It would be an understatement to say it’s been a difficult few years for the retail sector, which yesterday added yet another name to its list of troubled brands.
About 300 workers face an uncertain future now veteran menswear retailer Roger David has placed its 57-store operation into voluntary administration.
The news was met with shock and dismay by those in the industry on Thursday, but also with a sense of familiarity — this isn’t the first time this story has been written this year.
It’s not the second, third or fourth time either, and although its one of the larger collapses, the reasons provided by administrators and analysts aren’t unique.
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Slow sales, pressured consumers, poor customer experience, international competition and rental costs.
Its retail’s often-cited “perfect storm” of dreadful conditions that has claimed the scalps of businesses such as Toys R Us, Oroton Group, Surfstitch, Metallicus, Marcs, David Lawrence, Herringbone, Rhodes & Beckett and Pumpkin Patch in recent years, just to name a few.
Roger David’s administrators KordaMentha are now undertaking a fire sale of stock ahead of store closures, which will drive even more discounting into the menswear category at a time of the year when retailers are trying to sell at full price.
In two months the retail sector will be engulfed in Christmas trade, with many trying to make the most of the busiest period of the year before what’s expected to be a tough 2019.
Petrol prices have risen to four-year highs and drought in key farming areas is driving higher food prices, a reality the Australian Retailers Association (ARA) says is a bad sign.
“There’s a lot of retailers out there depending on Christmas trade,” ARA executive director Russell Zimmerman tells SmartCompany. “There’s an incredible amount of pressure.”
The collapse of Roger David is, according to Zimmerman, evidence there are no sacred cows.
University of Tasmania’s retail expert Louise Grimmer agrees, saying to some extent the spate of collapses in recent years is just the reality of a heavily disrupted sector.
“It sounds a little dramatic, but we’re almost at survival of the fittest,” she tells SmartCompany.
Stefan Kazakis, founding principal of consultancy Business Benchmark Group, says Roger David was ultimately too late in trying to reinvigorate its brand.
“They were a little bit late to reinvent themselves, the horse had bolted,” he tells SmartCompany.
“It’s another nail in the coffin for confidence if you’re a big-time retailer.”
The rental riddle
Behind the sales story is cost, as it is with any business, but for retailers, there’s often a shark under the rug: landlords.
Retailers have relocated, shutdown and simply gone online over the last 18 months to deal with rental stress.
Jacqueline Major, the owner of Sydney retailer Oz Resort relocated her business earlier this year after 30 years because of escalating rent — a common story in the sector.
Retail rents have been a pervasive argument in the retail sector for decades, that hasn’t changed, but the level of disruption, competition and prevalence of difficult macroeconomic conditions has.
Groups such as the ARA are warning that shopping centres are shooting themselves in the feet by pressuring so many retailers, while landlords appear to be advocating a more survival of the fittest-style approach.
“There’s no doubt the industry’s evolution will continue, as those brands that no longer perform or are relevant or desirable to customers will fall away,” Peter Allen, chief executive of Scentre Group (Westfield ANZ), said at the landlord’s Annual General Meeting earlier this year.
Landlords have their own worries, not least of which are shareholders that would ask questions if rental income took a dive, and with vacancy rates remaining low (below 5% across most major landlords), there’s little incentive to offer a helping hand.
Many retailers are biting the bullet. Sumosalad chief executive Luke Baylis revolted by putting leasing entities into voluntary administration last year amid a stoush with Scentre over rents.
Solomon Lew’s Premier Investments has just started closing stores where he can’t get better rental deals for his brands, including Portmans, Just Jeans and Jacqui-E.
Wesfarmers’ struggling department store Target is pulling back as well, committing to cutting 20% of its selling space in June.
“Each site has been evaluated properly and when the lease comes up this time around we have to say to the landlords: we’re exiting,” Target boss Guy Russo said earlier this year.
Others have already closed dozens of stores. The struggling fashion portfolio that Specialty Fashion Group sold to Noni B earlier this year (including Katies, Millers, Rivers and Crossroads) has cut more than 100 locations over the last 18 months.
Kazakis, who operates a store in Westfield Doncaster, says rent is a “massive liability” on the sector and is making it difficult for businesses to command the flexibility they need to change.
“You’re dead in the water before you start,” he says. “If you couple [rents] with the strategy of discounting every day you’re left with no gross margin and no cash.”
A lack of financial flexibility to pursue change is often noted in the context of struggling department store Myer, whose rental obligations have been blamed for its inability to command its destiny.
Landlords, however, have yet to really budge, and even industry advocates are realising its unlikely they will, at least not until the line of businesses willing to step into vacated stores thins out.
Middle-market retailers have been hit hardest by industry disruption in recent years, often offsetting comparable success in the high and low ends of the market (think Furla on the one hand and Kmart on the other).
As Grimmer explains, the retail malaise has well and truly set in, and the market is starting to see the results.
“A lot of these middle-of-the-road fashion retailers are really struggling, they haven’t got a compelling product offering,” Grimmer explains.
“It’s bland land.”
A glut of uninspiring stock in the market has the damaging consequence of driving discounting, of which there has been an unprecedented amount in retail recently.
Margins are paper thin, making escalating costs in rent and other bills such as power all the more difficult to contend with.
General Pants Co. — the owners of Metallicus before its entry into administration — have recognised this problem.
“Our biggest concern is that there’s already possible too much product in the marketplace,” General Pants chief executive Craig King said in May.
“Retailers are challenged with managing their inventory effectively, and suppliers and brands need to check themselves as to their expectations with how much product can be pushed.”
Where is retail headed?
Zimmerman hopes there won’t be more collapses, but he’s said that before, and retailers often hold on through Christmas if they’re on the verge of administration, which makes January and February prime time for retail death.
Earlier this year, administrator Jirsch Sutherland predicted there were hundreds of retailers on the verge of collapse, large and small, and while plenty of others are expanding it appears unlikely this will be the last time this story is written in the coming months.
Eyes are now turning to Christmas trade, which is less than 100 days away, to see whether Christmas will produce a result that can save some from the fire.
However, Kazakis says the silly season isn’t what it used to be for a retail sector that finds itself discounting throughout the year
“Those sales are no longer once in a six month period … [Christmas] isn’t the snowball it used to be.”