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Kathmandu closing UK stores to aid recovery after profits drop

  • News
  • September 29, 2015
  • Elly Strang
Kathmandu closing UK stores to aid recovery after profits drop

Simonet says closing the stores doesn’t mean Kathmandu is pulling out from the international market.

“We’ve not decided to exit the UK, we’re going to stay in the UK with our online shop and through third-party transaction websites,” he says.

“We’re closing physical stores because the stores have not delivered a return or profit. Considering what’s happening in New Zealand and Australia, the focus has to be put on profitability.”

The company attributed its $31.1 million loss to various issues: ordering excess inventory that meant aggressive discounting; pricing and promotional activity that confused customers; and the weaker foreign exchange rate impacting on costs.

Chief financial officer Reuben Casey says the company is looking into alternative manufacturing locations to help combat the weakening Australian and New Zealand dollar.

The company had also become heavily reliant on constant sales.

Simonet says the poor 2015 result highlighted the need to review Kathmandu’s cost structure, which they’ve begun already.

“We know that the pricing model has to be reviewed because it’s confusing and too complex,” he says. “We could improve on the gross margin and get better results.”

A review of the pricing architecture and commercial model is underway and will finish in mid-October.

Kathmandu shares fell 3.6 percent to $1.36 in the wake of the announcement.

This is significantly below the $2.10 to $2.41 valuation the company was given in Grant Samuel's independent assessment of the Briscoe offer, which was $1.80 a share in cash and scrip.

The majority of its shareholders rejected Briscoe Group’s takeover offer, as they felt it didn’t value the company’s worth.

Many believe they’re putting their faith in Simonet to turn the company’s fortunes around.

Simonet arrived in July, having previously been the CEO of London-based “affordable luxury” company Radley.

He had barely spent 24 hours at the helm before Briscoe Group moved to take over Kathmandu.

When asked if he expected Briscoe to make another takeover offer, Simonet said the company is not expecting anything and and he has no specific comment on the matter.

Despite Kathmandu’s bleak results, Simonet says he’s still excited to be a part of Kathmandu on his “three-month anniversary”.

“It’s a great brand and great and passionate team. That’s one of the main reasons I joined the company,” he says.

“There’s much more we can do to leverage the roots, the distinctiveness and the history of the brand in New Zealand and Australia.”

He says they’ve already made plans to engage better with its target customers, particularly through Summit Club.

“Strengthening the distinctiveness of the brand will also open up opportunities to be relevant in international markets as well as on social, digital and online channels.”

The UK closures will take place in the 2016 financial year. Alongside this, there will be three new stores opening, along with relocations of flagship stores in Melbourne and Adelaide.

Simonet says the company also plans to build on its online platform to expand internationally, alluding to this being the reason he joined Kathmandu.

At his previous role at Radley, the company had retail stores across the UK, Asia, parts of Europe and in Australia, but also exported to 50 countries through its online platform.

He says international growth will be driven through a ‘capital-like model’ and online to make sure the company gets an acceptable return on our investment, rather than huge fixed cost structures.

In New Zealand and Australia, the company wants to ensure its omnichannel offering is up to scratch by expanding its click-and-collect offering.

Online sales may play a key part in Kathmandu’s survival, judging by its online-only sales.

Same-store bricks and mortar sales fell 3.2 percent, while online-only sales increased 22.7 percent.

There are also plans to do more brand marketing instead of just marketing sales and promotions.

Simonet says apart from up to 10 percent of the company’s 250 head office staff expected to lose their jobs, there are no plans to reduce roles down any further.

He says the focus for the company this year will be on three key things: driving efficiencies by investing in things that will bring a return, being customer-centric and creating distinctiveness, so Kathmandu can compete on a national and international level.

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