Pumpkin picks US sales to hit a purple patch

Pumpkin Patch's investment in the UK has begun to pay off, but it looks set to be overshadowed by better retail margins and growth in the US market.

Operations in New Zealand (49 outlets) and Australia (89 outlets) delivered most of the $28.5 million net profit, up 15.9 per cent on last year.

When financial results were announced last month Pumpkin Patch executive chairman Greg Muir was surprised by the UK operation delivering its first profit since its started in 2001 - an ebit of $1.8 million.

The result coincided with a rebound in the UK retail activity, but Muir says it also showed that the Pumpkin Patch brand is now trusted by the UK consumer.

Stores in the UK increased from 16 to 22 last year and Muir is planning another 10 per year with each new one improving economies of scale and potentially margins.

Muir is also ramping up the UK mail-order business. At $40.9 million turnover the UK operation is two thirds the turnover of New Zealand with nearly $60 million.

But two years into his role as executive chairman, Muir is upbeat about the early results from the company's smallest operation, the seven US stores.

"The margins for the UK will always be less than the US, New Zealand, or Australia, because the cost of real estate and personnel is higher in the UK."

Early results in the US were so encouraging and the market so large that potential for growth was huge, he said.

US operations started in 2004 with a single store in Los Angeles, then San Francisco and the West Coast. Just 18 months after it began, the US operation reported a negative ebit of $429,000. By the end of the 2006-2007 financial year Pumpkin Patch aims to have 19 stores in the US and plans on expanding through the south-west of the US.

The move to the US was well underway when Muir started in 2004.

But Muir said this year's better-than-expected results indicated it was a good move and that, in general, the US market had not been fully tapped.

"Too many New Zealand exporters are settling for Australia and ignoring growth potential in the US," he said.

Muir said apart from its scale, the retail sector in the US was similar to the New Zealand and Australian markets with a few large landlords.

Pumpkin Patch was focused on malls and by establishing contacts with a few owners it was easy to plan expansion.

In the UK, by contrast, a lot of retail activity was still in the town centre or "High Street".

Pumpkin Patch had hired a US retailer, Joann Ryan, as that country's manager whereas the UK operation was initially set up by teams from Australia and New Zealand.

"Both experiences have shown us what sells in the Middle East sells well in Australia and in the United States."

Expansion had not changed the management style of Pumpkin Patch.

Muir said: "The nice thing is that the format is now well proven and the complexity at head office of the design does not change. Only things like IT and logistics. It is the same range but with more stores.

"We are trialing a system where we send goods direct from manufacturers to other markets, rather than sending everything through New Zealand."

New Zealand and Australian retail outlets were developed after the brand was established as a wholesale brand, but in the northern hemisphere it had turned that process around.

"We've been in direct mail selling around six months in the UK and been happy with results.

"We'll wait a year or so but plan to expand mail order in the US."