Plus-size City Chic expanding in the US and online

City Chic Collective chief executive Phil Ryan is taking the next big step in transforming his retail group.

City Chic Collective chief executive Phil Ryan is taking the next big step in transforming his retail group

City Chic Collective chief executive Phil Ryan is taking the next big step in transforming his retail group from a fashion house anchored to local bricks-and-mortar stores owned by landlords to a digital specialist where the overwhelming majority of its sales are conducted online and in the US.

Mr Ryan is also staking his claim in what he sees as a “land grab” for quality fashion brands whose stores are closing but can still represent good value with an online presence.

The retailer, known for its plus-sized fashion retail chains of City Chic and Autograph locally and Avenue and Hips & Curves in the US, said on Friday it had made a leading $US16m bid for the online assets of US-based Catherines from Ascena Retail, which had filed for chapter 11 bankruptcy.

Established in 1960, Cather­ines is a recognised US-based specialty retailer of plus-size apparel, targeting mature, value-conscious women. It has a significant and loyal online customer base and generated online sales revenue of $US67m in the 12 months to April, which represents about one-third of Catherines total sales.

An acquisition of Catherines would increase City Chic’s presence in the global plus-size market, which is estimated at $50bn annually.

“For us this is a great opportunity to run into the space that has been left by all of these businesses that have shut down,’’ Mr Ryan told The Weekend Australian.

“There are around 1000 bricks-and-mortar stores in the plus-sized world in America (closing). To me if we can overlay our product and get a very economically viable distribution channel to the market there is a land grab to be had and I believe our model has worked.

“The customer has liked our product, so the flip side of all that is these assets are very good value. This lady wants to be served, wants to be respected, and as a business our vision is to lead the world of curves and we believe we can give her something to make her believe in that, feel that.’’

Catherines has been forced to shutter its 300 bricks-and-mortar stores. Its remaining US assets include a well-established brand with a loyal customer following and inventory.

City Chic’s bid in a court auction where it has been named the “stalking horse bidder” for Catherines will see the Australia-based retailer dilute its exposure to bricks and mortar stores even further and comes on top of its decision to close 13 per cent of its outlets in Australia.

Under Mr Ryan the chain is leading the retail sector in walking away from shopping centres and malls — and the expensive rental bills that come with it — to capture bigger sales and fatter margins online.

“We are already at 65 per cent (online penetration of sales) and this will take it above 70 per cent. It would position us I believe as a global digital retailer rather than an Australian bricks and mortar retailer — that is really where I see us.

“I do believe in bricks and mortar in Australia because in order to own the market as we do you need to have a presence. In America we are not looking to own the market and it is so big that I can operate online for the foreseeable future and get a slice of the market which will be able to generate significant growth and hopefully add value for our investors.’’

The Catherines deal would also see the majority of its sales come from America.

To support its bid City Chic is raising $80m through a fully underwritten placement as well as using the funds to strengthen the balance sheet and provide financial flexibility to accelerate growth globally.

A follow-on non-underwritten share purchase plan will also be offered to eligible shareholders to raise up to $10m.

The retailer also provided a trading update, saying that City Chic’s trading has continued to improve since its trading update on May 25, with sales in Australia and New Zealand strengthening as the majority of the store network reopened and sales through its Avenue website continued to be resilient.

City Chic recorded fiscal 2020 unaudited sales revenue of $194.5m, which represents 31 per cent total sales growth and 0.4 per cent comparative sales growth versus fiscal 2019. Unaudited underlying EBITDA for 2020 is $26.5m and it ends the fiscal year with a strong balance sheet with net cash of $3.9m.