Few sectors generate as much notoriety (and as much wealth) as the retail sector. But while once high-flying Australian retailers struggle to cope with the changing face of the sector, globally, the story has been very different.
Along with manufacturing and media, Australia retailers have largely borne witness to collapsing, rather than expanding, fortunes. Perhaps most notably has been the destruction of Gordon Merchant’s Billabong empire. In 2007, Merchant’s stake in Billabong was worth more than $1 billion. Today, that holding is valued at around $60 million (it is unknown whether Merchant has any debt attached to his interest).
Billabong’s downfall is difficult to pinpoint — while the company operates in the fickle surf and street wear market, it appears Billabong’s ill-fated foray into widespread retail stores (which led to a loss of $275 million last year) appears to be the major culprit.
The loss of wealth (and possibly more hurtfully, reputation) has been even more pronounced for Gerry Harvey, until recently, considered one of Australia’s best retailers. After spending years criticising online operators, in 2012 Harvey finally conceded that perhaps the online retailers may be onto something. Sadly for Harvey Norman shareholders, the transition remains stunted, with the company recording a profit of $172 million last year, down from $358 million in 2008.
As a result, Harvey Norman shares languish at $1.95, around the same level as they were back in 1997 (having peaked at $7.25 in 2007). The collapse has dented Harvey’s pride and also his bank balance, with his stake in the company falling from almost $2 billion to around $620 million.
Harvey isn’t the only successful retailer who has fallen from grace. Jan Cameron, who led outdoor and adventure goods business Kathmandu before selling to private equity for $250 million in 2006, has seen a large chunk of her wealth evaporate following an ill-fated investment in Australian Discount Retail (owner of brands such as Go-Lo, Sam’s Warehouse, Chickenfeed and Crazy Clark’s chains).
While Cameron purchased ADR for only $85 million from receivers, she then proceeded to invest another $80 million into the company. It wasn’t enough, with the business being placed in administration in 2012 and Cameron running it under licence from Deloitte since then. Despite the fall, Cameron appears to be taking the situation in good spirits, wryly noting that the collapse “will keep me off the Rich List, let’s put it that way”.
But while Australian retailers struggle, the same can’t be said for many global retailers, which have embraced technology to supercharge shareholder returns.
The legendary Spanish founder of Zara, Amancio Ortega, continues to astound, with Inditex (Zara’s holding company) reporting a 27% increase in profit last month. During 2012, Inditex opened another 360 stores (to total 5,887 globally), while the company continues to spend virtually no money on marketing.
Zara is renowned for rapid inventory churn, in-house manufacturing and cutting edge trends, available to the mass market. Since 2007, Inditex shares have more than doubled, with Ortega’s wealth soaring to US$57.5 billion — making him the world’s third richest person ($8 billion ahead of Warren Buffett). Despite his wealth, the modest Ortega dines daily in the company’s cafeteria and reportedly wears the same uniform to work each day (a blue blazer and grey pants).
Swedish Ikea founder Ingvar Kamprad also continues to grow his empire. The privately held and reclusive business turned over US$33 billion last year (up from US$23 billion in 2010) — despite the company usually lowering prices year on year. Ikea’s continued strong performance (and its recent disclosure of more detailed financial information) has led Bloomberg to value Kamprad’s wealth at US$42.9 billion. Ikea, like Harvey Norman, operates largely as a franchise model, with franchisees paying 3% of sales to Inter Ikea.
Although Sam Walton passed away in 1992 (then the world’s richest man), his eponymous Wal-Mart empire continues to grow. Wal-Mart’s current share price ($68) is 50% higher than it was in 2007. According to Forbes, the combined wealth of the Walton family is US$102.7 billion — an increase of around 14% during 2012. Wal-Mart grew same-store sales by 1.5% in the September quarter, its fifth successive quarter of sales growth, while profit increased by 9%.
You probably haven’t heard of him, but Stefan Persson’s fortune also continued to grow in 2012, with the Swedish retail magnate valued at US$24.5 billion by Bloomberg. Persson’s wealth stems from his ownership of the successful Hennes & Mauritz chain (better known as H&M), which last year reported sales of $16 billion from its 2500 stores (but none in Australia). Much like Zara, H&M focuses on fast inventory turnover and low price.
While not bricks and mortar, Jeff Bezos runs the world’s second most valuable retailer — Amazon, which continued its domination of e-commerce in 2012. Amazon’s share price has risen by 800% in the past five years, as Bezos’ investments in warehouse technology and the Kindle e-reader continue to pay off. Bezos’ personal wealth soared by 48% in 2012, in line with the company’s strong market performance.
Proving that discounting pays, the founder of the privately held Aldi supermarket chain Karl Albrecht enjoyed another year of growth. Valued by Bloomberg at US$23.2 billion, Albrecht’s Aldi chain generates sales of more than US$40 billion. The German chain’s discount model is well suited to the austerity sweeping through Europe, with UK sales rising by 200% in 2012.
Continuing the theme, Sir Philip Green (not to be confused with the Phil Green who once led ill-fated Babcock & Brown), owner of the Arcadia Group which houses brands such as Topshop, Topman, Burton and Dorothy Perkins, enjoyed another standout year. In December, Green sold a 25% stake in the privately held Arcadia to private equity firm, Leonard Green (which owns stakes in JCrew and Whole Foods) for 500 million pounds. Green has managed to turn a 10 million pounds investment in Arcadia in 2002 into 4 billion pounds (including a 1.2 billion pound dividend paid to his Monaco-based wife in 2005).
So while Australian retailers struggle with technology, the poor performance appears to be a local problem, rather than a retail problem, as some of the world’s biggest retailers provided in 2012.
Buy another horse and slag the poor Mr Hardly Normal; working a treat at the registers.
I still ring Gerry to get a quote to take to the Good Guys or Dick Smith to beat.
It’s not primarily technology but rather lazy Australian retailers profit taking instead of bothering to spend capital on invigorating their business model in new directions.
Sure it’s difficult to compete with global big players, but these were also all smaller local retailers at one stage in their lifecycle…