Legacy is not enough for retailers
Retailers’ global woes are being blamed on, among other things, the rise of Amazon. And locally, Stuttafords is not the first SA department-store chain to realise bigger isn’t always better
When the grand dame of retailers, Stuttafords, applied for business rescue in October last year, it signalled a deep disjuncture in modern retail, which had been operating on legacy and luck for too long.
Stuttafords, which employs about 950 people in eight department stores and 16 standalone stores, is the latest SA department store retailer to realise that bigger doesn’t always mean better. Like other “large-box retailers”, it tried to appeal to younger, fashionable and tech-savvy black consumers. Patently, this didn’t work.
Now, its saving grace may be to complement its existing brands with “off-price” clothes (top-quality branded items from the previous season, selling at a discount) and parallel imports (clothes selling at a discount to the countries where they’re made.)
Though still in business rescue, Stuttafords continues trading. The “rescue plan” will be presented to creditors this month.
Stuttafords CEO Robert Amoils says his retailer isn’t a traditional department store, but has rather sought to create a “theatre of shopping and branded emporiums”. It has some fantastic exclusive brands including Banana Republic, Tommy Hilfiger and Yves Saint Laurent.
In Europe and the US, department stores are struggling. But SA is different in that it has a mall-dominated retail environment and shopping culture, which makes it easier for “large-box” retailers to operate.
Another difference is that US department store retailers are losing shoppers to the Internet. But Amoils says though online sales are growing in SA, they remain a small component of overall turnover.
The 158-year-old Stuttafords wasn’t listed on the JSE, so it doesn’t release financial records. But its business rescue application was caused by a rapid fall in turnover during last year’s winter months, which left its balance sheet exposed. Customers bought less, and traded down. Stuttafords then moved to cancel onerous leases, but this sapped profitability from its core operations.
Still, Amoils doesn’t believe Stuttafords got its plans wrong: “I do not believe it appropriate (or correct) to accept that the prevailing strategy is incorrect.”
So what could have been done differently to prevent the cash crunch?
Amoils says a couple of things could have been done differently. This includes pushing less development spending into malls that were being refurbished, realigning budgets to spend less on expensive brands and perhaps shutting down certain stores earlier. It also could have eliminated certain brands “to enable more effective and efficient asset utilisation within the store-base,” he says.
Clearly, some investors still believe there’s hope for Stuttafords, which is why some are still considering investing. But, as it stands, “no acceptable partnership has been found as yet,” says Amoils.
Stuttafords isn’t alone, however.
Edcon, the owner of 88-year-old department store Edgars, went through its own troubles when it was bought by US equity firm Bain Capital for R25bn in 2007. Last year, facing a debt crunch, Bain cut its losses and handed Edcon over to a consortium which converted their debt into equity.
Edcon CEO Bernie Brookes says retailers need to have “flexible strategies in place that allow quick, adaptable and seamless responses to new customer shopping needs and patterns”.
Brookes has big plans to reinvent Edgars, creating a “one-stop shopping” experience, while focusing on better customer service.
It has a number of strategic plans to protect itself from the domino effect of failing department store retailers — including cutting underperforming brands.
Overseas, it’s the same story. In the US last month, Macy’s and Sears announced about 250 store closures, with Macy’s flagging 10,000 job losses as sales continue to fall. Amazon has been blamed for the stress retailers have been experiencing.
Poonam Goyal, a senior retail analyst at New York-based Bloomberg Intelligence, says the lack of growth of department stores in the US stems from rising competition and slowing sales as shoppers turn to online retailers like Amazon.
“The performance of department store retailers is more sluggish in the US, probably because the stores there are purely discretionary,” says Goyal. “Abroad, many stores are more diversified as they also sell food, which helps bring them traffic. Slowing traffic is the main challenge for stores here.”
For Stuttafords, Amoils says new credit offers and loyalty programmes will play an important role in its future. “We are definitively looking into a comprehensive digital and online strategy,” he adds.
For Brookes, department stores must continually evolve. “If you keep doing more of the same, you get more of the same, hence new strategies and approaches are needed,” he says.