Faith kept as Hallensteins hurts

Last updated 05:00 26/01/2014

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The rise of online retailing and the Australian economic downturn are hitting Hallenstein Glasson where it hurts, experts say.

But Victoria University emeritus professor of accounting Don Trow, a long-term shareholder of Hallenstein Glasson, remains a staunch supporter, saying the company can come back from recent difficulties.

Its share price plummeted more than 27 per cent in the two days following its release of a profit warning to the market on January 16.

Hallenstein Glasson said it expected to report a net profit of between $6 million and $6.3m for the six months to February 1, a decrease of 39 per cent compared to the same period the previous year when the company reported a net profit of $10.3m.

The further downgrade followed a profit warning issued by Hallenstein Glasson last year.

In November the company said it expected its first-half net profit to fall by 20 per cent compared to last year.

Since the announcement the company's share price has recovered somewhat to trade slightly below $3.50, well below the all-time high of $5.73 reached in April last year.

The iconic Kiwi retail company, which includes Hallensteins, Glassons and upmarket womenswear chain Storm, said group sales were down 10 per cent in December compared to December 2012.

Hallenstein Glasson chief executive Graeme Popplewell said December was a big part of the trading year, accounting for half of the profit for the six-month period.

"If you don't get December it has a huge impact," he said.

"We just don't think we did the job."

During the company's annual shareholders' meeting Popplewell said the impact of e-commerce was a "double-edged sword".

The retailer had grown its online sales to about 5 per cent but it was difficult to measure how much of the online business had been gained at the expense of its bricks and mortar stores, he said.

Popplewell said the New Zealand and Australian tax systems put the company at a clear disadvantage.

Online purchases of goods from overseas worth less than $400 do not incur the 15 per cent GST imposed on purchases from domestic retailers.

"I don't want this to sound like sour grapes, but we are competing with an e-commerce world where profit margins are low or non-existent, and competition for market share is the name of the game."

Forsyth Barr retail analyst Chelsea Leadbetter said Hallenstein Glasson is the listed retailer most at risk from the structural shift to online.

Online shopping could present an opportunity for the company to reach further afield than Australasia, but the international fashion apparel market was already saturated, Leadbetter said.

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The internet also meant Hallenstein Glasson had more competitors, which created continued price competition.

This put pressure on margins.

To keep up with competition Hallenstein Glasson offered free shipping in Australasia, with the company picking up the shipping and logistics costs, she said.

"A strong brand with a loyal following becomes critical."

The company had created strong brands in the New Zealand market.

However, its target consumer market for Hallensteins and Glassons is fickle and price was likely to be the decider for consumers, Leadbetter said.

And online retailing was not going away.

Leadbetter said Forsyth Barr expected further growth in online retailing in the medium-term, particularly as technology improved and geographical barriers continued to erode.

Milford Asset Management retail analyst Victoria Harris said the earnings downgrade was not surprising after the company's announcement in November.

Harris said New Zealand apparel spending in December was "particularly weak".

Electronic card transactions data for December showed apparel spending was not growing at the same rate as spending in other retail industries.

Lagging Australian consumer confidence, where the company makes 20 per cent of its sales, had led to a drop in spending across the ditch and heavy discounting in the apparel sector.

The company had been distracted finding a new designer and getting a management team cemented in place since former managing director Di Humphries joined Pumpkin Patch as chief executive, she said.

There would not be a "huge turnaround" for the company between now and when it issued its full-year results later in the year, but it was unlikely the next six months would be as disappointing as the first six months of trading, Harris said.

Trow said none of the circumstances hurting Hallenstein Glasson's profits arose from faulty performance.

The increase in online retail spending at overseas merchants, the "significant strengthening" in the New Zealand dollar compared to the Australian dollar and a record mild winter that led to aggressive discounting had affected Hallenstein Glasson's overall net profit, Trow said.

But he is not giving up on the company. In fact, he considered its shares an "attractive buy" at their current levels.

And Hallenstein Glasson could come back from its difficulties, Trow said.

During recent years it had been one of the best managed and governed companies listed on the NZX, he said.

It was one of only a handful of companies in New Zealand that had consistently produced high profits, in the region of 30 per cent return on equity, and maintained a strong capital structure during the past 10 years.

Hallenstein Glasson's half-year results would be released on March 25.


Forsyth Barr said online spending in New Zealand last year amounted to about $3.7 billion, up 15 per cent compared to 2012. Online penetration was now at about 7 per cent, which put New Zealand on par with Australia, the stockbroking firm said.

Online spending was expected to grow at a stronger rate than that at bricks and mortar stores in the medium term, with penetration forecast to reach about 9 per cent by 2016.

"We believe traditional bricks and mortar stores still command a place and will coexist with the online channel," the report said.

Large global retailers had benefits of scale but multi-channel retailers with a local store base still held advantages in New Zealand, Forsyth Barr said.

Domestic retailers had the benefits of speed of delivery, click and collect, the experience of shopping and face-to-face service.

Apparel, books and music, and electronics and appliances were most exposed to and affected by the internet, Forsyth Barr said.

It said Hallenstein Glasson was most at risk from online retailing, while Kathmandu was the listed retailer best placed to benefit from the shift to online.

Kathmandu's control of a single brand provided the option of entering new markets through the internet. The company was also implementing new systems this financial year, which should support further growth online.

Meanwhile, The Warehouse Group showed the potential to surprise with its online offering, Forsyth Barr said. Spending on clothing, footwear and accessories accounted for 22 per cent of New Zealanders' online spending last year.

According to the monthly BNZ online retail sales index, overseas online purchases were up 24 per cent in December, compared with the same month the previous year, with domestic online purchases up 7 per cent.

- Sunday Star Times


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