old half of EziBuy to Mosaic Brands, and we’ve also been working on our existing brands and looking at a bunch of other potential acquisitions – which we’re still looking at. And of course we launched Lego, which has gone from nothing to six stores in that period, and has been hugely successful. No question, it’s been a rocky market for retail, and so we’ve been seeing that across the various brands. Some of them have been doing better than others, some have been impacted more than others, and they all behave a bit differently in the market. There’s been a lot of focus on what is going on in the market, and what do we need to change to respond to the changing market. It’s been an interesting and exciting year, no question – it certainly had its moments. IRW: What do you look for when you look at brands to invest in? Is there a common through-line in your brands? RF: If you look at our brands, if you take EziBuy and Noni B, Mosaic Brands, they kind of play in what I call mass market. Ginger & Smart and Lego play in the premium end of the market, while Cheap As Chips is very much at the discount end of the market, and Surfstitch sits between mass market and premium, depending on what they’re selling. When we look at a business, we always look at whether it has a clear customer that it is talking to – that there’s a market segment that it is focused upon. In the case of Mosaic Brands it is the more mature female shopper, similar to EziBuy. Ginger & Smart is very smart, statement-making female shopper; you start to see where each brand talks to. What you don’t want is a brand that is everything to everyone – that’s not our game. Once we’ve got that, the next piece for us is to figure out what we at Alceon bring to that equation. How do we make this business better? If we can’t make it better, then we shouldn’t be investing in it. If we can help improve their cost structures, or their sourcing, or sales by cross-promoting with some of our other brands, if there’s a way that we can help that is material and measurable, then that’s when we get excited. If we’ve got no value to add then we really don’t have any right owning that brand. So in each case there is something that we need to bring to the table. IRW: Are there any categories that you aren’t in that you’re looking at already? RF: We just got into homewares as well through our investment in Marlin Brands [which] bought Zanui. I think apparel and fashion is certainly the segment that we know and understand and have got strong capabilities in. So that’s the segment that we’ll keep looking at. I think what Lego did is that it opened up the ability to identify premium, international brands that are looking for an entry into the APAC markets. So we are now in conversation with other international brands that are not in fashion – they’re not in toys necessarily – that are talking to us about partnering with them to bring those brands to Australia. So that’s an interesting opportunity for us. But other than that, we tend to be focused on apparel, homewares, accessories, and then, through Lego, the more lifestyle products. IRW: I don’t suppose you’re willing to name those international brands? RF: I’m not in a position to say – I’d love to say, but they’re of a similar ilk to Lego. So if we’re able to land one or two of those, and the fact that we’ve done it successfully with Lego, people are looking at it and going, ‘Okay, these guys know what they’re doing’. You know, I just came back from New York, and I saw two Lego stores there. They’re great, but what we’re doing is just as good if not better, so I’m pretty proud of what we’re doing, and I think other brands are now looking at that and saying, ‘These guys know what they’re doing in terms of respecting and working with an international brand, know what their key sensitivities are.’ That’s what we’ve been able to do with Lego, and that’s what we’d like to do with others. IRW: You mentioned a bit earlier how tough retail has been already this year. What is your opinion of the brands going under at the moment? Where do you think they’ve failed, and are there any you would consider picking up? RF: I can’t talk to specifics, but of the ones that have recently failed I think there’s maybe one or two that we’ll have a sniff around and see if there’s an opportunity for us. It really comes down to why they failed in the first place. Is it something that we can fix? It’s very easy to go in and say the sales went backwards and all we need to do is improve sales. That’s the hardest thing to do. It’s so hard to do. That’s not our investment piece. We’ll look that and say, ‘Let’s assume that we can’t change that, but what can we do below that? What can we do with gross margin, what can we do with cost of doing business? And what can we do to restructure this business to make it profitable In our hands.’ If that can mean improved sales, then all the better. It’s really understanding why those businesses failed in the first place. There are really material, seismic shifts in the market in retail at the moment – the ongoing shift from bricks-and-mortar to online, the business shift from traditional retailers to new retail formats. There’s a shift from those that are executing poorly to those that are executing well. I think overall, retail is okay. I think retail is not over. We’ve had an impact due to the tragedy of the bushfires, and that’s put a real dampener on consumer sentiment; it’s actually affected a lot of consumers directly. I think going forward retail will be okay, but there’s a lot of shifting within retail; and that’s where people are getting into trouble, if they’re not ahead of those shifts. The consumer is changing, trading patterns are changing. The whole Christmas trading period has changed forever. There’s no point in saying it used to be great, it is what it is now, it’s not going to be different going forward, it’s moved. So how do you realign your business to work within what is a new paradigm around the December trading period? Those that get that right will succeed and take market share away from those that get it wrong. That’s my view, and that’s what I’m seeing across the market as well. IRW: When it comes to partnering with retailers, what does Alceon bring to the table? RF: Ideally, we want to integrate them into one of our existing portfolio investments, whether that’s Mosaic Brands or the holding company that owns Surfstitch or whether it’s Cheap as Chips’ platform. We want to bring them in, integrate them and through that, drive efficiencies and synergies. To look at a new retail investment, on a completely standalone basis, makes it harder for us. [We want] to drive significant efficiencies across the business and potentially gross margin, [and] drive revenue across those brands – that’s when we start to add value to the group. That’s how we look at any new investment opportunities. Where does that fit in our existing portfolio investment? If it doesn’t fit anywhere, then do we really have the appetite for a completely new standalone retail business on top of what we’ve got? If you think about it, we’ve got the middle mass market with Mosaic Brands, the discount [category] covered with Cheap as Chips, we’ve got the premium market covered with Lego and Ginger & Smart. If it doesn’t fit into one of those three buckets, then we shouldn’t be doing it. I’ve had people approach me and say, ‘I’ve got a really interesting jewellery retail business you should run’. That’s great, but I don’t know the first thing about jewellery and it doesn’t fit into our portfolio. It might be a great opportunity, but it’s just too hard for me to get my head around. IRW: How are your brands progressing this year in 2020? RF: They’ve all got quite a bit of growth planned for the year ahead. Cheap as Chips is ready to get into growth mode; we’re looking at new sites for that brand. We’re looking at new sites [for Ginger & Smart] and we’re negotiating them for that brand. Lego has a very strong growth profile so we’ll be continuing a store rollout this year. Even a brand like Mosaic that has 1400 stores across the country [has] gaps in their brand portfolio geographically, so they’re also looking to grow to fill those gaps. So certainly growth is on the agenda for the year ahead. I think we continually strive to achieve cost efficiencies across all our businesses, particularly in an environment where it’s hard to get comp sales growth in the current market. What that means is you need to be more disciplined about your cost structures to make sure you’re driving efficiencies in your business. That’s always the focus; it’s more of a focus where you’ve got a relatively fragile retail consumer. All our businesses are disciplined in that respect. We’re looking at more bolt-on acquisitions we can bring into each of those portfolios and give those companies a step change in revenue and growth as well. There are a number of potential acquisitions we’re looking at. IRW: What’s an interesting insight you’ve picked up from working across these brands? RF: They do all behave differently. One might be finding it tough at this point in time, one might be doing really well. Consumers are behaving differently, depending on where they sit on the spectrum. But at the end of the day, the brands need to understand who their customer is and be focused on them. Then we assess each of the businesses and keep an eye on all of them. The metrics are all the same, but we emphasise different metrics from business to business. In certain businesses, you might be more focused on traffic growth, in another, it might be about improving conversion or average basket size. All the key metrics are the same, but we emphasise it differently business to business, depending on where they’re at in the cycle and where they’re playing in the market. That’s the one thing I’ve learned. You can’t take a one-size-fits-all approach for these businesses. IRW: How do you approach store design across all the different brands? How does Noni B compare to Lego, for example? RF: Again, you start with the customer – who we’re serving – and make sure the store design is relevant to them. Then we try to focus as much as we can on experience and engagement. Having good product isn’t enough. Product is available anywhere, people have got so much choice, but it’s about where they get it from, online or in-store. What brings them into your store is the experience. It’s everything from the offer, the range of product to the service and the fitout. So it’s about understanding who the customer is and then designing a store that works for that customer. Everything we do though, has to have a commercial outcome. Having a great in-store experience and lots of engagement for the sake of it is not good enough, they have to actually drive traffic and improve dwell times, which translates into conversion. We’ve got to have measurable outcomes. Then with a Noni B or Rockman store, we won’t come up with a completely new store design. We’ll trial different things, maybe we’ll see a trend overseas and maybe trial it in a couple of stores; we’ll see if things improve there or not. If we do see an improvement, then we’ll roll it across the portfolio. If not, we don’t follow. We test and learn, that’s our approach, rather than just say that store’s not working so let’s come up with a completely new store design. I know that’s another approach, but it’s very high-risk and we prefer an incremental approach. Lego is a different model. The actual fitout modules are standardised so each store globally has a similar look and feel so you know when you walk in that it’s a Lego store. Our job is to make each store unique within those constraints. There’s a process we go through to identify a site, work with the Lego design team in Germany to get the layout right, make sure we get the full range in there, get the right flow in the store, make sure we have the right product mix and [let people] play, interact, engage and make sure we have lots of that so we maximise dwell time. We have a bunch of engagement models we can choose from from with Lego that we can use, whether it’s a play table or a digital screen. Then what we do is try to customise each store to make it unique to that particular market through hero figures and mosaics. In Bondi, we have a mosaic of Sydney Harbour and the beach and we’ve got a lifesize figure of a surfer. In Doncaster in Melbourne, it’s a mosaic of a tram. We try to make each store speak to the local community. I think that’s where it gets fun and it’s a great process. IRW: What tips would you give retailers who might be looking for an investment partner? RF: Don’t try to sell the dream, because we’re not going to invest in dreams. Don’t say, ‘Sales are declining, but with your money, I’m going to grow sales.’ Don’t do that. Come with a more considered and realistic plan. If we come on board as an investor, what can you do? We know what we can do to drive the business, but what do you plan to do and where do you see opportunities? Is it through international growth, is it through more store rollout? Is it through improving or increasing your inventory or stock? What are the things that are holding you back from growing? It’s really just coming to us with an understanding of where you want to take the business, what can you do on the cost and revenue side, what can you do in terms of rolling out stores and what can you do in terms of growth? It has to be tangible growth, not ‘I’m going to do a better job with my range next year.’ We’re pretty rational, we’re pretty pragmatic when we look at businesses and we like to work with people who are rational and pragmatic. We are focused on bringing things back to the numbers because that’s ultimately how we make our money. We like to work with people who think that way as well, but it’s about having a clear plan of what you want to do if you come on board with us. IRW: You’ve turned around some struggling businesses, but what makes them seem attractive to you as an investor? RF: It might be something as simple as a brand that is working-capital constrained and simply can’t grow because they’re on the treadmill of when money goes in, and then goes straight out to fund the new product and then comes back in, and then goes back out, and they never have the capital to grow, or the in-house capabilities to help them grow either which is additional resources. That’s the case with Ginger & Smart; what we were able to do was to free up working capital, helping with their sourcing, helping them with cost structure, and recapitalising them so that they can now look seriously at growing their stores. That was quite a good story there. In the case of something like Speciality Fashion Group, that Mosaic Brands bought last year or two years ago, that was very much about improving the gross margin through sourcing, and improving the cost of doing business through head office efficiencies. It was very simple to see where their cost structure was, under our ownership we move them to a different cost structure, we can see their gross margin, and through outsourcing we can improve that gross margin. So again, it’s not a one-size-fit- all approach – you have to be looking at what we can do, but it’s always got to be tangible. We won’t invest in something where the outcome is dependent on something that we can’t control. Head office costs we can control, pricing the cost of goods we can control. Average sell price and increasing that, you can’t control that. If you put your prices up, consumers just aren’t going to shop. So that’s harder. We all ways look at the things that we can control, the things that we can improve. The profit and loss of this business, and the value creation of this business, and it’s got to be like three things at most. If it’s 10 things, you’re never going to get them right, but if it’s just two or three, we can get them right. Again, we try to simplify it, don’t overcomplicate it and bring it back to things we can control. Richard Facioni is speaking at Inside Retail Live February 26-27. For more information, visit: insideretail.live.