Michael Hill CEO Phil Taylor isn’t confident that the fine jeweller currently has a viable model in the United States, saying that it will be difficult to justify an ongoing turnaround in operations to its board if progress can’t be made in FY18.
Speaking to Inside Retail after reporting a 13.4 per cent decline in its US same-store sales for the year ended June 30, Taylor revealed that leadership had to revert a cut in marketing spend after it adversely effected sales, amid ongoing store closures.
“Decisions were made during the budget process last year to cut the marketing spend for the [US] business quite dramatically,” Taylor said on Friday. “There was a hope it wouldn’t impact sales much, that it was a small store base that would trade on normally, but that wasn’t a successful strategy.”
“We had to reverse that and revert to normal marketing,” he explained.
Michael Hill told shareholders on Friday that it had to exit the lease on its Ohio store early due to sustained poor performance, costing the company US$650,000 in rent and write-offs.
Taylor, who was brought in as CEO in March, is now focused on turning the business around, having brought in former Canada boss Brett Halliday to oversee an effort to get the model right.
There will be further refinement of the company’s portfolio of stores, which could see more Chicago openings, but with the business continuing to leak money the pressure is on to convince the board of the US business’ viability.
“We’re not confident we have a viable model,” Taylor said, speaking on the future of the venture.“If we don’t achieve our goals in FY18 it’s going to be a hard ask on the board.”
Emma & Roe to reposition
The company invested heavily in its Emma & Roe brand throughout the year, growing sales by 62.1 per cent on 13 store openings, but same-store-sales declined by 1.9 per cent, prompting a re-think of the young venture’s market position.
A review is now being conducted to evaluate the initial assumptions that the brand was founded on, which could see decisions made in the next two months that broaden its product categories, change the fit-out and tweak the brand’s story.
“We feel that there’s a better opportunity to shift the brand position slightly,” Taylor said. “We maybe missed the mark a little bit with the current brand offering, it’s not that it’s going bad for us, it’s just not getting the growth to prove it up.”
Taylor signalled a shift to cement Emma & Roe as a lower-end fine jewellery, echoing sentiment from competitors like Pandora in recent months.
“It will be trendier, it will change more often and have more styling,” he said, noting that an average price point of $200 dollars is being targeted to encourage two – three shops per year.
In the meantime, the company intends to step off the accelerator slightly, having recently secured an “established foothold” in Queensland and NSW, it has only committed to opening six stores next year.
Things pick up at home
Despite ongoing headwinds in the US and the repositioning of E&R; the company took total same-store-sales growth of 1.5 per cent to the market in its full-year trading update, up 0.8 per cent to $583 million from Q3.
Strength was driven by the continued performance of Michael Hill in Canada, where same-store growth was 8.8 per cent, and 1.2 per cent growth in Australia on the back of a shift in promotional strategy.
“We’re progressively reducing price-based discount events, which we did in June for a strong quarter,” Taylor said, referencing a same-store sales increase of 3.1 per cent last month.
Mother’s Day sales were a success on the back of a tweaked marketing strategy and better balancing of on-range and off-range promotions ahead of the release of the new Michael Hill collections range.
Sales in New Zealand weighed on the company’s Commonwealth performance, declining 0.8 per cent on a same-store basis, but Taylor is relatively optimistic about the macro-economic environment in ANZ, noting that he doesn’t see headline retail risks like Amazon as a threat.
“I’m not seeing a lot of disruption in our sector from Amazon, so we’re pretty much doing what we’ve always done,” he said.
“Our focus now is just trying to minimise losses in the US and trying to reposition Emma and Roe to get growth going.”