Australia a “very retailer unfriendly country”, experts warn as Premier Investment looks to Asia to expand Smiggle
Monday, September 24, 2012/
Premier Investments recorded net profit after tax of $68.2 million last year but the retailer now plans further expansion into Asia in order to avoid structural problems stymying retail growth in Australia.
Premier – which owns Jay Jays, Peter Alexander, Just Jeans, Dotti, Portmans and Smiggle – reported a 68% increase on the previous year for its net profit after tax despite what it described as a “difficult macro environment”.
The group reported a 67% growth in internet sales for the financial year but attributed much of its growth to the successful expansion by stationery brand Smiggle into Asia.
Premier chairman Solomon Lew said the retail environment in Australia continued to be challenging and so he was pleased to report a “comparatively strong result”.
“Premier’s results demonstrate its unique position with solid earnings growth, significant organic growth opportunities from existing businesses and a strong balance sheet,” Lew said.
“Together, this provides Premier with the financial strength to take advantage of new growth opportunities while continuing to seek to maximise returns from existing businesses.”
Those growth opportunities look to revolve mainly around Asia, with Premier operating 13 Smiggle stores in Singapore. There are plans to open five to 10 more Smiggle stores in the next 12 to 24 months and to open over 30 stores in Malaysia and 15 to 30 stores in Japan over the next three to five years.
Premier’s chief executive Mark McInnes told The Australian expansion in Asia was not hampered by the structural issues typical to retail in Australia
“The structural issues that we are facing in Australia are not faced in Asia at all. There are booming economies, high levels of population, high GDP growth,” he said.
Kevin Moore, chief executive of consultancy CrossMark, told SmartCompany the structural issues faced by retailers in Australia were essentially a lack of flexibility compared to Asia.
“There’s far more flexibility in your workforce in Asia, more flexibility in retail zoning and better proximity to supplier bases; we are a very retailer unfriendly country,” he says.
“Our federal laws, state laws and local laws make it hard work to be a retailer in Australia and that issue has been faced by Aldi, Costco and Masters.”
Moore attributes Premier’s successful year to the influence of former David Jones chief executive McInnes and says the business model he has developed here will work well in Asia.
“Wherever Mark McInnes turned up he was going to do a good job. He’s a very good retailer; the guy has got it in his blood,” Moore says.
“He took the key elements in the business, sourced better and made the hard calls on the stores that were not making money and sorted them out.”
“At some point he will unlock the synergies between those different brands. He’s got a beautiful selection of brands that you would find in a department store environment.”
David Gordon, retail consultant at WHK, told SmartCompany there is still sales growth happening in south-east Asia for retailers.
“The structural issues [McInnes] is talking about is the market here is somewhat saturated and that the growth in shopping centre precincts over there means there is more ability to grow,” Gordon says.
“They are certainly not paying the kind of rental and staff costs that we pay over here. So their gross margin requirement overseas is not anywhere near as great as over here to cover those two key operational costs.”