Leading the in­no­va­tion charge

Eric Mor­ris is one of Aus­tralia’s most in­flu­en­tial re­tail ex­ec­u­tives. As man­ag­ing di­rec­tor and CEO of the PAS Group he over­sees 1200-plus staff and 26 brands. Eric speaks with Bob Forshaw and Jonathan Jack­son about growth in an ever-chang­ing re­tail en­viro

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– Eric Mor­ris is one of Aus­tralia’s most in­flu­en­tial re­tail ex­ec­u­tives. As man­ag­ing di­rec­tor and CEO of the PAS Group he over­sees 1200-plus staff and 26 brands. Eric speaks with Bob Forshaw and Jonathan Jack­son about growth in an ever-chang­ing re­tail en­vi­ron­ment.

In June 2014, PAS Group listed on the Aus­tralian share­mar­ket. The re­sult wasn’t as ex­pected; how­ever mar­ket con­di­tions were not ad­van­ta­geous. It’s the risk of list­ing that you hope all the cards fall in the right place at the right time. The weak open­ing doesn’t faze CEO Eric Mor­ris.

“Profit down­grades by other re­tail­ers af­fected the price,” Eric says. “Yet when you look at our fun­da­men­tals they are strong and our earn­ings are on track. Our share­hold­ers know the value of tak­ing a long term view.”

The con­fi­dence of share­hold­ers is backed by the com­pany’s solid per­for­mance over a sus­tained pe­riod of time. This cul­mi­nated re­cently in a suc­cess­ful $120.5 mil­lion fully un­der­writ­ten cap­i­tal rais­ing of fully paid or­di­nary shares in PAS (Shares) priced at $1.15 per share (Of­fer), giv­ing PAS a mar­ket cap­i­tal­i­sa­tion of ap­prox­i­mately $157.2 mil­lion.

BE­HIND THE GROWTH

The PAS Group was formed in 2004 by the then Deutsche Bank pri­vate eq­uity fund to un­der­take a con­sol­i­da­tion of what was a very frag­mented ap­parel sec­tor. They had ini­ti­ated the ac­qui­si­tion of the Break­away Group when Eric was brought on board. To­gether with CFO Der­ick Krowitz they be­gan an ac­qui­si­tion strat­egy that continues to this day.

“The com­pa­nies we looked at were spread out in all dif­fer­ent lo­ca­tions, so we had to bring them to­gether and cre­ate IT sys­tems, back of­fice fa­cil­i­ties, back-end lo­gis­tics in­clud­ing ship­ping and ware­hous­ing and we used the lever­age of the or­gan­i­sa­tion to ne­go­ti­ate sup­ply.”

There was a great deal to do. Yet Mor­ris had a clear vi­sion – he still does – to build the or­gan­i­sa­tion. His back­ground is im­pres­sive, so he was cer­tainly the man for the job.

Be­fore Eric led the Group’s ac­qui­si­tions and the suc­cess­ful in­te­gra­tion of its eight businesses, he held se­nior ex­ec­u­tive po­si­tions in ma­jor in­ter­na­tional and na­tional com­pa­nies. Myer re­cruited the South African na­tive to Aus­tralia where he held the in­au­gu­ral po­si­tion of gen­eral man­ager of the Pri­vate Brand Di­vi­sion re­spon­si­ble for the cre­ation and launch of a num­ber of suc­cess­ful Myer brands. He also spent 14 months at Walt Dis­ney In­ter­na­tional as re­gional di­rec­tor, with re­spon­si­bil­ity for Soft­lines for Asia Pa­cific based in Hong Kong and spent eight years with Ree­bok In­ter­na­tional as re­gional di­rec­tor Asia Pa­cific, re­gional di­rec­tor Africa Mid­dle East and di­rec­tor and gen­eral man­ager Ree­bok South Africa. He brought to PAS Group sig­nif­i­cant ex­pe­ri­ence in re­tail, whole­sale/sup­ply, li­cens­ing, man­u­fac­tur­ing and dis­tri­bu­tion.

Upon join­ing PAS Group, he in­sti­gated sys­tems and cul­ture to en­sure all ac­qui­si­tions were op­er­at­ing at the same level.

“Cul­ture is driven from the top,” Eric says. “It is about do­ing what­ever makes sense.”

Re­main­ing rel­e­vant

Sen­si­bil­ity has been a pil­lar of the com­pany’s strength. They have de­vel­oped an in­no­va­tive busi­ness model and di­ver­si­fi­ca­tion strat­egy to weather the vo­latil­ity of the re­tail sec­tor.

“We are cov­er­ing dif­fer­ent sec­tors and age de­mo­graph­ics and that cre­ates a nat­u­ral hedge,” Eric says. “We have gone with multi-chan­nel of­fer­ings and we have a good on­line busi­ness, with a third on­line en­tity com­ing on board in July.

The di­ver­sity of the busi­ness meant that when many bricks and mor­tar businesses were com­plain­ing about an on­line ‘scourge’, PAS Group re­mained stoic.

When in­ter­na­tional re­tail­ers started to make their mark within Aus­tralia’s ma­jor shop­ping precincts, Eric saw it as a pos­i­tive.

“The ad­vent of these in­ter­na­tional brands has made the shop­ping cen­tres a more ex­cit­ing place to shop and has brought more people into the cen­tres. It has also made lo­cal re­tail­ers lift their game.”

He went fur­ther when he told the Aus­tralian Fi­nan­cial Re­view, “It’s prob­a­bly a mar­ket that’s been a lit­tle bit lazy over a num­ber of years. It’s a mar­ket that’s had the abil­ity, be­fore the in­ter­na­tional ar­rivals, to go over­seas, work in re­verse sea­sons and be able to buy sam­ples and ac­tu­ally repli­cate that here. That’s not go­ing to be pos­si­ble any­more and in­no­va­tion is go­ing to be re­ally key for most of the Aus­tralian re­tail­ers.” That is the rea­son for the PAS Group’s fo­cus on orig­i­nally de­signed prod­uct.

Asked if he sees in­ter­na­tional com­pa­nies as com­pe­ti­tion, Eric says no. “I think the most im­por­tant thing for any re­tailer is to of­fer a unique prod­uct or mar­ket po­si­tion. PAS Group does that and it means we won’t be com­pet­ing with the likes of H&M.”

Take Black Pep­per for ex­am­ple. As many of the in­ter­na­tional brands

“The ad­vent of these in­ter­na­tional brands has made the shop­ping cen­tres a more ex­cit­ing place to shop and has brought more people into the cen­tres. It has also made lo­cal re­tail­ers lift their game.”

launch­ing into Aus­tralia set their sights on the youth mar­ket, Black Pep­per tar­gets a more ma­ture sec­tor. This is a brand that has been in ex­is­tence since 1976. It has a strong fol­low­ing, which has de­vel­oped into 93 stand-alone re­tail stores and 5 con­ces­sions. The brands are also sold in ap­prox­i­mately 650 whole­sale ac­counts across Aus­tralia and New Zealand. The PAS Group has sig­nif­i­cant re­tail ex­pan­sion plans for the Black Pep­per brand. Other brands un­der the Black Pep­per busi­ness in­clude Break­away, Yvonne Black and Equus, ex­pe­ri­enc­ing sim­i­lar growth lev­els and fol­low­ings to Black Pep­per.

Other long-stand­ing brands that have cre­ated their own niche in­clude Me­tali­cus and Re­view. Es­tab­lished in 1992, Me­tali­cus dif­fers in de­liv­er­ing a unique stretch fab­ri­ca­tion which pro­vides ver­sa­til­ity to a woman’s wardrobe. The fab­ri­ca­tion en­ables the prod­uct to be per­fect for travel due to its easy care at­tributes and is also ideal for ma­ter­nity wear en­abling the prod­uct to be worn be­fore, dur­ing and post the preg­nancy. They have 29 stand-alone re­tail stores, 12 Myer con­ces­sions, ap­prox­i­mately 185 whole­sale ac­counts and an on­line store. Mean­while, Re­view is a brand

that has built its own unique po­si­tion of­fer­ing fem­i­nine prod­uct in­spired by vin­tage with a mod­ern twist. The brand fo­cuses on fash­ion for women aged be­tween 24 and 40.

Re­view op­er­ates 32 stand-alone stores and 55 con­ces­sions within Myer. It is among Myer’s best per­form­ing

con­ces­sion brands. Re­view cap­tures a large share of the value chain through op­er­at­ing a ver­ti­cal re­tail model; it has sig­nif­i­cant brand eq­uity and cus­tomer loy­alty with speed to mar­ket and reg­u­lar store in­puts of up to 15 new styles pro­vided weekly.

Re­tail­ers take note: by in­sti­gat­ing a unique mar­ket po­si­tion you can weather any storm.

EYE ON THE FU­TURE

The num­bers are im­pres­sive as is PAS Group’s reach. They pro­duce exclusive and li­censed brands for re­tail­ers in­clud­ing Big W, Myer, Kmart and Tar­get. There are 223 stores with am­bi­tion to grow to 340 stores by mid 2017.

“We will con­tinue to grow on a few dif­fer­ent lev­els,” Eric says. We plan to open 110 stores in Syd­ney alone and we are fo­cused on grow­ing the on­line chan­nel as well as our brand li­cens­ing busi­ness.”

The PAS Board and man­age­ment team are fo­cused on de­liv­er­ing across the key growth driv­ers of the PAS busi­ness:

• New re­tail sites: PAS has dis­played con­sis­tent year-on-year re­tail site growth and plans to open an additional 41 sites in FY2015, with fur­ther plans to have 340 re­tail sites op­er­at­ing by June 2017.

• On­line: PAS has been ex­pe­ri­enc­ing strong growth in on­line sales and will con­tinue to ex­pand this chan­nel.

• Li­censed brand op­por­tu­ni­ties: PAS will main­tain its proac­tive ap­proach to new brand li­cens­ing op­por­tu­ni­ties, with ex­am­ples of re­cently ob­tained brand li­censes in­clud­ing Slazenger, Fred Bare, Ever­last and Mooks.

• Ac­qui­si­tions: PAS is ex­pe­ri­enced in iden­ti­fy­ing, ac­quir­ing and in­te­grat­ing com­ple­men­tary businesses and will seek to en­hance its growth with strate­gic ‘bolt-on’ ac­qui­si­tions. This has been in ev­i­dence with the re­cent an­nounce­ment that PAS has been ap­pointed as the Aus­tralian and New Zealand li­cence part­ner for the Kar­ri­mor brand and the DKNY Menswear brands.

Kar­ri­mor is a leading global out­door ad­ven­ture brand, which has been se­cured through De­signworks’ strate­gic al­liance with global brand owner, In­ter­na­tional Brand Man­age­ment & Li­cens­ing (IBML), while DKNY is a leading in­ter­na­tional de­signer brand.

PAS Group’s on­go­ing suc­cess is proof that a less than suc­cess­ful ASX list­ing does not nec­es­sar­ily re­flect the strength of a com­pany. And this com­pany led by the very ex­pe­ri­enced Eric Mor­ris is in safe hands when look­ing at fu­ture projections, earn­ing sta­bil­ity and growth in key re­tail mar­kets.

“Damco (Pac­net) Aus­tralia has an open book ap­proach to busi­ness with PAS Group. Since the com­mence­ment of our as­so­ci­a­tion, we have worked co­he­sively to en­sure that the re­la­tion­ship is ad­van­ta­geous for both par­ties. PAS Group Eric Mor­ris, along with CFO Der­rick Krowitz, op­er­ate in a fair and open man­ner. There pair is trans­par­ent about any prob­lems that may arise and there is lit­tle mys­tery when it comes to con­duct­ing busi­ness. This trans­parency is re­cip­ro­cated by Damco Aus­tralia. We have an open door pol­icy and are happy to com­pro­mise and find so­lu­tions to any prob­lems that may arise. We look for­ward to con­tin­u­ing this long and mu­tu­ally ben­e­fi­cial as­so­ci­a­tion.” Paul Mil­bor­row - Damco

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