Clothing company chief comes out fighting
When 500 Pacific Brands staff filed into the Rydges Hotel in central Sydney on Wednesday they expected to learn more about chief executive John Pollaers' turnaround strategy for the $858 million clothing and textiles company, arguably one of the worst performers on Australasian sharemarkets over the last five years.
Instead, to the strains of The Potbelleez' Don't Hold Back and images of heroes such as Mahatma Gandhi and Martin Luther King, Pollaers set out his vision to restore dual Australia and New Zealand-listed Pacific Brands' reputation.
Pacific Brands, which reported $101.5m in New Zealand sales in the year to June 30 2012, offers wholesale and retail clothing and textile products under brands including Bonds, Sheridan, Slazenger, Dunlop, Berlei, Stussy, Diesel, King Gee and Volleys.
But the going hasn't been easy on either side of the ditch. New Zealand sales were down from $115.7m in 2011 and the company also took a $1m restructuring charge, reducing net profit from $11.6m to $8.3m.
"My vision is to create the sort of company that becomes known, respected and loved by all as Australian for innovation and design," Pollaers told staff. "Pacific Brands must be more than just a listing on the stock exchange - it must be powerfully led and an inspiring and exciting brand that makes things possible for people, for the community and for the market."
It was a high-voltage pep talk; a presentation more likely to be seen at Apple's headquarters in Silicon Valley or a Walmart love-in in Arkansas.
But Pollaers believes the time has come for the 120-year-old company, which has lost more than A$800m ($910m) over the last four years and moved most of its manufacturing offshore, to "raise the bar on how it acts and change the way it is perceived".
"In Australia we seem to struggle with the notion of creating heroic companies," said Pollaers. "We are out of sync with the rest of the world and rarely rally behind great companies, let alone acknowledge their achievements, [even though] Australian businesses are highly respected overseas.
"Here in Australia it's okay to proudly defend brands that are marketed but we shy away from defending our companies. We're going to begin the journey to restore faith in Pacific Brands as a company . . . we're going to be proud of everything we do," he said.
Over the next two weeks, Pollaers plans to personally present his vision for the company to more than 4000 staff in Australia and New Zealand.
When the staff roadshow is complete, Pacific Brands will formally launch its new corporate logo and tagline - (Being) Pacific Brands - backed by a kaleidoscopic colour scheme reflecting the company's willingness to embrace change and innovation. The new branding and corporate raison d'etre follows a series of 13 focus workshops with more than 160 Pacific Brands staff in four countries over the last few months.
Pollaers - who took the helm last August from Sue Morphet - believes Pacific Brands' staff are still proud of the company's brands. However, he says staff have lost pride in the company itself following years of losses and massive restructuring that involved shifting most of its manufacturing operations offshore and the loss of hundreds of jobs.
"People wanted leadership - you craved a company that could step up and lead, that stood for more than just profit at any cost," he said.
"You wanted companies that helped define who we are, where we belong and where society is going."
Pollaers believes Pacific Brands needs to engage and restore the pride of staff to ensure the success of his three-to-five-year turnaround plan, which is aimed at reversing a four-year decline in earnings.
The strategy involves broadening distribution into direct, higher-margin channels including bricks and mortar and online stores, taking existing brands such as Bonds into new and adjacent product segments and improving sourcing.
Pollaers wants to increase direct-to-consumer sales from about 34 per cent of total sales in 2012 to 50 per cent to counter a squeeze on wholesale sales by retailers replacing brands with private label products.
Margins in bricks and mortar and online stores are around 14 per cent, compared with wholesale margins around 10 per cent.
The company plans to double the number of Bonds retail stores to 10 by Christmas and convert more than 40 outlet and clearance stores and open another Bonds online store.
Online sales are expected to reach 10 to 30 per cent of revenues over time.
The company also plans to invest more heavily in product innovation and technology, using high-performance fabrics and design to become more relevant to consumers and differentiate its products.
In the last year, for example, it has launched sports bras that reduce bounce, tights that disguise muffin tops, and rolled out a new range of "collectible" underpants in feminine prints for younger women.
The company is also exploring opportunities to expand its underwear and workwear brands in Britain, the United States and Asia by opening underwear and homewares boutiques and growing wholesale accounts.
However, Pollaers, a former chief executive of Fosters, says the company will take a cautious approach to international growth and has no plans to "Fosterise" the world.
A new sourcing strategy will also reduce the time it takes to get stock into stories and increase the number of "drops", or deliveries, reducing inventories.
In the underwear division, lead times have already been reduced by about 30 per cent and the number of drops has risen to eight per year.
Investment bank UBS says if the direct-to-consumer strategy works it could boost margins across the company by about 100 basis points, underpinning earnings growth, while a decline in inventory could free up A$43m in cash.
However, the strategy will take time to deliver results. Pollaers hopes to stabilise earnings in the first two years.
He has forecast "modest" revenue and earnings growth in years two to four and "sustainable" growth in years three to five.
Over the last five years Pacific Brands shares have fallen 60 per cent and the company has delivered total returns of minus 50 per cent, underperforming the benchmark index by 70 per cent.
However, the shares have recovered from lows of A13¢ in 2009 and are currently trading around A81¢.
Brokers such as UBS and Merrill Lynch rate the company a buy, even though it remains exposed to the Australian dollar.
UBS says Pollaers's strategies should drive sales, earnings and cashflows.
Sunday Star Times