Is retail billionaire Solomon Lew breaking up with fast fashion?

The retailing billionaire offers clues over his next big bet. This time, apparel is likely to be left on the rack.

Solomon Lew is looking outside his retail comfort zone for a new brand following the sale of the bulk of his business to Myer.

Billionaire Solomon Lew is on the hunt for the next big thing. He wants it to be on trend, but just not in fashion.

The retail king continues to pull away from apparel and everyday wear. Clothing made him a fortune after decades in the trade, but mass fashion is now competing in an increasingly crowded – discounted, and very much a global market.

Lew is repositioning and wants to rebuild what’s left of his Premier Investments empire following his landmark $800m-plus sale this year of his mid-market and mature brands including Just Jeans, Portmans and Dotti to Myer.

The Peter Alexander sleepware brand is generating fast-paced sales growth

Premier has no debt and is sitting on nearly $340m of cash, and Lew is looking to put some of this towards buying a new brand in the health and beauty space.

In effect, he is hoping to replicate the model of his two remaining brands, sleepwear specialist Peter Alexander and kids stationary and accessories Smiggle.

Both were acquired in their infancy and the two have now been built up into global brands and hundreds of stores – although it has taken time an investment.

Following the Myer deal, Lew’s Premier has slimmed down dramatically.

It’s just Peter Alexander and Smiggle and a non-controlling stake in kitchen appliances play Breville.

Ahead of the sale to Myer, Lew had been planning a spin-off and separate stock market listing of either Smiggle or both brands, but this now remains firmly on hold.

Peter Alexander is getting the bulk of investment as it expands into the UK. Picture: NewsWire/ David Crosling

The two generate high margins (averaging 28.4 per cent) during the last six months and are still brands in the ascendancy.

Peter Alexander is now pushing $600m in annualised sales, representing an annualised growth rate of 15.5 per cent over the past five years. However Smiggle, the more established of the two, has lost momentum – its first half sales were down 14.5 per cent.

There’s also an acrimonious management split last year, including the exit of former long time boss John Cheston and three other executives, that is threatening to head to the courts. Cheston quit mid last year to head up fast fashion jewellery chain Lovisa.

Smiggle is a business that, while it has strong appeal, is highly vulnerable during tough times. The brand sells school accessories, backpacks and the like aimed squarely at young kids.

Its main customers are families that are often most under pressure with household bills and rising interest rates.

Its sales are starting to pick-up with some relief on the horizon on interest rates and even inflation is starting to cool.

However, it’s a slow return back. Lew too has tied up some licensing deals with movie studios including Disney, so Spiderman and Avatar he is banking on to give an extra sales push.

Peter Alexander meanwhile is getting substantial investment including $6.3m over the past six months as Lew pushes the upmarket sleepware brand into the UK.

Three stores have opened in shopping malls, including two Westfield malls, marking its first step in an international expansion.

There’s another 10 planned for opening, and 15 more sites have been identified.

This will come at an additional cost and will be a test on whether the same sleepwear can translate to the British market. Unlike Smiggle, Peter Alexander has broader appeal to all age demographics and is often a go-to gift options, making it more resilient to slowdowns. The actual Peter Alexander, the founder, is still a brand ambassador and has been dispatched to London to drum up interest.

Shares in his Premier Investments jumped 5 per cent on hopes both broads were regaining momentum.

Kids accessories brand Smiggle is more sensitive to the economic cycle.

However, Lew is banking on a new brand to fill the gap. The fast-growing health, beauty and cosmetics (including skin care) are in his sights and an acquisition is the fastest way in.

“We know there’s margin in it, and it’s often more affordable than having to buy a new dress or a new pair of shoes or definitely a new handbag, or whatever the case may be,” Lew tells The Australian.

Women’s activewear, including upmarket yoga wear, is another booming trend.

While Lew admires what brands like Lululemon or Lorna Jane have done, including swiping share from more established womenswear labels, they offer little appeal.

That market “is already saturated”, Lew says, and the discounters including Temu are starting to move in.

The billionaire might be on the hunt for health and beauty, but he still has exposure to fashion in a big way.

The sale of his Just Jeans group of brands sale to Myer was through a share swap agreement, which means Lew personally emerged with a near 27 per cent stake, making him the biggest shareholder in the department store.

He plans to take up a board seat at Myer in coming months, where the intense focus there will be around boosting margins. Lew also wants Myer to lift its game on logistics. Teething problems at its new automated distribution centre in Melbourne’s west have caused costs to blow out and missed sales opportunities.

Never say never on Country Road, Lew says. Picture: Britta Campion

Despite his insistence of forging new retail ground, would Lew return to Country Road?

The 50-year-old Australian brand has fallen on tough times under owner Woolworths of South Africa. It is thought to have been quietly shopped around again, and Lew was once a determined shareholder in the high profile label.

“I think that I can never, say never,” he says. Whether this mature brand is the right fit that would tie together the youthful Smiggle and Peter Alexander is a different matter.

Lew says there are other opportunities ahead of him. The addition of a new brand and sorting out Smiggle’s potentially volatile management problems will now guide the timing for another spin-off.

“It’s really when we’re ready…if one and one makes three, and it’s in the interest of shareholders, he says. “We’re not going to be sitting still over the next 12 months”.

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Loyalty hit

The $3.5bn share rally in Coles and Woolworths on Friday showed what the market thought of the recommendations from the competition regulator’s crackdown on the supermarket sector.

Both supermarkets will be able to live with demands around greater pricing transparency as a trade-off to avoid tougher regulatory intervention. As The Australian has argued, the motivations for the review were around politics rather than any dysfunction in the market.

However, one area where the ACCC has left the door open is highly popular loyalty schemes. The regulator plans take another deep dive into loyalty in three years time and by that time technology including AI will be playing a bigger part. It last had a look at all loyalty programs in 2019, where it recommended stronger consumer protections. The sector is now booming with millions of Australian members of either Coles (Flybuys) or Woolies (Everyday Rewards) loyalty program. More than half of these members have signed up to both programs. The ACCC doesn’t see loyalty as a barrier to competition but calls out it represents a high value area for the big two supermarkets. Loyalty has evolved into sophisticated data, marketing and customer engagement tools. However, the value customers receive can vary significantly. There’s also worries that members have little idea how the value of “points” or redemptions for discounts are calculated.

Loyalty has become big business for the major supermarkets.

Coming over the horizon are premium loyalty programs, including those used by Wesfarmers group in OnePass. Coles doesn’t have a premium offering, saying its customers want a more personalised experience. Woolies is still in testing phase with a members-only pricing program that offers discounts on some product lines. In general, customers of free loyalty programs are 30 per cent more likely to spend more, while premium loyalty schemes see this move up to 60 per cent.

However, not all are convinced about the value of loyalty programs. Number three operator Aldi, which is a global supermarket major, doesn’t have a scheme and believes there’s marginal upside in launching one. Aldi reckons programs come with big trade-offs, in that it adds to cost and complexity. It argues its proposition of having lower prices is a stronger driver of customer habits than loyalty programs.

Originally published as Is retail billionaire Solomon Lew breaking up with fast fashion?