Billabong reveals new plan as it records a $275 million wipeout

Billabong has outlined a turnaround strategy based on closing stores and simplifying its business after recording a $275.6 million loss for the financial year, its first annual loss since listing in 2001.

Billabong’s full-year results show revenue down 7.9% compared to the prior corresponding period, including online sales growth of approximately 50%.

Chief executive Launa Inman said that at an underlying trading level Billabong remained profitable, as the results were adversely impacted by significant and exceptional items.

“The group is well on track in implementing the initiatives outlined in the previously announced strategic capital structure review and will continue to implement a number of new strategic initiatives announced today as part of Billabong’s transformation strategy,” she said.

“These initiatives will target both cost savings and revenue growth.”

The initiatives include the partial sale of its Nixon skateware brand, store closures and a cost reduction program.

Billabong closed 58 stores last year and will close another 82 “non-performing stores” this year.

Billabong’s transformation strategy is to simplify its business, leverage “Brand Billabong”, leverage other key brands, continue to expand its global eCommerce platform and to globalise and integrate the supply chain.

Inman said she expects “challenging” trading conditions to continue during this financial year as the retailer fights off a $695 million private equity bid.

David Gordon, partner at WHK, told SmartCompany the “glaring omission” in Billabong’s results is the exclusion of gross margin.

“Gross margin is an indicator of, first of all, the effectiveness of their product range and, secondly, the effectiveness of their inventory management processes,” Gordon says.

“They have identified that 22% of styles account for 80% of sales, but that is quite a normal number. The secret is to ensure that they have a system that allows them to identify slow movers and to manage the inventory out of the system as quickly as possible.

“That is to turn the slow movers into a cashflow, you make your gross margin out of your fast movers.”

Gordon says Billabong’s plan to close another 82 stores is “not such a bad thing”. But he warns if Billabong closes stores and there is a reduction in volume, it will put pressure on production runs and Billabong’s ability to reduce the cost of goods.

“They want to reduce their 25,000 odd stockkeeping units and in some aspects that is quite a logical decision, but as Colorado found, reducing the amount of underperforming SKUs can affect consumers’ perceptions of range and availability,” he says.

“What needs to be known is that there will be sizes and styles that won’t be fast moving but will be required to ensure that they have a position within a particular category; if they get that wrong not only will their inventory blow out but their size will decrease.”

Gordon says the transformation strategy will be Inman’s first big test as chief executive of Billabong.

“As a retailer, she has a terrific track record but this is a massive job and it all depends on the quality of her transformation team. The risk there is that if she hasn’t got the inherent transformation ability within the business, as opposed to senior management who know how to run a business, she will be relying on external consultants and we all know what a big risk that really is,” he says.