How Postie went from Plus to minus

CECILE MEIER AND MARTA STEEMAN
Last updated 05:00 07/06/2014

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The jobs of 640 retail and administration employees are at risk now after Postie Plus was placed in voluntary administration on Tuesday.

A day later, administrators David Bridgman and Colin McCloy of PricewaterhouseCoopers announced an international retail business had pitched to buy the business with conditions.

So what went wrong? Has the business been slowly dying for years? What pushed it over the edge?

Distribution woes Many observers say the last straw for Postie was problems at its new Auckland-based distribution centre, run by global transport and logistics company Kuehne & Nagel under contract to Postie.

The company had moved its warehousing distribution operations and head office from Christchurch to Auckland following the 2011 earthquakes. The pilot fill of stock was plagued with issues.

Last year the company's chairman, Richard Punter, said this knocked the company off course, caused critical delays in getting stock to stores and forced the company into costly discounting to get some sales traction.

He blamed the company's $11.6m loss for the year to August 2013 mostly on the company's distribution woes, likening Postie's situation to the Government's struggles with Novopay.

A member of the Postie chain's founding family, Kerry Dellaca, said the outsourcing of the distribution operation to Kuehne & Nagel had been "disastrous for the company".

Dellaca said the family's combined shareholding was probably less than 3 per cent these days.

"My understanding is that it lost them effectively a season's trading," Dellaca said.

Postie this week said it had "proper grounds" to pursue a damages claim in relation to distribution losses.

Confused offerings However, the reasons behind the company's failure go beyond its Auckland distribution problems, others say.

Postie has struggled to survive in a tough, competitive retail market, with sales declining over the past three years. Punter acknowledged increased online competition, including from overseas web-based retailers.

He summed up the challenges at the December 2012 annual meeting, saying Postie inhabited "an uneasy middle ground".

"We compete with the Warehouse, Kmart and Farmers for the same customers and we have to fight the war with television, radio and brochures as they do," Punter said.

The group had to find a way of cutting costs.

But Dellaca believes the company's troubles started when new management moved away from what Postie used to stand for - value for money, good quality, but affordable clothing for all the family.

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"We didn't aim to be high-fashion," he said.

Many of the stores under the Dellacas had been in rural areas and smaller towns and did not have that much competition.

"We tended to steer away from the main centres and the high-cost malls."

The company's expansion following its listing on the stock market confused customers, he says.

"They expanded and they went into these high-cost areas . . . I think in the last few years they have confused the marketplace as to what they actually are."

But what do shoppers make of all that?

Christchurch's Tower Junction Postie shop was nearly empty this Tuesday around midday. Milly Bain and Tina McCarthy walked past but did not go inside. They say the shop does not appeal to them.

"The shop windows are not attractive. Even their adverts seem outdated," Bain says.

They would rather shop at Max, Ezibuy or Witchery.

Inside Postie, however, a couple of customers would be sad to see the outlet go.

Michelle Foster shops there every two months for herself and her children.

"I'm worried about the shop closing. They've got good prices, clothes are good quality. I'm a bit gutted, really."

She says it's a family store and is not sure where she would go if it were to close.

‘Outdated' brand Coriolis Research director Virginia Wilkinson said Postie Plus had been dying slowly in a competitive industry.

The company had too many stores, had lost sight of its customers and did not offer quality products.

"Even the name of the company is a terrible, outdated name," Wilkinson said.

The brand historically appealed to customers in rural areas. But with increased competition in the clothing business, Postie failed to keep attracting customers.

It also targeted people who tended to spend little on clothing, she said.

"The older, retired generation - the older nanas - they just don't shop as much, especially when their budget tightens."

To seduce new generations, Wilkinson said, there were only two options: "It's either cheap and cheerful, or high quality at the tip of the fashion point."

But it's not like Postie was sitting on its hands.

In 2005, it tried to attract younger fashion-conscious customers with its Point Zero stores aimed at the 18 to 35-year-olds. However, two years later, after problems sourcing suitable stock for the stores, the company closed them and converted some into Postie Women stores, which offered a wider range of clothing and lingerie.

In 2012 it restructured the business "into a modern retailer" looking for suitable acquistions, refreshing management, and shifting head office to Auckland and outsourcing distribution to Kuehne & Nagel.

The move to Auckland was supposed to bring it closer to growth markets and customers.

Too many; too few Postie's bank agreed to support the company when it first breached banking covenants mid-2012 and continued to do so while the company examined options such as more capital raising, selling its SchoolTex school uniforms business, and potential investors, but it appears bank support ran out this week.

An accounting expert says he is surprised Postie Plus has survived for as long as it has, considering the state of its financial reports over the past two years.

Don Trow, emeritus professor of accounting at Victoria University and a former NZ Stock Exchange director, reckons the company has been "seriously under-capitalised" over the past two years, putting it at the mercy of the banks.

"They borrowed too much money," Trow said.

The company's debt reached $18.1 million in early February but fell to

$12.1m that month after the company sold SchoolTex to The Warehouse Group for $9m.

Trow compared Postie's results with those of other listed retailers and concluded that it did not have the sales to justify what it was spending on rents and wages.

He believes the new buyer will agree and that job losses and store closures are likely.

"To make it profitable, they are going to have to look very seriously at cutting the staff," Trow said.

High hopes to failure And yet, there were high hopes for Postie Plus a bit over 10 years ago.

When Postie unveiled plans to float in 2003, it forecast an after-tax profit of $4.65m, and a dividend of 7.06c a share in the year to July 2004.

It was the end of an era for the family-owned business with Westport's Dellaca family ceding control of the company for the first time. The business was founded by Thomas Dellaca, who arrived from the Australian goldfields to open a boot repair shop near Reefton in 1909.

Despite a strong start on the sharemarket, Postie's performance and shares failed to fire. Investors bought in at $1 a share in 2003, but the price was 7.3c this week when the stock went into a trading halt.

Jan Cameron, who made a fortune founding and selling outdoor-clothing chain Kathmandu, looked like she was targeting Postie for takeover in 2007 when she started building a stake in the Kiwi retailer.

Over a couple of years Cameron climbed to 19.99 per cent, buying as the Postie shares got cheaper, and remains the single largest shareholder.

She also bought the Arbuckles chain from Postie cheaply and converted some into general merchandise stores.

In 2008 she splashed out with her Kathmandu gains on a bunch of Australian discount stores, Retail Adventures, bought from receivers for about A$70m.

Following that, Cameron's interest in Postie cooled. Her hands were full with the 350 stores in the Retail Adventures empire which collapsed in late 2012.

The famously elusive retailer would not comment this week on another failed investment for her, Postie.

Grant Williamson, of sharebrokers Hamilton Hindin Greene, says most people who held Postie shares over the past two years were well aware that the company might not survive.

There had been little big-volume trading in the shares for quite a long time. "The only buyers for some time have been speculators or bargain hunters."

He says Postie's decline was predictable. "It's a very sad situation for a company that has been around for a long time."

POSTIE'S FORTUNES

1909: Postie Plus is founded by Thomas Dellaca, an immigrant from Australia, as a boot repair business near Reefton.

1919: Dellaca shifts the business to Reefton.

1944: The Dellaca family relocate to Westport, where they diversify into clothing, furnishings and flooring.

1980s: The Postie Fashions mail-order catalogue is introduced.

1990s: Clothes For Less opens in the 1990s and later evolves into the retail chain Postie Plus.

1996: The Dellacas purchase the Warehouse Clothing chain.

1997: Postie introduces a new brand, SchoolTex, selling school uniforms.

1998: Postie buys Waimate Knitwear.

2001: Postie closes its mail-order operations.

2002: Postie merges with Babycity.

2003: Postie buys women's clothing chain Rendells and the manchester chain Arbuckles.

2003 September: Postie issues shares to the public at $1 each and lists on the NZX.

2006 October: Postie opens a new retail store, Point Zero, aimed at 18- to 35 year-olds.

2008 April: Postie shuts the last of its Westport warehousing operations.

2008: The company's head office and distribution operations are now centred in Christchurch.

2008 May: Postie closes the Point Zero stores.

2008: Postie sells the Arbuckles stores to Kathmandu founder and Postie shareholder Jan Cameron, losing about $2.6 million on the deal.

2012 April: Postie sells Babycity, making a gain of about $4m.

2012 May: Postie announces that its head office and distribution will shift two Auckland over the course of two years.

2012 May: Postie reveals it is in breach of one of its banking covenants but rectifies that by September.

2013 March: Postie reveals there are problems at the Auckland distribution centre and it is again in breach of banking covenants but retains bank support.

2014 January: SchoolTex sells for $9m to pay debt.

2014 June: Postie is placed in the hands of an administrator.

- The Press

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