Retailing is a great business if companies produce what customers want but it can be a totally frustrating sector when companies fail to engage with customers.
Last week two discretionary Trans-Tasman retailers, Kathmandu & Hallenstein Glasson, reported their financial results for the 2013 financial year.
Kathmandu reported sales and net earnings increases of 11% and 27% respectively for the year ended 31 July 2013 while Hallenstein Glasson’s reported sales growth of only 2% and an 11% decline in net earnings for the year ended 1 August 2013.
Hallenstein Glasson’s disappointing result was mainly due to the poor performance of Glassons, its womenswear chain.
The environment has been reasonably favourable towards retail spending in Australia and New Zealand. Interest rates are low, rising house prices should boost consumer confidence and Australia has a more stable political setting post the election.
However, targeting the right customer can have an equal or greater effect on company performance.
Generally speaking a company’s sales performance depends on the desire & financial ability of its target customer to shop. Kathmandu’s typical customer is the older, baby-boomer generation. This age group is living longer, travelling extensively & has a high level of disposable income.
Hallenstein Glasson’s target market is the younger fashion conscious customer who is less concerned about quality and durability and more about price & style.
As well as targeting the right demographic, retailers must persuade those within their target audience to spend in their store and not in their competitors outlets.
Kathmandu has been a trusted brand in New Zealand for many years and is known as a one-stop-shop for adventure apparel and gear. In Australia it has doubled its store network since 2009 to 87 stores. This provides significant scale benefits, as well as fostering awareness for the brand.
In contrast, Hallenstein Glasson, has 30 stores in Australia and is competing at a store and online level with international retailers. Many of the latter are well-known global brands with large store networks. This variety of choice makes it more difficult for Glassons to have a point of difference, whether it is on price, quality or convenience and in this particularly competitive environment, customer loyalty is difficult to maintain.
A company that has strong brand awareness and is targeting a customer with a high propensity to spend will have superior performance to a brand like Glassons that must discount to attract the price conscious customer. Hallenstein Glasson need to build greater scale in their Glassons business if their current strategy is to succeed.
Disclosure of interest: Milford Asset Management on behalf of clients holds shares in Kathmandu.