What caused the demise of Wild Pair, Dick Smith and Pumpkin Patch? A post-mortem analysis

  • News
  • November 3, 2016
  • Elly Strang
What caused the demise of Wild Pair, Dick Smith and Pumpkin Patch? A post-mortem analysis

Pumpkin Patch went into receivership last week and has confirmed seven stores acrossing the country will be closing, including Ponsonby, Takpauna, Henderson, Te Rapa, Wanganui, Coastlands (Charlie & Me) and Hornby.

KordaMentha Receiver Brendon Gibson said that the stores must be closed in order to stabilise the business.

“We acknowledge this is a difficult time for all Pumpkin Patch employees. Staff have been advised of their store closure and the receivers’ intention to pay all entitlements to a maximum of $22,160 (gross) per employee. They have also been given access to EAP support services,” he said.

The seven stores will close by 8 November, with 57 staff losing their jobs.

However, the receivers still want to keep some of its New Zealand stores and its Australian stores in operation as it tries to track down a buyer.

Gibson said its Australian operations were still under review, with no store closures yet confirmed.

Was it something contagious?

Pumpkin Patch’s demise isn’t an isolated incident, as a long list of New Zealand retailers have felt the effects of a volatile marketplace before it.

Wild Pair, Shanton, Jean Jones, Identity, Cooper Watkinson, Temt, Valleygirl, Laura Ashley, Nicholas Jermyn and Dick Smith all have battled problems in the changing retail landscape and disappeared from it.

All of the businesses vary slightly in what they sell, but is there a common thread connecting them that other retailers can learn from?

Retail advisory and restructuring firm McGrathNicol recently acted as administrators of Dick Smith, Wild Pair and Valleygirl and Temt.

In an opinion piece, McGrathNicol partner Conor McElhinney said there was a number of themes he had observed that were common between the retailers that had gone into receivership, including:

  • A lack of basic retail business metrics to manage the business.
  • Being locked into unprofitable stores with no easy exit from leases.
  • An inability to compete effectively on price and range with overseas based online retailers.
  • An inability to respond quickly to the changes in fashion and supply chain mismanagement.

First Retail managing director and retail analyst Chris Wilkinson agreed that there were several common denominators between the biggest departures of the last year.

He says some of the common themes between the brands were high operating costs and legacy business models.

“One of the things that was a common denominator with all three [Wild Pair, Dick Smith and Pumpkin Patch] is that they had historic debt, or that the businesses weren’t resourced efficiently,” Wilkinson says.

“In terms of Dick Smith, it was an expensive model - they’d paid a lot of money and it owed the shareholders a lot of money, plus it had expensive sites. Pumpkin Patch again had really expensive sites, such as mall operations that would be burning a huge hole in their pocket and they were committed to those leases. As well as this, they would still dealing with debt from overseas expansion into the UK and US.”

He says the retail models all three companies were operating under wasn’t evolving fast enough with changes to the retail landscape, either.

“Pumpkin Patch was still working on seasonal releases, almost the old model of a catalogue release and that’s a very old way of doing business,” he says.

Perhaps most interestingly, Wilkinson says the problem wasn’t that their ecommerce sites weren’t up to scratch.

Instead, he says their store infrastructure was what was trapping them, which ultimately led to their departure.

“They all had an excellent ecommerce proposition - outwardly it seemed they were ticking all the boxes.

“Those three were doing extremely well in terms of their delivery online, but I think the biggest challenge there was that they just had a such a large store infrastructure that was pulling back what needed to be an evolving model.”

Uncontrollable factors

The aforementioned factors affecting the likes of Wild Pair and Dick Smith were just one of the causes of death.

This is because if a retail business is already facing hardships within its company, the current climate of retail is unforgiving.

Some of the external factors that contributed to the downfall of the Dick Smith, Wild Pair and Pumpkin Patch were wider industry trends that could affect any businesses within retail.

Wilkinson says one issue that all retailers should be keeping an eye on is that there an increasing amount of discretionary spend in retail shifting into hospitality.

This is part of the experiential spending trend where consumers are investing their dollars into experiences instead of material goods.

Another area of concern is that spending online overseas increases month on month, Wilkinson says.

This is despite whether the New Zealand dollar is for or against the consumer.  

“That’s suggesting there’s a constant appetite from New Zealand for something different, something unique. It’s not necessarily a value thing, but it does come down to the fact that is such a global market now,” he says.  

Wilkinson says businesses in Australasia need to be staying aware of global trends and looking at the wider market, and picking out where the successes and challenges are.

“Really smart retailers look at all the categories, such as trends that are happening in one sector earlier than others,” he says.

“We would also suggest businesses operate a risk register. No matter how big your business is, think of yourself as a big business where you have to report to a board and identify risks to remain constantly mindful of them.”

Survival outlook

However, the climate for retail going forward into 2017 isn’t all doom and gloom, either.

Wilkinson says the market is reasonably steady for Kiwi retailers as the end of this year nears.  

The writing has been on the wall for some time now for high-profile businesses that have gone under in the past year – Wild Pair, Dick Smith and Pumpkin Patch – and it was more a question of when, not if, he says.

He says other businesses in the market will fare far better so long as they continue to evolve with the market and keep tabs on what’s happening in retail globally and locally.

“There’s certainly much more confidence happening in the sector,” he says.

“Whilst there’ll always be businesses that are struggling out there, at the moment there’s some headroom for many businesses, and we’ll start to see a situation where there’s an appetite for investment, growth or re-investment within the business.”

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