THE PRODICAL RETURNS

In an earlier blog we analysed the fortunes of Superdry – a UK fashion retailer which makes extensive use of Japanese images and letters to convey the impression of being an “international” retailer.

It was founded by Julian Dunkerton in the mid 1980’s with a colleague. He acted as the initial CEO and subsequently as the creative person behind the designs and ideas. Evidence of its “global reach “was evidenced by a ten-year joint venture with the Chinese retailer: Trendy International Group, in 2015.

In recent months it has experienced an interesting phenomenon that is reminiscent of many businesses and stems from that perennial question; what happens when the CEO / Founder / Key Catalyst leaves?

The problem is compounded by the fact that Dunkerton had left Superdry in April 2018; having fallen out with fellow Directors over the direction of the business. However he still retained shares in the business and like Shakespeare’s Banquo in one of his plays, still retained a strong interest in the operations of Superdry: holding a nineteen per cent stake. Increasing frustrated by the decisions of the new CEO he mounted a return to his original post in the latter months of 2018 and the early months of 2019.

Naturally this created ructions among the board members: many of whom had blamed Dunkerton for the decline in fortunes of the brand prior to his original departure. In particular he was criticised for not showing enough innovation in product design.

Dunkerton was a strong vocal critic of the increasing tendency to engage in heavy discounting and also poor product and design decisions. He has also been scathing about the trend of Superdry to reduce the number of SKU’s within its core product categories. Some of its new product categories such as “performance wear” has also been attacked strongly by Dunkerton. He has also argued strongly against the idea of Superdry entering into the kids wear area.

He based this criticism on the fact that Nike and Adidas perform strongly in the “mini me Children’s wear market and that Superdry is in danger of moving away from its core segments such as the young professional groups, sixty per cent of whom are over twenty-five.

In his view it is not sustainable to cater for such disparate groups in a heavily competitive market. This will lead to a weaker brand equity in the longer term.

This led to profit warnings being issued. Over £1.2 billion was wiped off the share value of the brand between 2018 and early 2019. It has resulted in a forty per cent plunge in profits in the year ending December 2018.

After a six months campaign he won the battle with the board room and the institutional investors and gained enough support to return as the CEO. Together with the support of Boohoo’s Chairman, Peter Williams, he has launched a strong campaign to revitalise the fortunes of Superdry. The battle was won on a wafer-thin majority of the shareholders (50.75%: 49.25%).

Shortly after it was announced that he was returning, the share price dropped: an ominous portent of things to come perhaps.

His initial proposals to revitalise the brand upon his return include the following elements.

  • A reduction of around twenty per cent of positions at Superdry’s Head Office.
  • Move some of the production from China to Turkey in order to shorten the supply chain
  • Review the roll-out strategy in the USA market
  • A rethink on how its online operations can be integrated into the “bricks and mortar” formats. Dunkerton feels that, by comparison to a retailer like ASOS (114,000 sku’s, and fifty percent of those being own label), 4,000 sku’s only being on line in the case of Superdry is not very impressive.
  • A review of the number of Superdry stores. As of April 2019, sixty per cent of the stores will be up for renewal over the next four years.
  • The cancellation of the recent move of Superdry into the children’s wear segment. Dunkerton argues strongly that the Superdry brand traditionally holds a lot of appeal for teenagers. It is unlikely that that will remain so attractive if “little brother / sister” is also wearing it. One-third of sales comes from the 16-25 age bracket.
  • Focus more fully on its core customers: teenagers and “twentysomethings”.
  • Stem the practice of heavy discounting that was pursued by the previous CEO.
  • The hiring of a new Creative Director – Phil Dickinson (formerly with Nike) to inject more radical thought into the area of product design. This individual is very familiar with two of Superdry’s core markets: China and the USA.
  • The reintroduction of the Superdry Design Lab, with the intent of getting new designs into the stores well ahead of the Christmas season in 2019.

The fact remains that his return has not been welcomed by the existing board. Many of them have quit as a consequence of his reappearance.

In addition to accusing him of making major mistakes when he was with them, many argue that the decline of Superdry has coincided with a very weak period for fashion retailing in general. Also the very mild winter in the UK has also affected Superdry, given its reliance on outerwear.

A number of questions have to be posed in my view.

Can the prodigal’s return lead to a reverse of the decline in share value?

Will he quickly overcome the clear dissatisfaction about him in the minds of the current board and the shareholders?

Can he recover the initial success and creativity associated with Superdry in the 1990’s and 2000’s?

Is Dunkerton “clued into” the changes that have taken place in fashion retailing in the last few years?

Can he overcome any prejudices or biases that he may hold from the last time he was employed as CEO / Creative Director?

I am minded to associate the return of founders / CEO’s to their original business ventures as being akin to the reappearance of football managers, who have been sacked or have left and then return subsequently in a “blaze of apparent glory”. How many time do we see a similar return to success? Not in too many cases, in my view.

The fashion industry has traditionally exhibited signs of volatility. This, in tandem with the emergence of pure-play e-tailers, has led to many changes in the competitive structure and nature of this sector.

The recruitment of an ex-Nike creative individual, with experience of the Chinses and US markets should arguably improve the position of Superdry on the global stage in key markets.

It is arguable that the return of the prodigal son will lead to the changes necessary to rejuvenate this brand. Let’s monitor progress over the next year.

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