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Gary Perlstein has played an integral role both in the establishment and growth of Specialty Fashion Group since it was founded in 1993. Gary has been a Director of Specialty Fashion Group since 1995 and he was appointed CEO in October 2003. Gary has over 20 years of retailing experience in Australia.
COMPANY PROFILE: Specialty Fashion Group
Specialty Fashion Group comprises apparel/fashion brands Rivers, Millers, Katies, Crossroads, Autograph and City Chic. Last week the group announced revenue of $434.3 million in their half-year results ending in December 31, representing an increase of 5.2 per cent.
Net profit after tax for the half-year was $8.8 million, compared to $5.9 million for the prior corresponding period – an increase of 49.2 per cent. Underlying EBITDA was $27 million. Critically, half-year losses for Rivers, which SFG acquired in late 2013, were halved to $5.2 million, from the $11.2 million in the previous corresponding period.
Justin Grey: Specialty Fashion Group’s half-year results paint an improved picture for the business. Have expectations been met?
Gary Perlstein: What’s pleasing is the 5.7 per cent cross store growth like for like increase, which is our fourth consecutive six-month like for like result of around five per cent. So we’ve had four six-month periods of around five per cent like for like growth [across the group], which is really starting to come through in our investment in that whole omnichannel experience that we started with five years ago; it’s just taken a bit of time to see that coming through.
The industry as you know is going through lots of change and we’ve really made a lot of investments up front, which has us now with nine per cent of total revenue online. But that hasn’t come without significant investment in infrastructure, IT, people, and it’s been more than a number of years in the making.
JG: The Rivers turnaround is starting to bear fruit…is the light at the end of the Rivers’ tunnel a little clearer now?
GP: Yeah, it’s really good to see that momentum coming through. We now have a clean bed of stock, the arteries are clean, and the customer now can see the new product that we’ve bought without any of the noise of the old stock. And they’re responding well to it. So that is pleasing.
It’s been just over two years since we bought it. And for us, it’s just been the timing of it. There was never any doubt that we would get there and I strongly believe that when it’s making its profit, when we look back on the total acquisition price, it would have been acquired at a very reasonable, low multiple. So it’s taken 12 to 18 months longer than what we would’ve hoped and liked, but it’s certainly moving in the right direction.
JG: Was halving Rivers’ half-year losses, to $5.2 million from $11.2 million in the previous corresponding period, a goal for the business?
GP: Our aim was to halve the losses, so we’ve done that. That was the big step. And the significance of that is bigger than in the numbers, because when it was a trend and trajectory that’s not your friend. You’ve got to arrest the decline, as well as actually make in-roads. So, it’s sort of more profound than even the halving of the losses turnaround.
JG: The purchase of Rivers was been viewed with some scepticism; what evidence have you seen internally that the business is trending in the right direction over the last six to 12 months?
GP: It’s just hard to call exactly when and what period that [change] will hit. But we’ve been seeing every month the improvement. We started seeing it 18 months ago when certain categories hit the shop floor where we had seen more of the old stock. You could see it coming; it’s just a matter of getting all the pieces coming together at the right time.
There’s still lots of hard work to do on the Rivers front, but the worst is behind us.
I always say to the team, ‘there’s lots of hard work still to do’. Because we don’t want to just get it to break even and make a dollar. We want to get it to where our original aspirations were. And we’re confident that that will happen. We’ve just got to keep on working hard at it. I’m a strong believer that it will prove that the multiple that we bought it on was very worthwhile.
JG: Are the plans, announced last year, for 100 new Rivers stores over the next five years still
GP: We have identified that many locations where we can open the stores, and it’s just a matter of finding the right opportunities. We haven’t put our foot on the peddle just yet. We want to see the business turnaround sooner. But we will look to open more stores, particularly where we can get the landlord to help us fund them. Because the more stores we can have with the new fitout and design, the greater percentage of the portfolio is refreshing itself.
JG: Traditional Rivers stores were quite dated in appearance; what is the focus of the new format stores?
GP: This is on another level. We’ve got a new store design that we’re trialling and tweaking and testing down in Watergarden Shopping Centre in Melbourne. That’s state of the art design and has just been recently launched. So we’re putting out there what our store of the future looks like, and we’re excited about what visual impact that makes. There’s tweaks to do and we’re improving it, and we’ll be opening another one in Queensland in the next couple of months. So we’re advancing.
JG: What is the rollout strategy for the new format Rivers stores?
GP: We’ll take many of the features from the new store design and get them into the old stores to lift the instore experience. And then as we get new stores, we’ll do them in the new store design. But we have A grade, B, C, and D grade fitouts, depending on where the location is. But the site we have down in Watergarden, we couldn’t do that on the strip in a country town. It wouldn’t be appropriate. But certainly key elements, so you know you’ve walked into a new, refreshed, new-age Rivers store, will be evident.
JG: There’s been an emphasis on clearing Rivers’ old stock; how has the new stock been received so far?
GP: We’re returning the product to the brand heritage of quality and comfort. So if you look at a shirt, the stitching, if you look at one of our shoes, you won’t have glue on the side. The quality is really, really improved. And that’s what the brand was known for. We’ve got to return to that heritage to make it a truly iconic value brand in the country.
JG: How are the other brands in the group performing?
GP: It’s coming along really nicely. Again, that like for like growth of 5.7 per cent, you don’t get that if you don’t have good performance across the portfolio of the brands, so we’re happy with that. The new Millers store design has been really successful and is really resonating. This is a mature brand that has taken itself seriously, like all the youth brands in the globe, and said, ‘We’re going to offer to this customer a special experience, as you would get in some global youth brand’. And what we’ve come up with, and we’ve now got about 17 of these stores, is truly the best in class store experience for that mature woman who has generally been forgotten about.
JG: There’s been a big investment in omnichannel for Millers – how is that paying off?
GP: Our online business is growing at really serious growth rates, but more importantly, we’re getting good, strong traffic coming to our sites and increased traffic and conversion on our sites. Which for me is the critical thing – that when our customers visit our sites that they’re actually purchasing more than what they would previously. That’s a key indicator for us, because we’re not just blasting out crap on the site. So for us it’s an important thing to improve our margins as well at the same time as driving revenue.
JG: And how about Katies, Crossroads, Autograph and City Chic?
GP: We’re going through a rejuvenation of all of our brands – all the way through the customer experience online, in the store, store design … no brand has been left behind, so to speak. Because they’ve got to stand head and shoulders with any global brand. They’ve got to deliver and provide as good a store experience. And keeping in mind we’re in the mature plus size end of the market, we really want to have a point of differentiation.
JG: How much discounting is still in place across the group?
GP: Look, there’s still a lot of promotional activity in the marketplace. It’s aggressive, but it’s almost becoming the norm. So what we, and others, are trying to do is make [discounting] less reactionary and have more intelligence around how we bring to market the right value in a clever way. Because the market is very competitive and it’s now the new norm.
JG: Where will the group be in six months time when you hand down the full results for FY16?
GP: Look, the business is moving in the right direction, but we just don’t provide guidance at the half-year. We’re just going to continue to grow online and improve the instore experience so the two work in the way they now need to work in, in a completely new environment and a complete new recalibration of the retail industry. I mean, that’s where we’re at now. It’s a once in a generation change and we’ve got to reinvent ourselves and see the two channels work hand in hand.
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