RetailBiz Round Up for Friday 21 March 2014

Clearly display warnings and product labels, provide clear product descriptions and pictures, and check the requirements of Australian safety standards and bans before listing a product as available for sale online. These are just some of the guidelines in the ACCC’s new publication outlining the best practice tips for online retailers.

A guide for business: Consumer product safety online is designed to inspire confidence in online sellers for shoppers who can’t physically examine the products they intend to buy.

“Australian consumers are increasingly looking to online stores to purchase consumer products but the online environment creates some unique product safety challenges and requirements that online suppliers need to be aware of,” ACCC Deputy Chair Dr Michael Schaper said.

All items sold online to Australian consumers must comply with Australian Consumer Law (ACL).

Businesses, including those based overseas, breach the ACL if they sell banned products, do not meet all requirements of mandatory product safety standards or fail in their obligations related to product liability, consumer guarantees and misleading and deceptive conduct, the ACCC said.

“Businesses must remember that the Australian Consumer Law applies regardless of whether products are sold in a ‘bricks and mortar’ shop, in an online store or via an online marketplace, and regardless of where the seller is based, I encourage all online suppliers to download a copy of the free report,” Dr Schaper said.

The ACCC conducts surveillance of online stores and in 2013 identified two online businesses supplying banned small, high powered magnets to Australian consumers. Following negotiations with the ACCC, these suppliers stopped selling the magnets to Australians and conducted national product recalls. Penalties include infringement notices, or for more serious breaches, the ACCC can seek court-imposed penalties of up to $1.1 million.

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Myer Holdings announced a net profit after tax (NPAT) down 8.1 per cent to $81 million in their half year financial report released today, despite an increase in total sales.

In the 26 weeks ended 25 January 2014, total sales were up 0.3 per cent to $1,737 million and sales on a like-for-like basis were up 1.2 per cent compared to the corresponding period in the previous year. In comparison, David Jones’ announced yesterday its total sales increased by 3.8 per cent to $1,042.3 million.

The retailer’s earnings before interest and tax (EBIT) were down 10.5 per cent to $127 million and the cost of doing business (CODB) increased by 2.1 per cent to $540 million. Increased costs related to labour and occupancy, store closures and refurbishment costs, and operating expenses associated with growing the online business impacted the company’s results.

Operating gross profit was down 3 per cent to $712 million and the operating gross profit margin was down 21 basis points to 41 per cent.

Myer CEO Bernie Brookes said the business has delivered comparable store sales growth in six of the last seven quarters and the results were positive considering the trading conditions.

“It was encouraging to achieve total sales growth despite significant sales disruption caused by three of the top 20 stores being under major refurbishment and the closure of our store at Dandenong (VIC). It was also pleasing that this growth was achieved on top of strong growth in the previous corresponding period,” Mr Brookes said.

“The second quarter was characterised by weak trading during November and the first half of December but with significant improvement immediately prior to Christmas and a very strong stocktake sale,” Mr Brookes said.

Myer remains cautious about the consumer outlook for the remainder of the financial year and said earnings momentum was expected to improve into FY2015.

Myer welcomed David Jones’ decision to appoint of Port Jackson Partners Limited as a strategic adviser to assist in evaluating Myer’s merger proposal.

The merger with David Jones, proposed in October 2013 and made public in January 2014, represents “a unique opportunity to create significant value for both companies’ respective shareholders,” Myer said.

Myer Exclusive Brands sales were up $7 million to 20.2 per cent of sales.  The top performance category was cosmetics and youth, fashion accessories, women’s apparel and footwear also performed well.

Online sales continued to grow despite a “disappointing” outage of the website during the start of the stocktake sale.  Myer believes online sales are “on track” to reach ten per cent of their business in the next five years.

Myer will pay an interim dividend of 9 cents, fully franked, payable on 8 May 2014.

David Jones announced lower profits despite higher sales in their half year financial report released this week. David Jones Limited posted a profit after tax (PAT) of $70.1 million for the half year ended 25 January 2014, down 4.6 per cent from $73.5 million in the same period last year.

Total sales were up 3.8 per cent to $1,042.3 million compared to the same period in the previous year (1H13: $1,003.8 million) which includes the Christmas and New Year period. Like-for-like sales also increased 1.1 per cent; the figure excludes two new stores in Victoria which opened in March and September last year.

The company’s department stores posted an earnings before interest and tax (EBIT) of $91.6 million, which represents an increase of $7 million on the corresponding prior year period. DJs said the fashion, beauty and homewares categories performed strongly.

However, the financial services EBIT was down 52.7 per cent to $11.6 million, due to a new profit sharing arrangement which is more favourable to American Express.

David Jones CEO and managing director Paul Zahra said, “Our result this half reflects the momentum that our future strategic direction plan is gaining, with our core department store business delivering 8.3 per cent EBIT growth. Our result this half also reflects the fact that the EBIT contribution from our financial services business broadly halved in line with previous guidance.”

The board has declared a fully franked interim dividend of 10 cents per share, equal to dividends paid in 1H13. The record date for the interim dividend is 10 April 2014 and the dividend payment date is 7 May 2014. The price of DJs shares are up after the announcement.

Gross profit increased by $15 million to $406.1 million. The gross profit percentage of 39 per cent was equal to the corresponding period in the previous. DJs said the gross profit was impacted by aggressive competitor discounting pre Christmas, the exit of low productivity categories and the conversion of Dick Smith to a retail brand management agreement (RBMA).

Dick Smith now operates the electronics category after DJs entered into a RBMA (concession) which took effect on 1 October 2013. DJs said the arrangement has helped improve the company’s EBIT by removing labour and inventory costs.

The company is also focussed on becoming an ‘omni channel retailer’- embracing online and bricks and mortar retail. Coming off a low base, the company’s online store grew significantly and was up 220 per cent on the corresponding prior year period. Online sales currently account for just 2 per cent of total sales, but the company expects this will reach 10 per cent by 2018.

DJs will release a customer data analytics program to understand how individual customers shop and interact with David Jones across all channels and is rolling out complimentary Wi-Fi in store.

“Complimentary in-store Wi-Fi is a great tool for acquiring customer email addresses and engaging with customers. Traffic analytics enable us to accurately ascertain foot traffic into our stores. This information is used in conjunction with our recently rolled-out daily productivity reports for individual front line staff to ascertain and benchmark conversion of foot traffic into sales,” Zahra said.

The cost of doing business (CODB) increased by $8 million to $314.5 million and the CODB to sales ratio of 30.2 per cent is 30 basis points lower than the year before. DJs said the increase in CODB principally relates to higher lease and occupancy costs and higher depreciation charges.

Among the strategies for reducing CODB in the future DJs plans to let leases expire on “low productivity stores”.

“We have six leases in less robust demographies due to expire in the next five years. These lease expiries give us the opportunity to review our store portfolio in light of our broader OCR strategy. In this regard we have decided not to renew the leases at our Birkenhead Point (NSW) and Harbour Town (QLD) warehouse stores,” Zahra said.

One of the ways DJs seeks to drive growth is by targeting new customers, including the inbound Asian tourist market by employing 140 front line staff fluent in Cantonese and Mandarin and the introducing new promotional events such as Chinese New Year.

To maximise profit margins new and refurbished DJ stores will give more space to fashion and beauty categories and less to home. The ratio of selling space is currently 60:40 fashion and beauty versus home. By the end of 2014, ten of the company’s 38 stores will have a 75:25 category mix.

“Our department store business is delivering good EBIT growth. We have a strong brand and market positioning which holds us in good stead for future growth.

“We have a robust business model with good growth prospects and we continue to be committed to paying out not less than 85 per cent of PAT to shareholders as fully franked dividends,” Mr Zahra said.

Two of Australia’s big appliance retailers will be represented on the board of the National Online Retailers Association (NORA). Steve Toth, director of omni-channel and mobility for Dick Smith will join John Winning, founder of Appliances Online and CEO of the Winning Group, on the NORA board.

Established in 2013, NORA is an industry group representing ‘new retail’ and advocates for a “retail renaissance” driven by technology and customer centricity, and which embraces the global opportunities.

NORA made three other new appointments to the board, CEO of The Iconic Patrick Schmidt; Kevin McAulay, Group GM Marketing & Comms for the Super Retail Group; and Lisa Powell, Amblique’s head of retail practice.

NORA chairman Paul Greenberg said the depth of experience of the new appointments in bringing traditional brands online shows how retail is evolving.

“These four new members bring NORA a wealth of experience, bridging traditional and new retail. All have worked extensively with online retail, both with new players as well as getting well-known Australian retailers successfully online. Their presence clearly shows how serious the Australian retail sector is about new retail, and how optimistic we are about the future,” Greenberg said.

John Winning, a founding NORA board member, has spoken about the changing state of online retail, saying there was no reason why the “old guard” of Australian retail couldn’t embrace new ways of selling to consumers.

NightOwl has opened its sixth store in Townsville under its new ‘store of the future’ model. The 24-hour outlet is located at 7-8, 336 Flinders Street and features NightOwl’s famous grocery range, chips, snacks, drinks and an expanded food service offering. 

“It’s not just another convenience store,” co-owner Gaurav Patel said. “The concept of the convenience outlet has evolved and customers can find everything from basic groceries to confectionery and snacks and a wide range of ready-made meals. The store of the future concept is about providing a one-stop shop for customers’ needs.”

Quote of the Day

“Fair Work junior wage Union win will devastate youth employment and crush retailers with increased wages bills.”

The not-at-all sensational subject of the latest ARA media release, in which executive director Russell Zimmerman railed against Fair Work Australia decision to vary the junior award so that “20-year-old retail employees will be entitled to the adult rate of pay, provided that they have worked for their employer for more than six months”.

Image of the Day