Solomon Lew's Premier Retail threatens 350 store closures, plays hardball on rent

Solomon Lew's Premier Retail threatens 350 store closures, plays hardball on rent

While online still only accounts for more than a quarter of Premier Investments' (ASX: PMV) sales, the segment's growth and high profit margins have emboldened the retailer's negotiating stance with landlords for physical stores.

Solomon Lew's group - the owner of such retailers as Smiggle, Portmans and Peter Alexander - has urged property owners to reduce rents in line with shopper behaviour that is increasingly shifting online, or else store closures will be "inevitable".

Premier Retail has booked an $8.7 million channel optimisation expense to potentially close up to 350 stores in Australia and New Zealand, and recorded one-off store asset impairments of $31.4 million in case suitable rental agreements cannot be reached.

Even including this impairments and expenses, the company's net profit after tax (NPAT) rose 29 per cent to $137.8 million in FY20.

Online sales rose 48.8 per cent to $220.4 million, but in the first six weeks of FY21 the rate was much higher at 92 per cent. In addition, Premier Retail notes the online business has a significantly higher EBIT margin than bricks-and-mortar stores. 

The company also highlights "maximum flexibility" in reviewing each store's profitability as more than 70 per cent of stores in Australia and New Zealand are either in holdover or with leases expiring this year.

"Premier Retail's highly profitable online capability and the flexibility of our property portfolio, combined with the decisions we have taken in response to COVID-19, leave the Group best placed to maximise our position in the accelerating retail industry restructure," says executive director and Premier Retail CEO Mark McInnes.

"Our record result during this global health crisis is no accident but rather a function of our targeted strategic investments over the last decade, our high quality culture and the commitment of our global teams together with the strong support of our suppliers."

Premier is also a major shareholder in home appliances manufacturer Breville (ASX: BRG), which in contrast to another key holding - Myer (ASX: MYR) - has seen a steady rise in its share price over the past six months. PMV's stake in the group is now worth more than $1 billion.

Stationery store Smiggle has been particularly hard hit by the pandemic, so in response the group will be closing up to 55 Smiggle stores out of 131 outlets in the UK in FY21, along with the four remaining Smiggle stores in Hong Kong by 31 October.

Premier plans to significantly invest in Smiggle's highly profitable global online presence, but in relation to physical store closures will impair assets in the UK, Ireland, Hong Kong, Singapore and Malaysia.

Updated at 12:23pm AEST on 25 September 2020.

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