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Local retailers buck the trend

adairs shaver shopThe endangered species in bricks-and-mortar retail have received some encouragement from chains that have revived their sales and earnings performance in the first half of FY18.

While Godfreys, Michael Hill Jewellers, Retail Food Group and Myer are struggling to improve sales and profitability, Adairs and Shaver Shop have shown that the right merchandise and customer experience can revive fortunes.

While many retailers are looking to reduce their store networks, both Adairs and Shaver Shop are planning to expand, partly as a result of landlords accepting the need to strike better rental deals.

In the comparable first half of FY17, Adairs hit a brick wall and there were question marks about the longer-term future of the manchester and homewares chain in the context of online competition as well as bricks-and-mortar rivals.

Although new store openings lifted Adairs sales by 5.7 per cent for the first six months of FY17, like-for-like sales fell by four per cent and profits declined by 35.3 per cent.

Twelve months forward in a market that most retailers are continuing to find challenging, Adairs has posted a 19.7 per cent increase in sales, including a remarkable 14.8 per cent lift in comparable sales, and a 62.5 per cent jump in net earnings.

Adairs CEO Mark Ronan was quick to concede last year that the retailer had made mistakes in the FY17 which were compounded by a weak Christmas.

Ronan and his management team reviewed the business and effected changes that lifted performance in the second half of FY17 and set the platform for the robust result of the latest period.

Reporting to the ASX on 26 February this year, Ronan said the management team team had focused on delivering a fashionable, well-coordinated product range together with a superior retail experience in the latest half.

“Our continued focus on operational excellence has come through in our results and this half has put Adairs back on a growth trajectory, regaining our sales momentum given our improved product and in-store execution.” Ronan said, adding Adairs growth has been driven from increasing transactions from a growing customer base and greater share from existing customers.

While retailers like Michael Hill Jewellers, Specialty Fashion Group and Retail Food Group are culling their store networks, Adairs opened four new outlets in the latest half, upsized three stores and refurbished another two stores.

Ronan said the chain is seeing good results from its upsizing program and a new store development program that will add three to five stores in the current half. Upsizing stores will continue to be a focus, especially where opportunities are available in homemaker centres.

Online competitors, including Amazon, may remain a threat to Adairs, but the retailer is also developing its omnichannel retail capability as a key growth driver.

“With our re-platformed website enabling us to enhance our user experience, online sales nearly doubled to $17.1 million and accounted for 11.5 per cent of total sales in the first half for 2018,” Ronan said.

The profit result for the six months to December 2017 reflected the gains from the online platform, as well as a strong performance in the fashion and decorator ranges, tightening of promotional periods and reduced level of markdowns.

“The early read on our new season product ranges indicates they are resonating with our customer base, giving us renewed confidence that we will maintain growth in gross margin over the second half,” Ronan has advised shareholders.

Comparable sales growth in the first six weeks of the current half were up 13 per cent with an expectation of annual revenues topping $300 million.

A return to success

Shaver Shop was a specialty chain that was producing muddling results up until FY17, when a particularly strong second half indicated a more promising future, despite competition in the grooming categories for online retailers.

Shaver Shop has certainly maintained that promise in the first half of the current financial year with total sales up 19 per cent to $93.4 million, boosted by seven new store openings and a 5.5 per cent increase in like-for-like sales.

Cameron Fox, Shaver Shop CEO, reported to the ASX on 23 February the chain is set to roll out a number of new initiatives in the current half that are expected to drive both incremental growth and efficiencies.

The new initiatives include further brand expansions in female beauty and the launch of its own brand in that category, the introduction of a new ‘buy now, pay later’ option for customers i, an extended online subscription program and a customer relationship program.

Fox said the trading results for the first half were “pleasing”, given soft sales and margins in the important December Christmas trading period and, outside of the reporting period, into January and up to mid-February.

According to Fox, Shaver Shop has a robust business model and is excited by the opportunities for the group, particularly in growing the number of female customers with more female-focused brands.

“Shaver Shop has successfully increased its relevance to female customers through the addition of popular beauty and hair styling brands over the last 24 months,” he said.

With brands such as Dyson SupersonicTM, Veet, Scholl, StylPro, Foreo and Dafni, Shaver Shop’s female beauty category grew more than 380  per cent over the first-half.

Shaver Shop has bought back four of its franchise stores as it now pursues a corporate store business model.

The chain currently has 106 stores across Australia and New Zealand, including nine remaining franchise outlets.

Shaver Shop is continuing to invest in its ecommerce platforms, with online sales growth in the latest half up 66.6  per cent and now accounting for 10 per cent of total network sales.

Fox said the substantial growth in online sales reflects ongoing investments that have been made in refining the company’s website, as well as increased exposure to social media marketing.

A light at the end of the tunnel?

The success of Adairs and Shaver Shop, along with the evergreen publicly-listed specialty retail performer, Beacon Lighting, demonstrate that consumers will spend both in stores and online if the product and price are right and the experience is good.

Consumer spending is also dependent on understanding what the retailer stands for, its market positioning and retail offer.

Apart from the legacy of too many stores from the heady days of expansion for expansion’s sake and the pursuit of market share over profitability, market positioning is a key factor in the challenges confronting Myer, Target, Big W, a number of the fashion brands owned by Specialty Fashion Group and Godfreys.

Godfreys is perhaps the most vulnerable of the ASX-listed retail chains, notwithstanding that SFG, Michael Hill and Myer all face major challenges, while Billabong International is expected to be acquired by Quicksilver.

Godfreys has appointed a new staff to a management team struggling to define the specialty chain, which has floundered since a stint under private equity ownership as it vacillates between franchising and corporate store business models and super store and small store formats.

In its first half results released to the ASX on 20 February 20, Godfreys reported an 8.9 per cent decline in sales, including a fall in like-for-like sales of 6.2 per cent.

Godfreys posted a net loss for the latest half of $58.6 million after writedowns of $75.2 million, while its underlying net trading profit was a wafer thin $900,000, down 62 per cent on the comparable half in 2017.

For the last three halves, Godfreys’ like-for-like sales have fallen by six to seven per cent leaving new CEO, Jason Gowie, and his management team with a significant task in turning around the 97 year old retailer and emulating the performances of Adairs and Shaver Shop.


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