The myth of a lack of consumer confidence

There’s a lot of talk about a lack of consumer confidence in the retail sector but in a week of disappointing profit announcements there were two retailers defying the downturn, New Zealand retailer Kathmandu and Spanish retailer Zara.

Kathmandu recorded a 10.8% fall in profits to a net profit of $27 million but revenue rose 13.4% to $347.1 million.

These figures represented something of a turnaround after earlier this year the outdoor goods retailer reported a 43% earnings slide.

Kathmandu is helped out by the increasing trend towards consumers who value experiences over stuff.

That trend puts Kathmandu in a great position, as it sells the products consumers need to undertake those experiences whether it is hiking, skiing or white water rafting.

Of course Kathmandu is not the only retailer to note this trend and so it has faced increased competition, including from its former founder Jan Cameron who has invested in rival outdoor adventure retailer Macpack.

But chief executive Peter Halkett says Kathmandu has still managed to increase its sales in the face of increased competition in the space by investing in inventory and systems to grow its online sales both in Australia and globally.

The retailer is also rolling out more stores, taking a more rigorous approach to its store leases (something retail giant Myer says it is also doing) and investing in its “Summit Club” loyalty program.

All of these investments mean that Kathmandu’s profit margins have shrunk but the retailer’s sales are actually up and likely to improve further as the highly seasonal nature of the products stocked by Kathmandu mean sales are skewed to the second half of the year.

There’s no season for Spanish fashion retail sensation Zara, which records strong sales all year round.

Inditex, the parent company of Zara, released a very enviable set of figures in its half year results with sales up 17% to  7,239 million euros ($A9.023 million) worldwide.

Look in any Zara store and you’ll see queues of people waiting to try on clothes thanks to Zara’s constant stock turnover.

The retailer starts selling products based on the latest catwalk shows in just three or four weeks by owning and controlling its supply chain and by not keeping stock on hand.

Zara also keeps a sharp eye on its costs and has just made a €450 million investment in Spain, where it is based, in its commercial and logistics activities.

It rarely outsources manufacturing and when it does it uses cheaper Eastern European companies which are able to quickly deliver stock to Spain.

It seems consumer confidence is not so lacking when the right product is presented in the right environment and at the right price.


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