Five years after Sue Morphet ignited a very nasty and personal backlash with her radical plan to remake Pacific Brands it would appear the transformation remains incomplete.
Former Foster’s chief executive John Pollaers, who succeeded Morphet last year, today outlined his strategic vision for the group at an investor briefing and made it clear that, despite the extraordinary culling of brands, plant closures and offshoring of much of its remaining production, there is still work to do to stabilise the group.
Over the next year or two Pollaers’ priority is to stabilise the group’s earnings before interest and tax against a "negative trajectory" while continuing to invest in his key brands. In years two to four of his five-year plan he is foreshadowing modest sales and earnings growth before shifting into more sustainable growth towards later stages of the plan.
If Pacific Brands were to perform in line with the plan it would mean it had taken the best part of a decade to complete the transformation.
That’s not a criticism. When Morphet started the traumatic process the group had hundreds of brands and dozens of standalone businesses but the vast majority of them contributed little, if anything, to either sales or earnings. Its local manufacturing base was high cost and uncompetitive, the group structure was overly complex and it was over-exposed to a small number of large discount department store operators.
The difficult retail conditions post-crisis and, in particular, the reinvention of Kmart by Guy Russo as a deep discounter with a very focused range of products, was particularly damaging for Pacific Brands.
Its response was to try to reduce its reliance on wholesaling by developing direct channels – retail outlets, business-to-business sales and online – while continuing to improve its cost of doing business. Today more than a third of its sales come from those direct channels and discount department stores account for less than a quarter of its sales.
Pollaers isn’t fundamentally changing the strategy. He will continue to invest in the key brands and in expanding the group’s direct-to-consumer footprint aggressively while improving its sourcing and supply chain and developing a fast fashion capability.
Interestingly, he is also going to pursue a more aggressive expansion strategy offshore and is looking at the UK, US, Europe, China, other parts of Asia and the Middle East to reduce the reliance of the business on the domestic market. The Bonds underwear brand, the group’s workwear brands and its Sheridan homewares range will spearhead the effort.
He also intends to pursue "adjacencies" and is open to bolt-on acquisitions.
While the strategy might appear to be a continuation of the theme he inherited it does involve quite an ambitious and aggressive acceleration of each of the strands of the strategy and some risk, particularly in its offshore dimensions.
The pressure from a fairly concentrated retail sector in its home market, the pressure from the big discount department store operators for lower costs and for low-margin home brands, the high cost environment and the growth in online retailing (aided by a strong dollar) do, however, make sense of a strategy of trying to strengthen the key brands and their value, diversifying their distribution and building on the group’s modest presence today in offshore markets.
Pollaers knows that he has to continue to refine the brand portfolio and has to stabilise his sales base to end the cycle of falling sales imposing continuous pressure on the group’s cost base.
After a half-decade of shrinking the group needs a pathway to eventual growth. If he can execute his five-year plan well, it might finally have one.