Retailer's rough patch costs jobs

Pumpkin Patch says its stores in New Zealand and Australia are doing well but other markets are struggling. Photo / Steven McNicholl

Pumpkin Patch is to cut about 55 jobs in Auckland and close all 20 of its United States stores as the children's clothing retailer battles rising costs and a sluggish retail market in the Northern Hemisphere.

The company is also considering downsizing its UK operation.

Fifteen per cent of Pumpkin Patch's 380-strong workforce in East Tamaki, are expected to be lost from the company's headquarters due to the reduction in the chain's overseas operations. Shares in Pumpkin Patch closed down 1c yesterday at $1.09c.

Pumpkin Patch chief executive Maurice Prendergast blamed higher cotton and fuel prices, increased labour and manufacturing costs, the high New Zealand dollar, the warm start to winter and falling profits in the US and UK for the cuts.

"We have known for some time that the US is a difficult operation given the state of retail there. While it's not a surprise, it is disappointing that we entered the market at the wrong time.

"Retail is pretty tough, a new fledging operation is always going to struggle a bit when those conditions are so hard. We have taken a pretty tough look at it, and decided now is not the time, so we're pulling out [of the US]."

Over the next six months, all Pumpkin Patch's US stores will be closed. The company will continue to stock department stores and operate an online business in the US.

Prendergast said the company was doing well in New Zealand and Australia given the economic climate but due to the closures in the US, the company would need to scale back its support in New Zealand.

Coriolis analyst Tim Morris said the US was "awash with cheap clothes, arriving straight from China to Walmart, Kmart and Target".

Pumpkin Patch was always "going in to attract the high-end market" and parts of that sector are really struggling in the US.

"I've always had this perception that an element of the Pumpkin Patch offer is targeting not the mother but gifts for children's birthdays or Christmas, from grandparents in particular.

"These are people in the US and UK who are under pressure, suddenly grandma's retirement fund isn't looking as flash, maybe her grandson isn't getting expensive children's clothing."

Morris said Pumpkin Patch did not have the capital to "ride out" the downturn in the US.

"They entered the US on a high, when everything was bubbling along and people were spending money like no tomorrow. Now they're exiting on a low."

Of Pumpkin Patch's 41 stores in the UK, 17 are underperforming with leases expiring either this year or next year.

The company said this would give it an opportunity to negotiate rent reductions from those sites but warned if "acceptable solutions" are not met then stores could be closed.

The changes are expected to reduce earnings before interest and tax by between $9 million and $11 million. The full positive financial impact of the changes on total group earnings would be seen in the second half of the 2012 financial year, Pumpkin Patch said.