The head of listed jeweller Michael Hill has said it's "possible" the retailer could emerge from the coronavirus crisis with fewer stores as the business experiences a triple-digit surge in online sales.
Chief executive Daniel Bracken told The Age and The Sydney Morning Herald some of his 300 stores which were "borderline" profitable prior to the crisis may have their closure accelerated, depending on how conversations with landlords go.
Michael Hill believes the virus crisis could create opportunity for its business.Credit: Dan Peled
"Depending on how we get on with a particular landlord, or how well we're performing in a particular centre, every individual score could be a different outcome," he said.
"Equally, landlords may come to the table with such compelling offers they could move from a breakeven to a profitable store."
In a trading update on Friday, Mr Bracken declared the coronavirus crisis was an "opportunity" to bolster Michael Hill's online offering and slash its rental costs, despite the pandemic punching a hole in its sales.
The company provided a glimpse into the coronavirus’ devastating effect on the retail sector, telling investors its comparable sales for the third quarter had dropped 10.4 per cent at its 162 Australian stores.
This was despite sales tracking up 1.8 per cent at the end of February, showing the virus-induced downturn in March was enough to turn the entire quarter’s sales sharply negative.
Michael Hill was the first listed Australian retailer to close its doors in response to the virus, shutting all 300 locations across Australia, New Zealand and Canada and standing down 2500 staff. Numerous others, including Myer and Solomon Lew's Premier Investments quickly followed suit.
Total comparable sales across all its locations fell 11.2 per cent for the quarter to $102 million, with the sharpest plunge in its Canadian stores, which fell 21.1 per cent. Total comparable sales for the entire financial year have managed to remain positive, up 1.5 per cent.
The sharp decline in sales is a serious blow for Michael Hill, which is in the middle of a turnaround under the leadership of new chief executive Daniel Bracken. Sales and earnings had both shown healthy growth at its half-year results in February.
Michael Hill chief executive Daniel Bracken.Credit: James Brickwood
Mr Bracken said while it was early days, a significant repositioning of the business was in the works to help Michael Hill benefit from a recent digital surge.
Online sales at the retailer jumped nearly 50 per cent for the quarter and had continued to grow "in excess of triple digits" in the last three weeks, he said. Customers would usually limit their online purchases to around $2,000, but during the pandemic shoppers have been spending as much as $10,000 in one transaction.
"There's definitely a change in consumer behaviour as a result of the physical stores not being open," he said.
Despite this boost, Michael Hill said it would still be forced to take drastic action to protect its business against a prolonged downturn, including pausing repayments to any former staff who were underpaid $25 million last July.
Underpaid former staff will continue to be left hanging for repayments as the jeweller said it would pause its remediation program to help preserve cashflow. Interest will be paid on all amounts owing, and the company noted existing team members had been largely repaid.
The company has also cut executive remuneration and laid off some support staff.
Shares were trading down 1.4 per cent at 36 cents by late afternoon.