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RCG’s omnichannel strategy finds backing

Skechers-Albany-2-1RCG co-CEO’s Hilton Brett and Daniel Agostinelli have managed to inspire confidence in the market following the fall-out from their $105 million Hype DC acquisition and its subsequent $9.7 million write-down in May.

Reporting its first full year of trading since the deal with Accent Group last year, Brett acknowledged that the purchase of the brand, which he said was an “outstanding business” at the time, was a “bad deal”.

But shareholders forgave management, sending RCG’s share price up almost seven per cent by late Monday trading, despite Hype’s impairment leading to a 2.6 per cent decline in headline net profit.

It appears as though Brett’s omnichannel credentials, touted at length in an investor call on Monday morning, have resonated with those concerned about how established players are bolstering the lines before Amazon lands.

Competitor Footlocker, which has seen its market value slide over 27 per cent since reporting a 6 per cent decrease in Q2 comparable sales in the US last week, has been flagged by analysts as a loser in Amazon’s recent distribution deal with Nike, raising concerns about RCG’s future.

Brett denied that there’s a strong comparison to be made between Footlocker and RCG-owned The Athlete’s Foot, Skechers, Platypus, or Hype DC and believes that having 40 per cent of company own-brand lines, as well as its ambition to generate 15 per cent of sales through online within two years, position the business well.

“The rise of e-commerce and the arrival of Amazon into the Australian marketplace have been topics of considerable media interest in recent months and several retailers have made significant public statements on their readiness or otherwise to deal with the perceived threat,” Brett told shareholders.

“RCG’s own omnichannel strategy predates the media hype and our management team has long recognised the importance of delivering true world class omnichannel experience to customers.”

RCG is one of an increasing number of high-profile retailers backing similar strategies against Amazon, including Super Retail Group, Baby Bunting, Greencross and Woolworths.

The company will fire on all cylinders to sure up the system in FY18, rolling out endless aisles as well as click-and-collect and click-and-dispatch, delivery fulfilled from stores, throughout its entire 430 strong network.

Online currently represents five per cent of total sales, which means there’s substantial work to be done if RCG wants to hit its 15 per cent target without cannibalising in-store performance.

The channel grew 79 per cent during FY17 though, driven by the opening of three new e-commerce sites and initial click-and-collect trading in Platypus and Skechers.

Two new e-commerce sites have been launched so far in FY18, with another two to come throughout the year.

Three-hour delivery will also become a reality under the click-and-dispatch model and will be enabled across “most major population centres” through an unnamed third-party partner.

The reach of that delivery is also set to increase, up 36 per cent this year and set to grow from a long-term target of 120 Skechers stores (current 67) and 100 Platypus stores (current 91).

A net 15 stores are slated to open in FY18, none of which will be Hype DC, with management of the opinion that the existing 65 stores are sufficient.

Brett reckons Skechers and Platypus are returning the best results at the moment, but Vans, which has come into-trend with younger shoppers through its latest product line, has been growing quickly in recent months, offset somewhat by a slowing down in Adidas.

“Adidas is still very strong, it just doesn’t have the heat that it had only twelve months ago, what we’re seeing is that Vans has just exploded, particularly in the last three months and it’s early days,” Agostinelli said.

Hype DC is now back to positive LFL sales, having declined one per cent in FY17, on a strengthening in the last two months of the year carrying through to initial FY18 trading.

Brett declined to provide any specific earnings around individual brands, citing intensifying competitive pressures, but did say that he was optimistic about a stabilisation of Hype’s position in its Accent Group division, with the introduction of Vans products into its stores helping things along.

There remain concerns among analysts, however, that promotional intensity may crimp margins, which increased 2.3 per cent for Accent Group and declined 5.1 per cent in RCG’s own brand division during FY17.

Brett said RCG has no intention of getting into the downward spiral of discounting, committing to being a “full price” retailer that will clear stock when it needs to.

“[Competitors] have certainly done some quiet aggressive discounting over the last week in some of our [categories]…ultimately competitors have to make a decision about whether they’re going to run their business for the long-term benefits of shareholders or short-term,” he explained.

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