Preston runs risk that undies won't fit

Friday 12th April 2002

Wednesday's announcement that Bendon Group managing director Hugo Venter is leaving came as no surprise.

His departure was inevitable once his proposed management buyout of the underwear company was gazumped by Pacific Retail Group, which now owns Bendon.

More surprising is the choice of PRG director Stefan Preston as Mr Venter's replacement. Mr Preston does not have a lot of experience in the apparel industry, although he has plenty of management and retailing expertise.

The big question is whether his strengths in the latter will outweigh any weakness in the former.

Shoeshine has his doubts. The rag trade is a notoriously difficult business in which to make money. Competition is fierce, marketing costs are high and the weather can have a dramatic effect on buying patterns. Then there are the customers, whose fickleness can embarrass the canniest fashion executive.

Under these circumstances, only those with a lifetime in the business tend to succeed consistently. Even that is not guaranteed.

Last week clothing retailer Hallenstein Glasson turned in a disappointing interim result and looks set to have a flat year, its third in a row.

Net profit for the six months to February 1 was $5.8 million, down 3% on the same period last year, on revenue that rose 5% to $88.2 million.

Brokers are forecasting the company will finish the year with a net profit of $11.4 million. If so, profit will be unchanged from last year and up a mere 0.9% on 2000.

This is despite the company containing a wealth of apparel industry talent.

Top of the list is Tim Glasson, founder and retiring managing director of the company's Glassons chain. For a long time, he was also the group managing director.

Others include finance director Graeme Popplewell, who has been with the company for 29 years, and Cliff Kinraid, head of Hallenstein Brothers and incoming group managing director. He has clocked up 11 years of service.

By comparison, Mr Preston and colleagues are johnny-come-latelies.

This week, PRG majority owner Eric Watson, chief executive Peter Halkett and Mr Preston were appointed to the Bendon board, replacing seasoned businessmen Peter Clapshaw, Richard Smith and Trevor Kerr. That brings PRG a step closer to its stated goal of improving the underwear company's performance.

"Once we have gained operational control we plan to concentrate on unlocking the value of Bendon's leading brands," Mr Preston said in January when the bid was announced.

This suggests Mr Preston and colleagues believe they can help Bendon sell more products at higher prices than it could under the highly experienced and effective Hugo Venter.

On his appointment in July 1997, Mr Venter was described as a man who had spent his life in the apparel retail industry "with a strong emphasis on merchandising, sourcing and distribution of branded products."

That sounds like someone well able to unlock value and that is what he did. In the year to March 2001, Bendon recorded $77.8m in apparel sales on which it made a net-profit $4.1m. That compares favourably with the $4.2 million loss the apparel operations of Ceramco Corporation lost in 1997, shortly before he started.

This year the result is likely to be flat after restructuring and expansion costs and what the company described in its interim result as "significant discounting" in the apparel sector.

PRG has also done well in leveraging its brands, which include Noel Leemings, Computer City and Bond and Bond.

When Mr Watson's Logan Corporation took over in early 1999, the company had just lost $800,000 on sales of $340 million in the year to March. Last year it made $10.4 million on revenue of $402 million.

Trouble is, companies that are good in one area often come a cropper when they step outside their core competency. Being a good retailer of consumer durables does not automatically make one an expert in selling apparel.

Jewellery retailer Michael Hill International found this out to its cost several years ago when it tried to expand into the shoe business.

PRG could have made up for its lack of in-house expertise by hiring a top apparel industry executive to lead Bendon. It has chosen not to do that.

This brings Shoeshine back to his central question. If highly experienced apparel industry executives like those at Hallenstein Glasson struggle to grow their business, how hard is it going to be for a comparative novice like Mr Preston?

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