KEY POINTS:
Pumpkin Patch executive chairman Greg Muir's refusal to give a profit update or guidance didn't raise a whimper at this week's annual meeting.
Shareholders were smart enough to realise that the company's growth strategy, rather than the important November-December trading period, will determine its sharemarket performance.
Pumpkin Patch's
approach is far more aggressive than any other New Zealand retailer, and it will become one of the great New Zealand-owned companies if the strategy is successful.
In simple terms, there are two types of retailer, the big multi-purpose store operator and the specialty retailer. The Warehouse, which has turnover of nearly $18 million a year for each of its stores, is a big multi-purpose retailer whereas the three main listed specialty retailers with overseas ambitions, Hallenstein Glasson, Michael Hill and Pumpkin Patch, have annual sales of less than $2 million a store.
The multi-purpose operator grows by building bigger and bigger stores offering a wider range of products, whereas the growth orientated specialty retailers have to keep opening more stores in different places.
Pumpkin Patch has grown from 27 stores in July 1999 to 168 in July. This equates to 20 new stores each year or one every 18 days.
Michael Hill has taken a more subdued approach - its store numbers have risen from 102 to 177 over the same seven-year period, a new opening every 33 days.
In the past 12 months Pumpkin Patch opened 31 new stores, Michael Hill a net 21 and Hallenstein Glasson eight.
The Warehouse's Red Sheds in New Zealand remained static at 85. But their retail space increased by 4.2 per cent as existing stores were replaced and others extended.
Pumpkin Patch plans to raise the tempo and open at least 35 new stores by next July - equivalent to a new opening every 10 days.
Fitting out each new store will cost up to $1 million.
There will be a particularly strong emphasis on the United States and Great Britain although the company continues to expand in New Zealand and Australia.
This rate of growth is unprecedented for a New Zealand retailer or any other NZX company.
Listed specialty retailers have to expand overseas because New Zealand's small size and low population density restrict their growth prospects.
In the year to July, Pumpkin Patch achieved average sales per New Zealand store of $1.27 million compared with NZ$1.99 million per Australian store.
Ebit (earnings before interest and tax) per store in New Zealand was $252,000 compared with NZ$396,000 in Australia.
The group will be highly profitable if it can emulate or exceed its Australian returns in the Northern Hemisphere.
But Pumpkin Patch is far more than a specialty retailer. It designs its own clothes, contract manufactures in China, ships the end products back to New Zealand, sorts and then dispatches them to its worldwide stores. It also has wholesale and direct selling - internet and mail order - operations.
The organisational demands on the group are huge.
Greg Muir and managing director Maurice Prendergast have to ensure that the company maintains the highest standards in a number of areas including;
* The design team has to remain at the cutting edge of the fashion world.
* The company has to ensure that its contract manufacturing continues to produce high quality and consistent merchandise.
* Transport and logistics will become increasingly important the more it expands overseas.
* Store site selection will continue to be important as will the fit out of these new outlets.
* The company must continue to adopt appropriate pricing and marketing policies for its different markets.
If - and it is a big if - Pumpkin Patch continues to maintain its current level of excellence and growth for a further 10 to 15 years then it will become one of the great New Zealand-owned companies.
Michael Hill has developed and sustained a successful business strategy over a long time.
Hill opened his first jewellery store in Whangarei in 1979 and moved to Brisbane in mid-1987.
Michael Hill International has had a more subdued growth rate. It opened its first store 27 years ago and plans to have 197 outlets by mid-next year after adding 20 this financial year.
Pumpkin Patch opened its first store in 1992 and plans to have at least 203 retail outlets by mid-next year.
Pumpkin Patch designs and contract manufactures all of its product whereas Michael Hill designs and contract manufactures only a small proportion of its final sales.
Another big difference between the two companies is that Michael Hill took complete ownership of his company's expansion into Australia, selling his Whangarei home and moving his family across the Tasman. His daughter Emma now takes full responsibility for the company's expansion into Canada.
By comparison, no senior executive seems to be taking clear responsibility for Pumpkin Patch's Northern Hemisphere expansion.
The group gives confusing signals as Greg Muir was awarded the Deloitte/Management magazine Executive of the Year award this week for driving the company's overseas expansion whereas most investors believe that Maurice Prendergast is responsible for this.
The company also misses the opportunity to give shareholders an in-depth analysis of the American or British markets, particularly at this week's annual meeting.
Maybe this was the reason no questions were asked and the meeting was over in 35 minutes.
Hallenstein Glasson is the other specialty retailer trying to make it across the Tasman. As the accompanying table shows, it generates more revenue and ebit per store than Michael Hill or Pumpkin Patch but it has been unable to achieve an adequate return in Australia.
Hallenstein Glasson is struggling to make headway in Australia because it doesn't have anything unique to offer compared with Michael Hill or Pumpkin Patch, which design and contract manufacture a proportion of or all of their retail merchandise.
Finally the takeover offer for Australian jewellery retailer Angus & Coote by the highly ambitious Auckland couple David and Anne Norman illustrates there is only the quick or the dead as far as specialty retailing is concerned.
Angus & Coote was founded 111 years ago and listed on the Australian Stock Exchange in 1952 yet its market capitalisation was only A$56 million before the Normans made their A$6.40 a share takeover offer last Friday.
The ASX listed company reported a A$3.8 million loss for the year to July because of weak demand, high gold prices and a 27 per cent increase in the number of retail jewellery outlets in Australian shopping centres between 2003 and last year.
After the takeover, which has been recommended by the target company's directors, the Normans will own more than 500 jewellery stores in Australasia under the Angus & Coote, Prouds, Pascoes and Stewart Dawson brands. They also own the 55-store Farmers chain in New Zealand.
The Angus & Coote acquisition should help rationalise the Australian market, but the Normans will be tougher competitors for Michael Hill International.
* Disclosure of interest: Brian Gaynor is an investment strategist and analyst at Milford Asset Management.