Michael Hill chief executive Phil Taylor. Photo / Supplied
Michael Hill chief executive Phil Taylor. Photo / Supplied
Michael Hill International didn't have the brand awareness or the budget to penetrate the US market, forcing its withdrawal, the retailer's boss says.
The Brisbane-based company, named after founder Sir Michael Hill, announced last month that it would be closing all nine of its US stores after almost 10 years in the market.
It spent hundreds of thousands of dollars, "not millions", on a Super Bowl commercial broadcast in 2015 and invested heavily in the US but even that couldn't help the dual NZX, ASX-listed jeweller gain traction in the US.
Michael Hill chief executive Phil Taylor said its Super Bowl debut helped with brand awareness, but the ad wasn't broadcast nationwide as many believed.
"When we ran the ad at the Super Bowl it was targeted just into the Chicago market and into Canada - it wasn't a US-wide or global ad. It had good penetration in Illinois and Chicago, which were our main markets," Taylor said.
"[At the time] we had a lot of activity on our website from people who didn't know our brand and wanted to look it up. We tried a lot of things, that was one of the things we tried to get market attention, and it did, but we haven't done it again."
Taylor said it had been unlucky with the timing of its US launch, managing fallout from the Global Financial Crisis in 2008.
"What's been particularly difficult with only a small number of stores in such a large market is that our brand is unknown there," Taylor said. "The worst place to be is where we are which is a small footprint losing money and not growing."
The marketing budget Michael Hill had to spend each year in the US was not enough to get the cut-through to make it viable, he said.
It will now write down its Emma & Roe assets by AU$7 million (NZ$7.6m) and hopes withdrawing from the US will improve profitability.
Pulling out of the US was not an easy decision to make but weak half-year results made the decision clear-cut, Taylor said.
"We haven't completely failed in the market, demonstrating that our model does work but we needed to get enough performance to grow it and add stores. In a market of that size you really need a minimum of 300 or 400 stores to have a viable business but we really didn't have the confidence to invest the amount of capital we would need to get going on that," he said.
A still from Michael Hill's 2015 Super Bowl ad 'What Would You Do For Love?'.
"On the upside, we learnt a lot from a highly competitive market but it got to a point where we had to admit that it was not the best use of shareholder funds."
Taylor said he hopes to find someone to take over its stores as a growing concern. If that can't happen it will have to negotiate an early exit from its current landlords.
The financial impact to exit the market is not yet known.
Michael Hill lifted group revenue 4.7 per cent in first six months of the year to December 31. In that period group sales from all stores rose to AU$341.5 million (NZ$371.3m) from A$326m ($354m) in the previous first half. Same-store sales grew 0.5 per cent to AU$317.3m (NZ$344.5m) in the six months.
Re-entering the US in the future wasn't off the cards, but if it was to happen it would likely do so in a different part of the country, Taylor said.
"The economy in Chicago and Illinois isn't the strongest retail economy. We would probably have had a better run in a different state and a different part of the US," he said.
"In hindsight, we wouldn't have entered the market in 2008, or anytime prior to about 2012."
The worst place to be is where we are which is a small footprint losing money and not growing.
Its focus is to continue to reposition the Emma & Roe brand, Taylor said.
"Other than repositioning Emma & Roe, New Zealand, Australia and Canada will need to have a lot of focus put on them and we'll be looking to drive online sales in those markets and build a significant online presence," he said.
The changing retail environment and consumer sentiment was its biggest challenge, he said.
"We're really trying to navigate the way forward in the next five, 10 years as to how our two brands should look, how they should operate and what environment should they operate in," Taylor said. "It's interesting times. For every risk of change there's an opportunity and there's some great opportunities."
Michael Hill's share price has fallen since it announced it would exit the US, and is currently trading at $1.37, down from $1.42 on January 24.
