Despite delivering a 29 per cent growth in net profit to $137.8 million for FY20, Premier Investments is looking to exit 350 stores across Australia and New Zealand due to unfavourable rent agreements.
Underlying earnings before interest and tax jumped 11.9 per cent to $187.2 million, while overall online sales grew by a record 48.8 per cent – contributing 25.5 per cent of sales in the second half of the year.
Chairman Solomon Lew said the strong retail result, which encompasses brands such as Smiggle, Peter Alexander and Just Group, was not a product of dumb luck.
“Rather, Premier has managed its own luck over a number of years by controlling those things that we can control, for example by fully owning our distribution centre and head office, by continually strengthening our balance sheet and heavily investing in our world class online capabilities,” Lew said.
“Customers are choosing to increasingly shop online during this highly uncertain environment… Our online business has a significantly higher EBITDA than the retail store channel, and this accelerated swing in customer preference has increased our focus on individual store profitability.”
And while Lew lauded the business’ online growth, he was also quick to add that the bricks-and-mortar retail space had shifted just as significantly – to the point that in order to ensure the continued strength of Premier’s brands it has plans to shut down up to 350 stores across Australia and New Zealand, and a number of international sites.
According to CEO Mark McInnes, Smiggle, for example, is performing well in regions where schools have re-opened and poorly in those where they have not.
“To ensure [Smiggle] rebounds and can grow quickly post Covid-19, the group will close all Hong Kong retail stores by October 31, close up to 55 stores in the UK in FY21, and impair all other Smiggle UK and Republic of Ireland [and] Singapore, Mayalsia and Hong Kong,” McInnes said.
McInnes didn’t specify if these closures would be permanent or temporary, but said Premier will offset this action with an increased focus on the online side of the business, which leaves the brand best-placed to thrive post-pandemic.
And while the impact on Smiggle seems to be far and away the largest for Premier, McInnes maintained the business’ position that should landlords not understand the changing nature of physical retail Premier is more than willing to exit unfavorable leases.
“We’ve got plenty of landlords we’ve come to agreements with, because there’s plenty that get it,” McInnes said.
“[But] we take every store, every decision, as it comes based on the shop’s profitability. And pleasingly there are a lot of landlords who respect and value the brand… and then some landlords who don’t get it. And if they don’t offer us rent that can keep our stores profitable, we close.”