THE AUSTRALIAN FINANCIAL REVIEW:  Carrie LaFrenz

Its star brand achieved double-digit growth in a difficult year and PAS Group has big plans, writes Carrie LaFrenz.

 

One of the largest apparel wholesaler-retailers in Australia has slowly been increasing its stable of brands and retailing outlets, aiming for a fully integrated retail business.

PAS Group has been traditionally a wholesaler of apparel – about 15 per cent of total revenue comes from supplying Target – but under the new model it expects to achieve 50 per cent of its earnings from its own retail stores.

The strategy mirrors an increasingly popular approach among brand owners such as Billabong, which has more than doubled its retail presence since the end of 2009-10, through acquisitions including the Surf Dive ‘n’ Ski chain bought last week.

PAS, formerly known as Pacific Apparel Solutions, has 24 brands in its stable including MetalicusBreakawayReview and Yarra Trail.

Chief executive Eric Morris is originally from Cape Town and has been in the top job for five years.  His strategy has been one of part wholesale, part concession, part retail and he aims to increase PAS’s own outlets in the next three years.

“Retail is going to be our continuing growth strategy where we will double our store numbers and have 50 per cent of sales coming from our own reatil businss,” Mr Morris said.

“We have a three year plan to double our number of stores.”

“We have 129 of our own retail stores [and plan to increase] to around 270 stores.”

Mr Morris was a Myer executive, in charge of its private label operations, and also spent several years as a regional director for Reebok.

PAS Group is majority owned by Propel Private Equity, which holds an 87.7 per cent stake, and PAS management holds 12.3 per cent; Mr Morris holds an 8 per cent stake.

The group was owned by Deutsche Bank’s private equity arm, before a management buyout in 2007.

A co-founder and the managing director of Propel Investments, Albin Kurti, said while PAS Group was once a candidate for an initial public offering, there is no set time for exiting the business.

“We watch the market pretty closely with an eye to both acquisition and divestment windows of opportunity and we have no set time frame for liquidity,” he said.  “If the right opportunity presents we will look at it.  We have not made an acquisition since late 2007.”

“In roll-up or buy-and-build strategies, you tyically have three to five years of buying and then two or three years of integration.  It is not unusual for buy-and-build strategies to have a longer investment horizon.”

Mr Kurti said it was possible there could be more second-tier sales of assets to other private equity groups rather than floats.

“My sense is that it [the IPO window] is certainly closed for 2010 but we will continue to watch things closely as we enter the new year.”

While many discretionary retailers have faced difficult trading conditions over the past 18 months, PAS Group has managed to maintain positive sales growth.

Sales in 2010 reached $279 million, up slightly on the $273 million achieved in 2009.  Comparative store sales across the group were up a modest 1.4 per cent.  Comparable sales in the wholesale business were down, primarily due to the company exiting non-performing categories such as footwear and luggage, Mr Morris said.

He notes there will be significant growth in Metalicus, which PAS Group purchased in 2007.  It’s known for its signature stretch body wear and has developed into a full fashion brand.  It has 12 stand-alone stores and is also sold in David Jones.  Mr Morris has international plans for the brand.

“We are busy looking for partners,” he said.  “I see Singapore, Hong Kong, and Shanghai.  I then see there is a huge market for us in Dubai.”

While retail has been relatively tough, Metalicus has had a stellar year of double-digit comparable store sales growth.

Mr Morris expects the retail environment to continue to be soft for the next six months but is readying the business for the upturn.

Mr Morris said while most of the company’s growth would be from Metalicus, PAS Group would also increase the number of Review stores and would expand the Breakaway business, targeted to to the older segment, and tipped 30 more stores over next three years.

“We will also embark on Yarra Trail stores,” he said.

Feast of Fashion 2010…Metalicus is a full fashion brand.
Photo: JOHN WOUDSTRA


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