Specialty Fashion Group (SFG) will be looking to “rationalise” 120 of its bricks and mortar stores over the next three years as it looks to focus on its other channels.

After increasing its physical store portfolio to 909 stores at 31 December 2011, SFG says it will open new stores in more “strategically important” locations, however will rationalise its portfolio to take advantage of the  opportunity to reduce its costs of doing business as online revenue increases in importance.

According to the company, store closures or recalibration in size will depend on whether the rental costs decrease in line with the cost structure associated with running an online business.

Company CEO Gary Perlstein said because additional channels now exist for its brands, the company’s investment hurdles for bricks and mortar stores are higher than previous.

“The pace of expansion of new stores is likely to be slower than the past unless we can achieve lower store rental costs. Importance will be placed on the strategic position of certain locations to support the group’s omnichannel business strategy and where necessary the portfolio will be rationalised,” he said.

This announcement comes following SFG’s announcement that its revenue dropped 0.5 per cent lower to $307 million than revenue of continued operations for the first half of the prior year. Also, comparable store sales for the half year were 4.5 per cent lower than the first half of the prior year, and reflect difficult trading conditions throughout the period, particularly the Christmas trading period.

“Given this is the toughest retail environment we have seen, Specialty Fashion Group has performed well. In spite of recent reductions in the cash rate, industry wide discounting has continued, but our investments over the past three years meant we protected gross margins,” Perlstein said.

SFG also intends to monetise its customer database by launching an online business that will feature local and global women’s wear brands by June 2012

“Innovation has been the key to the improvements we have made to the group over time, whether it be using our scale to procure design led product from Asian sources, being at the forefront with our customers relationship management or capitalising on the trend in online retail,” Perlstein said.

“We will be playing to one of our strengths, which is retailing to be the 30 plus mass market. We believe there is untapped demand from mature customers that are enthusiastic online shoppers,”

At this time Specialty Fashion Group expects EBITA for the first half will be within the range of $21 million and $22 million.