Postie Plus's bad break

17:00, Jun 22 2013
Postie Plus chairman Richard Punter, left, and chief executive Ron Boskel were seeking to expand Postie Plus.

A few weeks back the chairman of Postie Plus found himself in an unenviable position.

Richard Punter had slipped in the bathroom of his Auckland house and found himself staring at a horribly broken foot with toes pointing in all directions.

Exposed and alone, Punter had no choice but to swallow the pain and get himself off the tiles to hospital, an excruciating experience, he recalls.

It is tempting to draw a parallel between that episode, from which Punter is recovering although he remains in a leg brace, and the catastrophe at retailer Postie Plus which also happened without warning.

That crisis - the failure of a new distribution system - saw sales plummet and Punter volunteer to assume the mantle of chief executive until normal service was restored.

The move put Punter in a rare position on the NZX where Postie Plus is listed, making him chairman/chief executive tasked personally with repairing the damage to the company's business and share price. The latter was 30 cents a share at the start of 2012, but last week stood around 16.5c despite the sharemarket going gangbusters over the same period.


What happened to Postie Plus has been agonising to watch, especially for the mum and dad shareholders of the small, relatively illiquid company, which is largely ignored by fund managers who see it as too small to be worth troubling with.

The short explanation is Postie Plus, which is in the business of selling affordable, mainstream clothes, was moving its headquarters to Auckland, where much of its future growth will come.

Coincidentally, the distribution agreement was up for renewal and was put out to tender, with the contract and distribution centre, which had been damaged in the second Canterbury earthquake, moving to Auckland.

The new distributor was charged with getting garments into Postie Plus's network of over 80 stores nationwide. But those clothes did not get where they were supposed to be when they were supposed to be there.

The effect in the low-margin apparel industry of that was profound.

"We missed our summer," Punter said.

By "missed" he means the stores did not get their summer lines in time for peak demand.

The first few blistering weeks of the summer-retail season are when retailers are able to sell their wares without heavy discounting.

By the time Postie Plus got its stock onto the shelves, it had to begin discounting immediately, destroying its margins and devastating its share price leaving the company worth just $6.6 million as measured by market capitalisation, roughly $80,000 for each store it operates.

Customers had to go elsewhere for many of the things they wanted, but it was not only bulk deliveries that were delayed. Replenishing garment sizes that sold out became erratic, too, alienating more customers.

The distribution failure also damaged Postie Plus's Schooltex school uniforms business, Punter says. Efficient distribution is key there, too, as margins are fine and job lots small.

Punter talks openly about the stuff-up with one exception. He will not name the distribution company, or outline the financial penalties it may have incurred as a result of the problems.

"I'm angry; they're angry; our shareholders are angry. Everybody's angry," said Punter, a shareholder himself. "I'm furious at myself."

But he says giving in to that anger does not help shareholders, and he has staunchly refused to name the distributor (although it has been outed as Kuehne & Nagel by Christchurch newspaper The Press).

"I came under a lot of pressure to name and shame," Punter said. "I said, ‘How does that help our shareholders?" and the answer was it doesn't."

What has helped is Punter's decision as chairman to ask the board to let him be chief executive until the crisis abates, as he insists it is.

Although he denies it, Punter appears to be relishing the challenge of "rebuilding the castle wall little by little, brick by brick," as he puts it.

His intervention also illustrates a few things that need recognising about the importance of independent directors - and shows an independent directorship is far from being a sinecure.

"It had to be fixed. The lot of the independent director is that you don't get to throw your hands up and walk away. It is not what you are employed to do. It would not be right ethically," Punter said.

It is not always easy as an independent director to know when it is time to stand up and intervene.

"This is the problem independent directors face: It is always hard to know when it is time to take the step," he said.

In Postie Plus' case, the departure of the incumbent chief executive (which Punter maintains was intended anyway), and his own experience left little option when sales "hit a brick wall".

Punter says, hand on heart, he does not believe he could have averted the disaster. The outsourced distribution tender was conducted with care and as an independent director he relied on information provided by management.

Punter recalls grimly how he stood up at the last annual meeting in 2012 and told shareholders things were improving.

"Clearly they weren't," he says.

"It's hard for independent directors. If you are given information and you are told things are being fixed, what do you do?"

Intervening, even seeking more information can be emotionally fraught. It smacks of disloyalty, a lack of trust. Dynamics like these mean business men and women need to be very cautious before accepting independent directorships, Punter says.

Punter's personal rule for accepting them is simple: He will never take a directorship on a company in a sector in which he has no experience and expertise. That ensures two things: first, he can add value; second, management can't so easily pull the wool over his eyes, even unintentionally.

He'd never have accepted a finance company directorship, he says, because finance is not his speciality, and imagines the plight of independents caught in those train wrecks - good people mostly - who meant no harm.

"It'd be like being in a bus going over a cliff," he says. "You have no control."

His knuckles go white when reeling off that metaphor. It illustrates how once the bus is tipping, independent directors have little choice but to hold on and wait for a smash that can mar their reputations and even land them in court.

Punter reckons the role of independent director is undervalued in New Zealand, and many companies do not really understand how they should be selecting them.

Punter won't say it, but his experience as a chief executive of a Fonterra company and a multi-national paint company meant the board had an experienced person on hand to take on the chief executive job immediately. It also meant he knew which shelf to go to for the "off-the-shelf" crisis management blueprint.

Step one was to call in help from outside, both to build a plan to tackle the crisis, and also to enable the business not to lose sight of everything else while that was happening.

Punter does not seek to overstate his role, and has become used to spelling out the extent of the Postie Plus failure, including lost opportunities.

"We've lost a year," he said.

Among those opportunities was a totally new brand and line of stores, a prototype of which had been built in a secret warehouse. The venture was just a few days from activation when the distribution crisis hit.

Rather than gathering dust, the prototype was dismantled. One of the first jobs of the new chief executive will be to dust off that plan, scrutinise every aspect of it, and decide whether it should be put into action.

The international (read Australia and New Zealand) search for that person has begun, and Punter is hopeful that the new man or woman could be in place as early as six weeks' time. That will see him return to being plain old chairman again.

The shock of crisis has not damaged his love and fascination for the retail trade, he says.

"The retail market is a bit like a game of chess," Punter muses. "Now imagine the chess board with 100 players around it, where everybody is watching everybody and everybody is reacting to everybody else.

"It is an interminable, never-ending game of chess. Nobody actually dies. You just play forever."

The intensity of the game has only increased throughout recent turbulent times.

"Competition is brutal right now," he says. That is another reason, if one need be found, for why the timing of the distribution crisis could hardly have been worse.

So does Punter think people are keeping their wallets closed? He admits he doesn't know. Sales figures have been so bad at Postie Plus that it is hard to read trends into them. "If there is a general malaise in spending, it is difficult for us to tell right now," he says.

But Punter says he is feeling optimistic, including for the portion of his wealth tied up in Postie Plus shares.

"Autumn and winter started to move through nicely, and it is improving all the time. That's the important takeout from this."

Sunday Star Times