Bad business decisions

It’s been a grim start to 2017 for the European clothing retailers, as if the succession of bad news in 2016 wasn’t bad enough. Charles Vogele in Germany has been broken up, Vivarte has announced plans to sell Andre and Naf Naf and has another refinancing. C&A announced store closures in Spain, Jaeger went into administration.

We’ve talked about the problems of fashion retailers a few times in recent months, but this latest bout of bad news provokes another couple of considerations.

Conglomerates in retailing often struggle to work.

Is it worth trying to rescue a failed retailer?

Conglomerates

How many conglomerates in retailing really work? Looking back over the last 20 years, we have seen PPR develop from a building materials business to a retailer owning a collection of businesses that had little in common, including Conforama, La Redoute, Fnac among others, only to dismantle the edifice. In the UK Kingfisher bought B&Q, Castorama, Woolworths, Comet and Superdrug, only to sell them all off apart from the DIY businesses. Now it is an international conglomerate pursuing the logic of its international range of businesses.

Metro also had a retail empire including clothing and footwear retailers, electricals and food retailing in addition to its cash & carry base. Now it is making its way back to being a cash & carry specialist.

So what about Vivarte? Like Arcadia, a UK clothing conglomerate, it was more focussed in that it had both clothing and footwear (though Arcadia only has clothing). But it was trading through a number of fascia, each with a different trading style and customer base. It had bought some high flying brands, such as Naf Naf, but they had performed poorly under its ownership. But it had also developed out-of-town superstores, in addition to its high street chains and they have a completely different trading style with a broad range of low priced clothing.

So the management of Vivarte was charged with running retail operations from high street fashion to out-of-town discounting which could hardly have been more different. One can hardly blame them for failing, the business should never have been put together in the first place.

“The first loss is the best loss”

An old stock market saying that seems very relevant here.

It is hardly surprising that there was huge reluctance to close Vivarte down. It is a major player in French clothing retailing. In fact in both clothing and footwear it is the market leader.

Three years ago there was a financial restructuring involving €2bn of debt. Then in March of this year there had to be another, involving €850 million.

One can understand that suppliers would be reluctant to see a large part of their customer base close down. But in the event, it seems that they are still faced with that possibility and they have lost another €850m.

Easy with hindsight

Vivarte should have been closed down and broken up the first time round. As it is it has had another 3 years and failed to solve its problems.

We suggest that the whole conglomerate structure is deeply flawed. Successful fashion retailers these days need a clear idea of who their customers are and what they want. This is a matter of flair not accounting. Consumers are much more demanding and fashion conscious these days. That is why a business like Primark can do so well. Dull middle of the road styling attempting to attract a wide range of customers just does not work anymore.

Vivarte needs to be broken up and slimmed down in the hope that strong fashion management might be prepared to take some of the chains on. The business has not worked and a refinancing just adds to the losses.

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