Pumpkin Patch trading halt shows up fierce competition in children’s clothing market

Children’s clothing retailer Pumpkin Patch has hit another rocky chapter after it was placed in a trading halt on the New Zealand stock exchange last week, as retail analysts observe the brand hasn’t been able to pinpoint what it stands for in a market dictated by parents’ hunger for value.

The 26-year-old kid’s clothing business has operated in several different formats since it was launched as a mail order catalogue in 1990, including as a chain of bricks-and-mortar stores in Australia, New Zealand and the US as well as online channels across the globe.

Since the early 2000s the brand has also formed franchise partnerships with department stores like Nordstrom in the US, as well as inking deals in regions including the UK, Russia, India, Pakistan, China, Lebanon, Mexico and Malaysia.

But last week the company told the market it was “highly unlikely that there is any residual value in the company’s equity”, and after years of falling sales and a comprehensive four-year turnaround plan, shareholders should know the uncertainty over the company’s future “remains ongoing”. Pumpkin Patch has a meeting with its bank on October 31 to consider its options to resolve its “capital constraints”.

In 2015 the company put itself up for sale, but a deal was never completed. The business reported a $NZ15.5 million ($20.3 million) loss for financial year 2016, digging itself deeper into trouble after a $NZ9 million loss in 2015.

Pumpkin Patch has had bricks-and-mortar stores in a number of international locations, but faced challenges over the past five years, including stores being placed in administration in the UK in 2012.

The listed company has over $NZ46 million in debts that it is now struggling to service.

Gary Mortimer, retail expert and association professor at QUT Business School, says the childrenswear landscape has been disrupted by low-cost operators, and this hasn’t just been by the big local chains.

“We’ve also seen brands like Zara move in with Zara Child,” he told SmartCompany.

“Children’s clothing tends to be highly disposable, and with the evolution of discount department stores offering a range of children’s clothing, there’s a lot.”

“I guess Pumpkin Patch was known for very good quality and very good style – now we have stores like Target and Kmart – and clothes that are similarly designed at very low prices.”

Value versus niche in kidswear

Retail Oasis senior strategist Pippa Kulmar says bricks-and-mortar stores are still important for children’s goods, but retailers have to understand the different ways customers buy products, for their own kids and for others.

“I think the thing is that it’s a value game,” she says.

“When you’re buying things for other people’s kids, it’s important you don’t want to look cheap – when you’re buying for your own kids, the dominant thing is discount.”

While there are several examples of high end and niche startups for kids products online, Kulmar believes Pumpkin Patch has been stuck when it comes to navigating this fact.

“I think that the stuff that does really well online is stuff that tends to be more unique,” she says.

“What [Pumpkin Patch] is missing is a creative direction – when you buy from them, what’s the look?”

That task is made difficult, however, when capital is drained from a business. If another operation was to eventually snap up the troubled brand, the new owners would still have to evaluate what the end game was.

“I think what would happen if they do have someone buy them, there is a brand there and what you would be buying is brand awareness,” Kulmar says.

“And then give it the love that it needs.”

Pumpkin Patch management said on Friday it is in discussions with relevant stakeholders and expected to update the market on its progress in the coming days.