The retail sector is exposed to the impact of the pandemic. Photo / File
The retail sector is exposed to the impact of the pandemic. Photo / File
Opinion
COMMENT:
"Human capital stock," as a Trump official infamously described it, is under the gun in the wake of the coronavirus crisis and the retail sector is among the worst sufferers.
In mid-March, Retail NZ predicted up to 10,000 jobs could be lost. Earlier this month, it said as manyas 17,000 retailers could close for good, based on a survey of members.
One of the nation's largest retailers, The Warehouse Group, which also owns Warehouse Stationery, Noel Leeming and Torpedo 7, is accounting for its share of the carnage, planning to lay off nearly 1,000 staff.
Which makes Briscoe Group, which owns about 90 Briscoe's Homewares and Rebel Sport stores nationwide, stand out all the more.
Chief executive Rod Duke, who owns 77 per cent of the company, announced ahead of the lockdown that he would forgo his salary until at least July. He also suffered the most from the company's suspended dividends.
Duke was paid $912,038 in the year ended January 26 and his share of the 12.5 cents per share dividend that was to have been paid at the end of March would have delivered him almost $21.4 million.
He asked his executive team to share the pain by forgoing salary increases but also resolved to retain all staff.
Brisoces Group chief executive Rod Duke has skin in the game at the company. Photo / Supplied
Duke told BusinessDesk his investors should feel "a great deal of confidence in my having plenty of skin in the game if you like. They know my motivation is the welfare of the business, including the people inside the business."
His desire to protect Briscoe drove his decision not to participate in the $207 million capital raising outdoor clothing and equipment company Kathmandu announced in April. Briscoe owned 16.3 per cent.
It wasn't that Briscoe couldn't afford to participate – at its balance date it was debt-free with $67.4 million in cash.
The Kathmandu stake was valued at $154.1 million, or $3.21 per share, in the accounts compared with its cost of $87.9 million between 2015 and October 2019 when Briscoe participated in the capital raising to buy the Rip Curl business.
Briscoe was diluted down to 6.8 per cent and, with Kathmandu's shares trading at $1.20 last Friday, the stake was worth $57.6 million.
That must hurt but Duke seems philosophical: "Some days I'm lucky and some days I'm not."
But he laughed when reminded that he'd said more than a year ago that he regretted not getting all of Kathmandu in his 2015 takeover attempt.
When Kathmandu revealed in April "those horrible, horrible numbers, I felt a bit sorry for them."
Briscoes
Fellow Kathmandu shareholder, Harbour Asset Management's Oyvinn Rimer, said Duke's promise to retain staff on full salaries "requires a lot of courage in a scenario when your stores are closed."
As for Kathmandu, the company was very exposed when the pandemic hit, having just acquired Rip Curl for $368 million and being heavily geared, notwithstanding raising $145 million to help pay for the purchase, Rimer said.
And the products Kathmandu sells are completely discretionary, making it an easy consumer choice to cease buying from it in times of crisis.
Harbour and its major shareholder, Jarden, own 7.1 per cent of Kathmandu.
But the grim scenario Kathmandu painted in April, when it wanted to ensure it would have sufficient liquidity to meet its obligations and capital requirements for at least 12 months, now look overly pessimistic, Rimer said.
Kathmandu had been surprised by the surge in online sales through NZ's alert levels 3 and 2 before its NZ stores were able to resume normal trading at alert level 1 earlier this month, but it had invested heavily in online capacity.
"That was quite a big offset against the stores being closed. That was the first indication that things were going better than feared."
Now the NZ stores have reopened, "anecdotally, it looks like their stores are very busy," Rimer said, noting that he checks the stores regularly.
With Kiwis and Australians prevented from travelling internationally while their borders remain closed even to each other, people are more inclined to explore their own countries which Kathmandu should benefit from.
"Kiwis and Australians are going out and really seeing their own countries in a way they haven't for a long time."
The crisis even allowed Kathmandu to fast-track planned synergies from integrating Rip Curl with its existing operations, Rimer said.
While Harbour isn't a Briscoe shareholder – Rimer seemed regretful that the free float was insufficient for a fund manager of Harbour's size – he suggested the crisis may benefit Briscoe too.
The experience of the lockdown and the ongoing progress of the pandemic globally has tended to make New Zealanders refocus on their own homes, enhancing that "my home is my castle" sentiment, Rimer said.
"Briscoe has high exposure to that. If people are going to spend a lot more time at home, they might want to upgrade their appliances and homewares."
