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| Jenny Ruth's Column | | For archival copies of Jenny Ruth's Column click here... | | | | 12th November 2006 | Postie Plus Group’s shares still haven’t recovered back to their $1.25 August 2003 float price, but they’re looking considerably healthier than this time last year.
They languished below the float price from day one with their collapse accelerating as the company failed to meet forecasts and then lacklustre profits turned to losses and it had to suspend its dividend payout.
Even when the company showed signs of recovery in the second half last year, the loss of confidence was so great that the shares continued to drop, reaching a 57 cent nadir in December last year.
Some of the problems weren’t hard to foresee from the prospectus: the group, which then comprised four retail chains with a fifth purchased immediately after the float, had been hastily chucked together and even its components lacked a consistent track record.
A year after the float, the company faced up to the fact that its strategy for the 120-year old Rendells chain wasn’t working. The nub of the matter was that young women saw Rendells as a place where their mothers and grandmothers shopped and therefore not for them and Postie Plus just couldn’t widen its appeal.
It had also encountered cultural problems, being seen as an upstart from Christchurch that had taken over an Auckland institution. It began phasing the chain out, closing stores or converting them to its flagship Postie+ clothing stores brand and did the same with the Gardner Fashions stores it had intended converting to the Rendells brand.
Now the group’s three chains are the 70-store Postie+, the 13-store baby products chain Baby City and its 20-store Arbuckles manchester and homewares chain, although it is experimenting with its own new women’s fashion retail brand, Who’s Henri, and with a Canadian jeans brand, Point Zero.
But the problems were deeper than just a failed brand. These days the company talks a lot about clearing seasonal stock out quickly, even if it has to take a margin hit, so that it starts each season with fresh stock.
Ron Boskell, acting chief executive since October last year and confirmed in that position in February this year and who has been with the company since 2002, says he’s embarrassed to say just what the company’s stock turn position used to be.
"We would’ve been languishing at the bottom of the pile. We’re now getting some respectability and, by the end of this year, we will find ourselves with what most retailers expect to get," he says.
The company’s former position had been to try to maintain its margins at a high level but that meant incurring considerable costs of holding onto stock, particularly storage costs. "You couldn’t just leave it in the stores because they would have no room to move."
Another hidden cost was that with each new season customers were presented with a mix of recycled aging stock in amongst the fresh offerings.
Another problem was that although the company had brought all its chains into using the same computer system, it has proved inadequate. "It’s not strong enough for where we have to go," Boskell says.
So the company is installing a new system which "will deliver a best practice financials platform in time for the Christmas/New Year season," the company announced in September. Again, it all comes back to stock control.
Investors will probably remember the mess The Warehouse got itself into in the mid-1990s when computer problems led to it losing control of its stock.
Other problems have also been addressed such as moving Arbuckles away from the commodity end of its niche, which most of its competitors treat as a loss-leader, discounting heavily to attract customers in other areas.
Boskell says the company’s strategy has been to move the chain more into the fashion arena and to try to get customers to buy accessories for entire rooms rather than pushing individual items. It calls this: Changing Rooms For Less.
The 56-year old Boskell, who has 43 years of retailing experience under his belt, seems to be getting the formula right. In September, he was able to report a 135 per cent jump in annual net profit
Another important sign is that the founding Dellaca family was able to sell down its stake from 35 per cent to 15 per cent at the end of October without sinking the share price.
At $1.02 last week, getting back to the float price is starting to look within reach. | | You can buy a transcript of the interview behind this column ($5) or subscribe to a year’s worth -- 48 interviews ($100) by emailing: info@jennyruth.com | |
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