Sitting in a glass-walled meeting room in Designworks’ new office in the Melbourne suburb of Richmond, Santamaria was referring to the company’s light-filled workplace with hipster-worthy views of the train tracks leading into the city. But he could just as easily have been talking about its offering to retailers, which has undergone a strategic shift over the past few years.
Since it was bought by PAS Group in 2005, Designworks has evolved from primarily supplying Australia’s discount department stores – Target, Kmart and Big W – to providing a complete branded solution across apparel, footwear and sporting equipment categories.
“Now we’re doing everything from a tennis ball, boxing glove, pair of runners, little girl’s sandal to a windcheater,” Santamaria said.
A big part of this transition has been Designworks’ acquisition of brand licences, such as Mooks in 2012 and Dunlop, Slazenger and Everlast in 2014. The wholesaler also holds the licences to Sista, No Fear, World Industries, AFL, Coca Cola, Marvel, Star Wars, Disney, Mattel, Hello Kitty, Eric Carle and Teenage Mutant Ninja Turtles.
Today, the wholesaler’s customers include the discount department stores as well as Myer, Rebel Sport, Amart Sports and Toys R Us Japan. International customers – in Japan, Hong Kong, the Philippines, Malaysia, New Zealand and the US – now drive around 15 per cent of its turnover, which itself has doubled in the past six years. Santamaria said he expects the business to turn over close to $110 million this year.
As Designworks’ portfolio has grown, so too has its workforce. The company employs 110 people in design, production and management in Melbourne, with another 17 based in Asia. Accommodating the expanding team and attracting new talent were the two main reasons for its recent move.
“When our lease was up in our previous facility, we were tasked by our major shareholder with building a centre of excellence,” Eric Morris, CEO of PAS Group, told IRW. “The reason we’re at the heart of the design precinct in Melbourne is part of that. We’re really showcasing our abilities in the Designworks operations.”
The office’s proximity to train and tram lines, the city and the Yarra River, not to mention its rooftop deck, gourmet kitchen, Zen room (where staff can relax and take a break) and abundance of natural light are also intended to make Designworks an employer of choice in the industry.
“People are the most important asset in the business, we’re in a very competitive industry and people make an enormous difference. The ability to tap and retain top talent is really critical,” Morris said.
PAS Group invested over $1 million in the fitout of Designworks’ two-storey, 1,800sqm office, which shares a Church Street address with the likes of Country Road, Tesla and Mattel. The process was designed and managed internally and took about six months. Although the wholesaler has only been in the space for two months, Morris said it is already having the desired effect: “The staff are thrilled to be there and it’s attracting a lot of top talent.”
Designworks’ investment in itself comes at a time of unrelenting downward pressure on margins in the apparel business, due to currency competition from global players like H&M and the relatively high cost of doing business in Australia.
“The discount department stores have responded with a clear strategy to reduce SKU count and increase the number of products sourced from China and other low-cost countries. So they’ve been able to maintain low shelf prices,” Bryan Raymond, retail analyst at Citigroup Australia New Zealand, told IRW.
Calling the deflationary price strategy a “scary trend”, Santamaria said Designworks’ margins have dropped around 15 per cent over the past five years, forcing a change in its business model.
“We’re turning over a lot more and doing it a lot smarter which allows us to have economies of scale in the business. But eventually it has to hit a bottom, or Australian retail can’t survive. It can’t sustain the price pressures being put on the marketplace.”
Still, he’s not one to make excuses.
“You can sit back and whinge about it, but we just put the focus on our supply chain and our ability to supply quicker and cheaper.”
According to Santamaria, Designworks’ speed to market is a major point of difference, thanks in large part to its closely integrated supply base.
“It’s probably our biggest IP. We have suppliers who are 100 per cent dedicated to Designworks,” he said.
“We’ve also spent a significant amount of money in recent years on our social and ethical compliance, which has fast-tracked the business as well because we don’t have to go through third party auditors.”
Designworks is one of 10 wholesalers to have signed the Accord on Fire and Building Safety in Bangladesh. It also supports the Uzbekistan Cotton Policy and has taken steps to support the Benefits for Business and Workers initiative.
New year, new brands
Besides speed to market, Santamaria said the company’s strategic decision to invest in licenced brands also gives it an edge.
“It allows us to demand a higher price. We can sell a $200 pair of Everlast boxing gloves versus a $10 pair that might be a Target or Kmart generic brand.”
Designworks will pursue this strategy aggressively going forward. According to Santamaria, the wholesaler is in the process of acquiring a big overseas brand, with plans to launch it by the end of 2017. He declined to name the brand, citing ongoing negotiations, but said it is in line with the company’s current categories.
The wholesaler is also investing in its international footprint, with plans to set up an office in the US and expand its portfolio in Asia. Closer to home, Santamaria said the focus is on growing its own brands: “The key ingredient to get right is to get the fashion right, make it on trend and affordable. Those are the three things that will be KPIs for 2017.”