Peter Birtles is the chief executive of Supercheap Auto Group, which owns the Supercheap Auto, BCF and Goldcross Cycles chains and has been one of the real stars of the retail sector in the last 12 months. The company, which posted 12.3% sales growth in the first half of the 2009-10 year to $463.6 million, recently acquired outdoors chain Ray’s Outdoors and remains on the hunt for new opportunities in the leisure sector.
Today, Peter talks to SmartCompany about the psyche of Australian consumers, standing out in a crowded market and the secrets of spotting the right trends.
We’ve been hearing a lot about the retail outlook and we’ve seen sales downgrades from Woolworths and Clive Peeters. How are you guys finding the retail market out there? Is there a post-GFC hangover?
So far James, we’ve actually been holding up reasonably well. We did put a trading update alongside the announcements of the Ray’s acquisitions and Supercheap Auto’s like-for-like sales growth in the first 16 weeks of this half was pretty reasonable at over 5%. BCF was around 2% and we’re certainly cycling up against very strong growth in the comparative period thanks to the stimulus package last year, but we’ve been pleased that we’ve been able to cycle up against that and get further growth.
And I think when I look at our business, we’re in a positive position in a sense that the average transaction value is not that high. In Supercheap Auto it’s $32 and in BCF it’s about $70. So people come into our stores and they’re not making a major considered purchase, whereas perhaps we find with say the furniture guys that you were referring to, that is a major considered purchase. People are thinking very carefully, do I want to spend $3,000 this weekend? We sell a lot of consumable items and I think that’s sustained us pretty well.
Do you get a sense of the mood of the customer? Has the GFC changed their psyche at all?
I think they certainly had the benefit last year of just extra money available in the pocket and at that time last year, that was a positive. Despite all of the bad news in the wider economy, there was still this sense of hey I’m not in too bad of a position, I’ve got more money than I had previously, interest rates are low so I’m comfortable going out there and spending. This year we don’t have the benefit of the stimulus package and we’re seeing interest rates going up, so I think what I would say is the customers are pretty cautious and are thinking carefully on what they are spending, particularly when it comes to the higher value items.
I think that retailers have to get out there and give the customers a reason to come into the store. A lot of retailers are using discounting as a way to do that, we’re not really doing that. What we’re looking to do is to change the look of our stores, we’re bringing in a lot of new products and that seems to work for us. So we’re trying to differentiate in what is a crowded marketplace with a lot of people talking to the customer about discounting. We’re trying to give them a different message.
What ways do you differentiate? Is it in-store experience? Is it price? What’s the philosophy?
What we do is we set our customer offer dependent on the business so our businesses do have slightly different positionings. So Supercheap Auto, what we’re looking to do for the customer there is to say we’ve got everything you need for automotive, so we’re a category expert, but at the same time we’re going to give you a bloody good price. So we do set out to lead the market on value, so it’s a range and value led offer.
Whereas BCF is different in it’s taking a much greater focus on the range side, on the product selection side and saying we are the true experts in boating, camping, fishing. We know that there might be people out there that could possibly give you a slightly better price, like Big W and Kmart, but they can’t give you the quality of advice and information that we can in these categories. And then on the other hand there are your local specialist stores, whether that’s in camping or fishing or boating, who perhaps have a greater level of product knowledge than we do, but they can’t offer the breadth of range or the same quality of pricing that we can. So we actually have a slightly different position depending on whether we’re competing with a discount department or with the local specialist.
I’m in Victoria and Ray’s Outdoors is quite an iconic name down here. How did this deal come about? Was this a business you’d been looking at or was there a founder ready to sell?
It’s been a conversation that’s been going on for a couple of years. We’ve seen over the last four or five years Ray Frost expand his business from about 25 stores up to 38 today. BCF has grown from pretty much scratch to its 67 stores today and Anaconda has also grown from scratch and it’s got 19 stores nationally. And we’ve seen the emergence of these three businesses that have grown and through that time we’ve had some pretty close conversations with Ray. We see that his business is a different business to BCF, it’s probably a much broader based outdoor leisure business. So it has outdoor furniture, it’s got barbeques, it’s got a much broader apparel business. And we’ve found that when we’ve been operating in the same markets as Ray’s Outdoors actually both businesses have traded quite well together, so we think we’re offering the customer something different. So yes, we’ve had conversations and I think that for Ray now has been the right time for him. He’s looking to perhaps focus on some property development interests.
Will there be any sort of mix between the two brands that the customer will see or will it be mainly at the backend?
As far as the customer is concerned there will be two separate businesses. We’re looking for both businesses to have their own clear identities with their own separate product ranges, BCF continuing as that specialist boating, camping, fishing store, whereas Ray’s continuing as a broader based outdoor leisure store. In terms of the backend of the business, we will do some common sourcing, we’ll be running the same logistics network and we’ll be running the same IT systems but that’s something that will evolve over time.
Supercheap was lifted when the DIY trend got into full swing and you seemed to have grabbed another sweet spot around outdoor leisure. Is there a process that you use to spot trends or does it just sort of happen?
Certainly when we look at the factors impacting on our business, we look at those trends. I think with Supercheap Auto, we still do have a bit of a trailer business which people use for their boats and so on and we have a small outdoor camping business and we understood there was an opportunity there which evolved into BCF.
We are starting to focus increasingly on how people spend their leisure time and when we look at opportunities for the group, we’ve been looking at products that service those requirements. The move into cycles was a reflection of that.
So we principally see ourselves as a group that is about providing products that people use in their leisure time, whether that’s working on their cars in their spare time or they’re out travelling or touring or they’re out boating, camping or fishing or cycling, it’s that kind of leisure time that is the glue that holds the group together.
As we look to the future, other things that we might do would fit under that banner, but also they’ve got to suit the capabilities of the organisation. We’ve got a very strong logistics network that we’ve built over time that’s capable of handling that mix of hard goods and consumables, but what we don’t do is perishable products, we don’t do high-end value products. So we’re fairly clear on the type of products that we handle and I think we’re pretty good at product sourcing and we’re pretty good at developing stores, rolling out new stores and so on. So it’s applying those capabilities to new markets.
Is there lots of research that goes into that or do you just get a sense from the stores of what people are up to?
It’s kind of both a intuitive process which probably comes from just seeing what we see in our business and having a look at what other retailers are doing as well. But at the same time there is also the analytical side where we do get the IBISWorld reports and the ABS reports and all that sort of stuff and we have a look at that and work through it. So it’s the mix of both intuitive and both analytical thinking, I think.
I know the Goldcross chain is in the middle of a turnaround, but what do you need to get that business back on track?
I think there’s a combination of things. One of the mistakes we made was we felt a large 1,000 square metre superstore would attract a higher level of customer traffic than it has done. We’ve found with stores that are around 500 square metres, they’re doing the same amount of customer traffic and the same amount of sales as larger stores. So we’ve invested in additional space which hasn’t given us a return and then therefore we’re pretty clear in terms of the store size going forward.
In terms of other things that we’re doing, certainly the opportunity that we feel for Goldcross is that it fills that gap between the discount department store where you won’t be looking for any particular service, you’re buying your bike in a box and building it yourself and the local store where the sales team in that store might perceived as a bit intimidating because unless you have got shaved legs and so on, how do you feel going into that store? So we think there’s an opportunity to try and play that middle ground that people who absolutely understand the pastime and understand the product but at the same time are very tuned into making a welcoming experience to your average customer.
Then I think it’s understanding the supply chain. It’s a pretty old industry in terms of the structure of the bike industry in that the wholesalers and distributors have a very strong amount of power in this industry today and the supply chain really has been developed to primarily service the needs of the wholesalers and distributors as opposed to the retailer and customer. So we see there is a big opportunity to reengineer the supply chain. At the moment retailers have to place their orders nine months ahead of when they need the stock and therefore you’re making a guess as to what lines will sell and that’s a pretty tough thing to do. In many of our other retail segments you’re placing your order for what you need in three or four weeks time and therefore you’re a lot more responsive to customer trends. So we’re trying to shorten lead times, we’re trying to get closer to the factories and we’re trying to reduce the amount of stock holding that’s held in the business. These are things that we think we can do but it will take time and it will take scale to be able to do that.
James was the editor and publisher of SmartCompany and LeadingCompany for five years. He is now the Australian Financial Review‘s companies & markets editor, and a former BRW editor.
