The dog ate my homework. We’ve all used it. And Mr Price is no exception. The retailer’s horrid trading update and ancillary conference call wiped off a thick chunk of its market value, raising concern over its business model and the likelihood of deeper issues at the cheap ’n (once) chic retailer.
Disclaimer: This was not the first set of alarming figures that the one-time darling of the clothing retail sector put out — back in January poor figures erased close to 18% of its value in one day. Then, like now, Mr Price seemed all over the place about what exactly went wrong. Let’s unpack this, shall we? By now it’s become clear that the main problem is the Mr Price clothing chain — it accounts for about 60% of sales.
Now, retailers blaming the weather for disappointing trading performance is nothing new. And at times it’s legit.
Think about it — would an Italian cashmere cable-knit sweater in a 7-gauge knit really fly off the shelves in unseasonably high temperatures?
In November and December last year, retail consultancy Planalytics estimated that apparel retailers in the US lost roughly $572m in sales because of the balmy weather. Over the past two years, winter has come later and it’s been shorter and hotter. This is essentially down to El Niño. And I’m going to leave the geography lesson there.
There are times though when bad weather masks mistakes that businesses make, chiefly around how they handle stock. If they’ve overstocked they take the pain and mark down, and it hits margins. Then there’s the flipside.
Mr Price trades its winter assortment from April to June and what happened this time round is that they didn’t have enough knitwear and jackets — so when the colder weather (finally) arrived they were short of these items.
That’s feet walking out of your store.
Their apparel division also suffered because they stuck to their guns of not giving up margin with early discounts. Not moving early cost them market share. On the half-hour conference call they very readily pleaded mea culpa on both. Where things start to get iffy is around the pronounced efforts to shift blame to the levels of competitor activity.
The environment is tough, c’mon. Retail sales growth came in at 0.8% y/y in July — according to Investec the historic average for real retail sales growth is 5% y/y in SA.
Stats SA and IHS record real retail sales growth rates of above 14% y/y in boom periods.
Just let that sink in.
The level of promotional activity across retail, from apparel to food, is aggressive, but no-one is really whingeing about it.
If anything, shouldn’t Mr Price (whose aim, let me remind you, is to offer value and on-trend clothes) have been a beneficiary of consumers trading or shopping down? Instead, the lower end of the market has moved on to rivals like Pepkor, which reported something like 9% same-store sales in the 2016 financial year. Arguably then, consumers with a bit more to spend headed to the internationals (Cotton On, H&M and Zara) and also to locals such as Woolies and others that were on a discounting bonanza.
Let it be known: poor fashion calls are part of retail — sometimes you get it right and at other times not.
This is one of the main questions we need to ask: what are shoppers looking for that they cannot find at Mr Price — service, quality, product — one or maybe all of them? Mr Price is a skilled retailer, there’s so much that it does right. Hopefully the near 40% pullback in its share will help it find its way. Interesting, though, that its descent coincided with a lack of transparency.
I don’t know which is worse — not giving media interviews on results day (unheard of) or stonewalling analysts and getting miffed when they question your merchandise calls.