of the original Sneakerboy business. It has also expressed an interest in keeping the leases of its remaining stores.

Hamilton Murphy declined to comment.

According to Frasers Group’s website, the company employs more than 25,000 people across 25 countries, including 769 stores in Britain. Brands in its portfolio include Evans Cycles, Everlast, Jack Wills, Lonsdale, Sports Direct, No Fear and Slazenger.

Sneakerboy has three remaining stores in Victoria. It previously had stores in Sydney and Queensland.

Hamilton Murphy’s Stephen Dixon told creditors in a report last month that he had received 40 expressions of interest when he initially advertised the business for sale. He disregarded 18, provided confidential details to 22 parties and received four indicative non-binding offers in late July.

By late September, Mr Dixon accepted an offer, and began finalising the terms and conditions of a sale.

‘Insufficient funds’

“While the purchase price and the anticipated distribution of funds received from the sale has been withheld due to confidentiality clauses in the draft sale agreement, I confirm that the purchase price will not be sufficient to discharge the quantum of secured creditors’ debts in full,” he wrote.

“The secured creditors are therefore entitled to prove in the administration of the company for the balance of their debts that are not discharged from the proceeds from the sale. Accordingly, there will be insufficient funds from the sale of the Sneakerboy business and assets to enable a distribution to the unsecured creditors of the company.”

Sneakerboy, which sells high-end footwear brands such as Balenciaga for more than $1000 a pair, had external administrators appointed by Sydney-based financier Octet Finance in July. Four related entities, including Luxury Retail Group, were also affected.

Before the administrators were appointed, Sneakerboy was 50-50 owned by holding companies held by directors Theo Poulakis and Nelson Mair, according to filings with the corporate regulator. The chain’s operating company, Luxury Retail Group, is similarly split between Mr Poulakis and Mr Mair, although through four entities.

The business collapsed owing staff more than $500,000 in superannuation and leave entitlements and bills of more than $17 million to suppliers, including more than $12 million owed to a related entity. In total, staff were owed $200,137 in annual leave, $23,647 in long service leave and $309,689 in superannuation.

There are only two secured creditors among the 57 firms Sneakerboy owes money to. They are Octet, which is owed nearly $2.8 million, and a related party Luxury Retail Treasury Pty Ltd, which has $12.3 million in payables owed.

Luxury Retail Treasury Pty Ltd was among the entities put into administration earlier this month, and Mr Mair and Mr Poulakis were the equal ultimate shareholders via four entities.

Strandbags is branching into new categories in a bid to attract new customers and expand its target market.

The retailer is planning to launch a youth line for mid-2023, and is also in the process of establishing a men’s travel/work range for late-2023.

The plan comes as Strandbags launched two new ranges earlier this year, Evity and Nere. 

Speaking with Ragtrader, CEO Felicity McGahan said that despite a successful Father's Day trading this year, women form the core of Strandbag’s customer base. She hopes to expand this for the company through new categories. 

“These two brands are a little different for us because they're customers that we want, not customers that we've necessarily got,” McGahan said.

Speaking on the upcoming youth line, McGahan said the range is targeted towards Gen Z.

“This brand really will sit in that kind of sweet spot of 18 to 25," she said. "It's very much the Gen Z, and making sure that we've got that youth offering.

“We've just finalised the brand name and the identity,” McGahan said. “We're on track to launch it mid next year.”

Felicity confirmed that the range will be available across all its stores and even outside Strandbags.

“We think that there's a big opportunity outside Strandbags as well,” she continued. “Just looking at whether there's a wholesale opportunity or marketplace that might be relevant for that."

McGahan confirmed the process has commenced with IP work across trademarks. 

As for the men’s space, McGahan said the new venture will expand on its current product proposition. 

"We do have a men's business today, but it's mostly a gifting business. It’s women buying because they know that it's there.

"We see an opportunity to do an accessible men's brand in this travel work space.”

McGahan said the new addition will create a full offering across accessible leather (Evity), value fashion travel (Nere) and its Gen Z brand. 

It is scheduled to launch next year, following 12 months of brand work. 

“When we talk about the ongoing journey for this business, it's about modernising and focusing on these value businesses,” she said. "It’s about hitting that very accessible spot in the middle and giving great design but at a great price."

Brett Ibbitson has been making beds since 1988. Hand-crafted to customers’ specifications and made from sustainable Australian timber, Ibbitson has dedicated decades to refining his techniques, and he’s not quite done yet.

“I still don’t think, after 35 years, I’ve got it quite right,” says the founder of Quokka Beds.

“It’s more or less a philosophy of living, you know? Just continuously improving, making incremental changes. That’s probably why I’m still in business.”

The 63-year-old has built a business from the ground up with a loyal but predominantly Perth-based customer list. But three years ago Quokka got a hop in its step, with its revenue rocketing sixfold, giving it the confidence to take the fight up to bed-in-a-box outfits like Koala.

In 2019, Ibbitson’s son Daniel joined the company (then known as Brett’s Beds + Futons), bringing several years’ experience in digital marketing – and a fresh pair of eyes.

“We have had many dinner debates,” says Daniel. “We catch up every week and all we talk about is what the other guys are doing in the market, how we could do a better job, how much his customers currently love his beds.”

Daniel, who was working part-time and figuring out his next career step after doing a two-year stint in a London agency, found a new project to sink his teeth into. His father, who in fact had every intention of scaling down the business, found a new path to growth.

“It was such a perfect match ... he was the product guy and a manufacturing expert. It was just an opportunity too good to pass up, on both our sides,” Daniel says.The pair had seen e-commerce play Koala successfully become a household name, as well as the broader boom of the bed-in-a-box sector. For Quokka, it was a simple matter of applying a start-up formula to a family business with a strong customer track record.

Under Daniel’s direction, the product offering was streamlined: a range of 10 bed bases was reduced to two. The elder Ibbitson found a way to pack all the parts into one box. Daniel got to work creating a website, taking the bricks-and-mortar company online for the first time.

“[We got a] huge response straight away,” Daniel says. “We couldn’t believe how many beds we were making, so we had to quickly hire more people.”

The brand got a makeover: Quokka Beds is less wordy and much simpler than Brett’s Beds + Futons. It is also a small nod to its better-known mattress competitor, Koala. “We definitely took inspiration as a little cheeky play on them as well,” says Daniel.

The pandemic helped to accelerate Quokka’s momentum. People were spending much more time at home, with online sales for furniture ballooning during that period. Quokka Beds raked in nearly $2.3 million in revenue for the 2022 financial year, compared to $380,000 in 2019.

They can back up their claims of being loved by customers, too: Quokka Beds’ timber base has been the winner of ProductReview.com.au’s annual awards in the bed category two years in a row.

According to the Ibbitsons, Quokka’s biggest point of difference is that the beds are entirely Australian-made. Where Koala received some backlash for its 2020 decision to move its manufacturing to China, Quokka’s bed bases are made with sustainable timber from certified Australian plantations and then hand-built in Perth.

Brett observes that furniture manufacturing has declined significantly in the last two decades. “We can make it here. Even though our costs are higher, we can still compete with these imported products,” he says.

The father-son duo want to prove they can operate like a start-up, while rejecting “fast furniture” in a commitment to quality. “There’s pretty much nothing out there made in Australia from solid timber – that’s definitely a big gap in the market we entered there,” Daniel says.

Meanwhile, their mattresses are made from organic Sri Lankan latex. “We need to find the best product, and that’s where it is,” says Daniel. Only four companies in the world supply organic latex, and three of those suppliers are in Sri Lanka. Its production is considered carbon negative, Brett adds.

The pair is still trying to keep up with demand. The Ibbitsons have started an equity crowdfunding initiative on the crowdfunding platform Birchal to move into a factory twice the size of their current facility and hire more people, though they acknowledge the labour market is particularly tight.

They also plan to increase their marketing spend. Despite the younger Ibbitson’s digital marketing prowess, they say most of their growth has been the old-fashioned way.

“The product kind of sold itself,” Daniel says. In the last three or four years, they have only spent about 1 or 2 per cent of their revenue on marketing. “Word of mouth, more or less,” Brett adds.