Just sews up an online strategy

The relatively efficient performance of Mark McInnes' Just Group puts the retailer in one of the best positions to take advantage of online retailing, and generally improve the outlook for its brands.

Other retailers are suddenly talking about their aspiration of creating ‘omni channel’ models for their businesses. Just Group’s Mark McInnes talks about his aspiration of having 10 per cent of his sales online by 2015 but his aspiration has credibility because Just Group is more advanced in creating the new model for retailing than probably any other major retailer.

Just Group’s online sales grew by 100 per cent in the latest half. All of its proprietary brands and all of its stock keeping units are now online. It has just launched a multi-media web platform for its Dotti brand which will be rolled out to the rest of the brand portfolio this year. It is looking to create alliances with other online market places like ASOS, eBay, ShopBop and auction sites. It is launching a dedicated Singapore website for its Peter Alexander brand in May.

The key to Just Group’s strategic advantage over other major retailers online is that it owns its own brands. Whether it sells via its own websites, or through third party sites, it controls its brands and their pricing – no one else can offer them without striking a deal with Just Group and no one can under-cut Just Group on price.

In Smiggle and Peter Alexander, Just Group also has two potential international brands that it can distribute online – or through a physical network. Smiggle has established a significant beachhead in Singapore – five of the top ten Smiggle stores (in a network of 123 stores) are in Singapore, where Just Group now has seven stores.

The success of the brand in Singapore has led McInnes to consider a much broader push into Asia, with market studies of Korea, Japan, China, Hong Kong and Malaysia completed and a decision on whether to take the brand deeper into Asia to be made before the end of the financial year.

In other words, Just Group has a growth strategy that involves both a rapid expansion online and potentially the creation of a regional physical store network for Smiggle and, perhaps, Peter Alexander, which McInnes describes as his ’growth brands’.

Adapting to the new retail environment created by the coincidence of a deep cyclical downturn in the sector with accelerating structural change as sales move online and international speciality retailers are arriving in this market isn’t, however, just about websites and McInnes knows that.

While the David Jones results presentation and the unveiling of its omni channel strategy this week generated some aspersions about a legacy of under-investment that McInnes left at that group, from the moment he arrived at Just Group almost a year ago McInnes has being implementing multi-dimensional change at an aggressive pace.

Last July’s strategic review included dozens of measures to improve the basics of the group’s retail businesses, not just some broad brush vision for where the group might head in future.

McInnes, who departed David Jones suddenly in controversial circumstances in 2010, recognised that there were structural changes occurring in the sector and has responded to them decisively, whereas it could be argued that David Jones was slow to understand that the downturn was something more than cyclical.

The results of that McInnes review are starting to be reflected in the group’s performance. On sales that fell 5.4 per cent (like-for-like sales were down 7.1 per cent) Just Group held the decline in its earnings before interest and tax to 2.3 per cent. In the context of its peer group’s performances, that is an extremely creditable outcome.

The performance of Smiggle, where sales grew 18.1 per cent, and Peter Alexander, where sales were up 15.2 per cent, obviously helped blunt the impact of steep declines in sales at Jay Jays (15 per cent), Jacqui E (14.6 per cent) and Dotti (11.6 per cent).

Portmans, a perennial problem child, held its decline to 5.8 per cent and like-for-like sales growth was actually positive. Just Jeans’ sales were down 3.8 per cent.

Distorting the sales picture was the closure of 28 stores within the brands other than Smiggle and Peter Alexander as McInnes refashions the physical network to fit the new times. He has another group of stores that may close over the next few months as their leases expire.

Just Group pulled about $17 million out of its costs of doing business in the half with across-the-board reductions in spending.

McInnes has a particular focus on his lease costs, closing unprofitable and marginal stores and taking a much tougher stance on lease renegotiations, and on labour costs, where he is trying to link enterprise bargaining outcomes to productivity improvements and a better alignment of staffing to consumer behaviours. He’s also increasing the group’s focus on sourcing at internationally competitive cost.

Rental costs growth slowed to 2.7 per cent in the half (there were rent decreases aggregating 2.5 per cent for the established brands), store wages fell 5.2 per cent (established brands’ wages were down 9.2 per cent) and other costs of doing business were cut 17.5 per cent as part of a continuing process – involving 50 separate efficiency projects, improved sourcing arrangements and new trading terms – of lowering the group’s cost base.

So, while he is taking a very aggressive and optimistic approach to expansion online he is also presiding over a comprehensive but more defensive and detail-oriented re-making of the physical network to adapt to the structural changes occurring.

It helps that Just Group lies within Solomon Lew’s Premier Investment vehicle and that Premier is sitting on more than $300 million of cash.

Lew may have mis-timed his acquisition of Just Group ahead of the severe steepening of the downturn in retail that occurred subsequently, but he can take a longer term view and has the capacity, if the opportunity arises, to make another significant acquisition on somewhat better terms. Lew and McInnes have made it clear that what they are looking for is more unique proprietary brands that can leverage off the existing Just Group platforms.

There may be signs of considerable progress and longer term upside within Just Group’s result and commentary but the retail climate remains extremely difficult.

Just Group has reaffirmed its guidance of a full-year profit of $80 million to $95 million but is now directing investors towards the bottom end of that range and making it subject to an improvement in its fourth quarter relative to the horrendous experience of retailers generally in the fourth quarter of their last financial year. The response by a sharemarket now accustomed to retail horror stories suggests that investors think that would be a relatively positive outcome.