Department store chain Harris Scarfe is gearing up for the biggest sales boost in its 166-year history after signing agreements with UK retailer Debenhams to open stand-alone stores and stock its designer clothing range.
Harris Scarfe chief executive Graham Dean. Photo: Pat Scala
Harris Scarfe chief executive Graham Dean has detailed plans to open four or five Debenhams stores over the next three years and 10 over the longer term under a franchise agreement signed in October after more than 12 months of negotiations between Harris Scarfe's parent, Pepkor South East Asia, and Debenhams' chief, Michael Sharp.
Each 4000-square-metre Debenhams store is expected to generate sales of more than $10 million – half that of a suburban Myer store – lifting Harris Scarfe's sales by at least $100 million to more than $450 million and taking Pepkor South East Asia's annual revenues to almost $1 billion.
"Once you talk about stand-alone department stores in major centres you're talking pretty significant turnover,' Mr Dean told Fairfax Media in an exclusive interview. "If you have 10 of those up and running that's going to add some significant turnover to the business."
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Under a separate brand agreement with Debenhams, Harris Scarfe will stock the UK retailer's Designers for Debenham's clothing range as well as handbags, cosmetics and intimate apparel in most of Harris Scarfe's stores, augmenting its range of national and private label brands.
"We're not a destination for fashion, we know that," said Mr Dean, a former senior Myer executive who joined Harris Scarfe 14 months ago to lead the revitalisation of the formerly family-owned retailer.
"What this does is allow us to parachute in some ready-made credible international designer brands straight into Harris Scarfe stores – it's going to improve our sales densities immediately," he said.
Northern Hemisphere retailers entering Australia, including GAP and Top Shop, have struggled in the past with reverse seasonality.
Mr Dean, 50, who started his 30-year retail career at Sainsbury in the UK and spent 10 years at homewares retailer Habitat before coming to Australia 11 years ago, is confident the Debenhams model will work.
"[Overseas retailers] would traditionally dictate the range to the franchise partner – that's not how this deal works," he said. Harris Scarfe's team will select the UK retailer's best-selling products, and products they think will appeal to local shoppers, including stocking Debenham's summer range in Queensland stores in the same season
"We'll bring to market what we know is going to sell rather than what we hope is going to sell," said Mr Dean, who has hired Myer's former head of womenswear, Nicole Naccarella, as head of fashion to oversee the buying strategy.
Collapsed in 2001
The Debenham's deal is the third major shakeup at Harris Scarfe since it collapsed in 2001, was acquired by corporate advisory firm Momentum Corporate in 2007 and sold to Pepkor (which also owns discount department store chain Best & Less) for $67 million in 2012.
According to Pepkor South East Asia's accounts, losses more than doubled to $92 million in 2015 after the acquisition in 2014 of loss-making New Zealand retailer Postie Plus. But both Harris Scarfe and Best & Less are understood to be profitable on the basis of earnings before interest tax depreciation and amortisation (EBITDA).
"We had a very good financial year last year, we were very pleased with the result in terms of EBITDA and we're meeting all the financial metrics from the initial Pepkor acquisition of Harris Scarfe,' Mr Dean said.
While Harris Scarfe and Best & Less are run as separate entities, both retailers are taking advantage of Pepkor's shared services structure to secure better terms from suppliers, improve supply chain and logistics and find suitable sites for new stores.
Harris Scarfe is also preparing to leverage the supply chain and sourcing capabilities of Pepkor's parent, Steinhoff International, which has annual sales of 105 billion rand ($9 billion) and 6500 retail stores in 30 countries after buying Pepkor last November for 62 billion rand.
"As part of Steinhoff we'll see if we can leverage their supply chain and start to group together and fully utilise how we bring containers out of China and other countries by filling those containers with products from multiple brands and bringing them into distribution centres and then shipping them out to all states," said Mr Dean.
"We were doing that anyway with Pepkor, and now that has magnified under Steinhoff."
In addition to opening 10 Debenhams stores, the first in 18 months, Harris Scarfe is planning to open about 15 Harris Scarfe stores over the next three years, lifting store numbers from 56 to more than 70 – stepping up competition for Myer, Target, Kmart and BIG W.
"We have a very strong pipeline of stores coming through over the next three years – we've signed another eight [leases] and another two stores [leases] that will be signed imminently, one in Western Australia, a few in NSW, a few in Victoria and a few in Queensland."
Mr Dean says the discount department store market is overcrowded, with too many stores per capita compared with markets overseas. ."You can see that playing out between Kmart, Target and particularly BIG W with their negative comparable store sales – you can see a lot of shift in share going on in that space," he said.
But there is scope for Harris Scarfe to grow its market share by focusing on key categories such as cookwear and bedding, stocking wanted national brands such as Tefal, Maxwell & Williams, Sheridan, Sunbeam, Tontine and Linen House, and running an aggressive promotional model rather than the every-day-low-prices model favoured by Kmart, Target and BIG W.
"Because we are a high/low retailer, not a real DDS, that's an opportunity for us to deliver our strategy while that jostling for position continues, particularly with the BIG W uncertainty at the moment," he said. "We see that as an opportunity to pick up market share."