Briscoe has the people who can carry out a turnaround plan, argues managing director and majority owner Rod Duke. Photo / File
He's the great salesman, but can Briscoe Group's Rod Duke sell his bid to buy Kathmandu? Holly Ryan reports.
During almost 30 years in New Zealand, Rod Duke has earned a reputation as the great survivor of the retail trade, able to keep turning a profit as rivals watch their sales shrivel.
Now he faces his biggest challenge yet. First, to win his takeover bid for outdoor gear retailer Kathmandu, and then to turn it around and make it as profitable as the rest of the Duke empire - Briscoes, Rebel Sport and Living & Giving.
According to retail commentators, if anyone can do it, he can.
Despite a tough retail environment, Briscoe Group has continued to thrive, consistently posting double-digit growth figures.
"[Rod] is an exceptional retailer," says Craigs Investment Partners analyst Mark Lister. "You just have to look at how Briscoes has performed compared to just about any retailer in New Zealand.
"They've all had their issues but Briscoes stands out as the shining light and how they've managed to do that amidst a pretty poor consumer outlook is quite amazing, really. They're certainly very, very good operators."
Duke's pursuit of Kathmandu was revealed suddenly. This week his Briscoe Group - and it really is "his", given that he owns almost 80 per cent of the company - announced it had bought 19.9 per cent of Kathmandu. Briscoe's formal takeover bid was released on Wednesday.
Kathmandu has struggled in the past year, posting a $1.8 million loss for the first half of its current financial year, down from a profit of $11.4 million for the same period the year before.
As Lister sees it, Kathmandu still has the right fundamentals and "if you're going to back anyone to [fix Kathmandu] then Rod Duke is probably the guy you would back."
The offer includes five Briscoe Group shares for every nine Kathmandu shares, as well as 20c per share. Duke says this is aimed at giving Kathmandu's shareholders the opportunity to stay on board with the company, rather than just selling out.
"I'm not running in there throwing cash at them and saying 'Give me your shares, here's a bit of cash, now go away'," says Duke. "I'm saying I'll switch your Kathmandu shares for some Briscoe shares, I'll give you a bit of cash as well but you get to share in the benefits as the group succeeds."
Not that the takeover's success is a one-way bet. Kathmandu has urged its shareholders to take no action on Briscoe's offer for now, and has hired Goldman Sachs as an adviser - presumably not to smooth Briscoe's path to victory. Various arms of Goldman Sachs hold a 12.5 per cent stake in Kathmandu, putting it in a strong position to hold out for a higher price than Briscoe has offered.
Asked what he will do if things turn hostile, Duke notes, "when we got our 19.9 per cent holding - we got that from institutions, and institutions that had been shareholders for a long time in that business, and we got that holding very, very quickly, and that told me something."
Nor would he characterise Briscoe's initial communication with Kathmandu chairman David Kirk as hostile, he says.
If he does prevail, turning the tide for Kathmandu will be a challenge for Duke, but he has had some experience with overcoming obstacles.
When Duke first joined Briscoes, arriving in New Zealand from his home country Australia, its Dutch owner gave him the job of tidying up the business for sale. Three years later he had found the perfect buyer - himself.
"I was a nobody who had fallen into New Zealand for the first time in my life in September 1988," Duke said years later.
"Everyone knows I'm here for three years, I'm selling the place and I'm out of here - I'm taking a kit bag full of money back to Sydney. It didn't happen that way but that's what everybody knew because I told them - there was no point in telling them any different," he said.
I think it's really important that people see from experience what we've done in the past.
Within a year of arriving, Duke had turned a $2 million loss into a profit. He then bought the business for "not that much", generating one bit of folklore that has accompanied him ever since: if it's not going for a song, Duke isn't interested.
Despite his early success, the journey has had its hurdles.
When Duke decided he wanted to buy Briscoes, none of the banks jumped in to back him. The ANZ finally agreed to support his plans to buy the company - with a personal guarantee from Duke for the loan in the vicinity of $10 million. If the company had failed, he could have lost everything.
Having successfully returned Briscoes to the black and with two acquisitions since - Rebel Sport and Living & Giving - Duke says he hopes Kathmandu shareholders will have confidence that he can work the same magic for the retailer.
"I think it's really important for my people to have the confidence of knowing they can do it, but it's also extremely important for Kathmandu shareholders to understand that it has already been done inside our own organisation by experienced people, so we're capable of executing these sorts of plans," Duke says. "I think it's really important that people see from experience what we've done in the past."
Duke's past in the retail industry goes back a long way, starting out in an Adelaide shoe shop at 16, before working his way up to become managing director of the computer and electrical business Norman Ross - an early venture of Harvey Norman's Gerry Harvey.
He says he is always assessing opportunities and had been open about the fact that Briscoe Group was looking out for another company.
According to Lister, the takeover bid is likely to have been a combination of opportunity and strategy.
"We've been expecting Briscoes to buy something for a little while," Lister says. "Whether Kathmandu was something they identified two or three years ago as an opportunity, or possibly more likely they saw a company that had a good brand, a good store footprint and was a good operator in many ways but had stumbled and lost their way - so it could be part strategic and part opportunistic."
Duke's last major acquisition was Living & Giving, bought from Pacific Retail Group in 2006. This led to the establishment of Urban Loft, a more upscale homeware store in downtown Auckland.
I could be best described as an opportunistic bottom-feeder - if no one wants to buy my shares and I think they're undervalued then I'll stand in the market and I'll buy them.
It was a rare stumble for Duke, who made the purchase as the country was about to sink into recession. "While I love the [Urban Loft] concept I've got to say my timing was not perfect but at the end of the day it's washing its face and we'll have another look at that when we pull out of the recession," he said a few years after that experiment.
He's never been keen to sell down his stake in the business, quite the opposite. In the words of one frank quote from the files, "I could be best described as an opportunistic bottom-feeder - if no one wants to buy my shares and I think they're undervalued then I'll stand in the market and I'll buy them."
Chris Wilkinson, managing director of retail consultants and strategists First Retail Group, says Duke's business model of keeping costs low has served him well, and he would need to implement similar measures at Kathmandu.
"The true formula for good retail is keeping things at the lowest possible cost in terms of your back end," Wilkinson says. "For Kathmandu, they've got this massive infrastructure there that drives that in terms of their distribution centres and design - it's still quite a weighty animal behind the street front."
Duke says having not yet seen the back end of Kathmandu's business, he is not sure exactly what needs to be changed, but would be looking at everything from lease costs, to promotional activity, merchandise and selling costs.
We've been through good times and crook times and easy times and difficult times and it's handy if they know what buttons to push when.
"There's a whole bunch of things so that's probably the first place you start but precisely what it is that's wrong - it's a bit hard for me to tell sitting this side of the barbed wire," he says. Although he has not ruled it out completely, Duke says it is unlikely that Briscoe would look at integrating Kathmandu into its Rebel Sport stores.
Duke says he is often asked for his secret to success, but it is a combination of factors rather than just one. "People ask me that question but it's hard to turn around and look at the things that we as a team do instinctively because I don't know what the other folks do, but I have a management team that's been with us for a very long time.
"We've been through good times and crook times and easy times and difficult times and it's handy if they know what buttons to push when."
Getting Kathmandu back on the trail
A combination of business errors, a tough retail economy and plain bad luck caused the decline in Kathmandu's fortunes over the past year, but retail commentators say the company, which was once a market star, still has the right fundamentals.
Just over a year ago, the outdoor clothing and equipment retailer had a first-half-year profit of $11.4 million and its share price hit its peak at $4.
For the same period this year, the company posted a $1.8 million loss and its shares slid as low as $1.27.
"All the basics are there," says Craigs Investment Partners analyst Mark Lister.
"It was only a few years ago that Kathmandu were a real star in the market and their history looked quite similar to Briscoes, so I think they still have a really good brand and the framework is there. They've just lost their way to some degree."
The decline in Kathmandu has been mirrored among retailers who share its outdoor focus.
Mountain Designs closed its 12 New Zealand stores in August last year, blaming the decision on what it described as a "saturated" market. It was followed by Fishing Camping Outdoors, which closed its 13 stores this year.
First Retail Group managing director Chris Wilkinson says Kathmandu has been affected by competition.
"I think what people are looking for is a bit of differentiation, and I think we've got a little bit too much of everything going on with the outdoor category at the moment," he says.
Companies such as Wrights, RD1 and Farmlands had expanded their apparel and gear offering to farmers and workers, further affecting Kathmandu's sales.
Lister says that while some of Kathmandu's woes - including a tough retail environment in Australia - have been beyond its control, the company has made mistakes.
"[In Australia] they have had to keep discounting and discounting and basically giving away most of their margin to try to move stock, otherwise they'll be stuck with their inventory.
"That's partly just the way the Australian economy has been.
"They have also made some errors about which products they've had and their product mix, and that makes quite a difference because it's a very seasonal business.
"I think they just haven't quite had their finger on the pulse of the consumer and what the consumer has wanted."