Michael Hill paring back US operations

Michael Hill says US operations are gearing up to capitalise on the financial recovery. Photo / Brett Phibbs

Battered by harsh retail conditions in the United States, Michael Hill International is to close eight of its 17 stores there to concentrate on sites with the most promise.

The jeweller will be left with nine US stores, all within the greater Chicago area.

Michael Hill bought 17 stores in July 2008 from Whitehall Jewellers which had filed for Chapter 11 bankruptcy protection.

It bought the chain for about $7 million, mainly for inventory which it bought for 20 per cent below cost price.

The 17 stores were mainly based around the greater Chicago area with three stores further south in and around St Louis and at the time the company said it "did not expect these stores to achieve profitability for several years."

The company said then it "views this as a strategic acquisition to test its retail model in the highly competitive US market, albeit at a time when the economy is challenging".

Yesterday Michael Hill International said it expected operating losses in the US of about US$6 million ($9 million) for the 2009/10 financial year, excluding costs associated with the store rationalisation. The cost of closing the eight stores would be about US$1.8 million.

Company chairman Michael Hill said that for the past 20 months the company had tested its retail concept in the US market in the face of some of the harshest retail and economic conditions in recent history.

The decision to consolidate to a smaller platform of nine stores was made after a full review of the business, including results as well as operational and real estate issues, Hill said.

The nine stores would immediately be refurbished to bring them up to the company's latest global concept.

"This group of stores will then give the company the best possible platform and opportunity to position the brand in the US," Hill said. "The board remains positive about the US market and is aiming to position the brand to take full advantage of the financial recovery over the coming years."

Due to the initiatives announced yesterday US losses should be reduced in the 2010/11 year, Hill said.

The rationalisation of the US business would not affect other parts of the company, with plans to open up to 15 new stores in other markets in the coming year.

Revenue from its United States stores made up just $7.5 million of total sales of $244 million in the six months to December 31. The company has stores in New Zealand, Australia and Canada.

Michael Hill shares closed down 4c at 66c yesterday.

AMERICAN DREAM
* Michael Hill International bought 17 US stores for about $7 million in 2008.
* The stores were in Illinois and Missouri.
* They traded in harsh retail and economic conditions as the recession took hold.
* Michael Hill announced yesterday plans to close eight of the stores at a cost of US$1.8 million.
* The nine remaining stores will be refurbished.

- ADDITIONAL REPORTING: NZPA