Larry Kestelman staying optimistic despite spending slowdown
The owner of brands like Snooze, Hush Puppies and Clarks says spending has dropped off, but there’s a key reason why he’s still a believer in investing here.
Larry Kestelman is trying to be optimistic.
At a time of rising interest rates and inflationary pressures, the Melbourne entrepreneur with a business empire that includes a $600m retail arm can see what is happening to consumer spending.
It is not pretty, with Kestelman revealing revenue has fallen very quickly in recent weeks.
“We have seen without a doubt, especially in traditional retail like fashion and homewares, an absolute and definitive slowdown in the last 30 to 60 days,” Kestelman tells The Weekend Australian.
“I’m talking (spending is down) anywhere from low single digit percentages up to low teen percentages. The interest rates are biting and doing their job, I suppose.”
Kestelman may be best known as the owner of the National Basketball League, but also oversees a collection of investments and companies that turn over about $1.5 billion annually.
His holdings range from Brand Collective, that owns and holds licences to brands like Volley, Superdry, Clarks, Hush Puppies, Mossimo and Shoe Warehouse, and the Pas Group fashion business, property developments, the recently purchased Snooze bedding retail chain, Daniel’s Donuts and a highly profitable Philippines-based outsourcing company Acquire BPO.
It makes Kestelman, a member of The List – Australia’s Richest 250, an emerging force in the retail sector and gives him an insight on how consumers are spending – or not – as well as knowledge about what is happening in commercial and residential property.
All of which he insists he is optimistic about; after some short-term pain subsides.
“The next 12 to 18 months will be tough on everyone, including our businesses and our employees. But we’re believers that post that 12 to 18 months, if we set up our businesses well, then we’re in for better times.
“I don’t want to be that business or the person who talks doom and gloom all the time, and saying we’re down in the dumps. I’m absolutely not. I’m very positive. We’ve had good times before; we’ve had bad times before. I really believe that good times are ahead and Australia is a safe country and generally in good shape.”
Kestelman cites factors such as relatively low unemployment, wage growth, reasonable savings rates and lack – at least yet – of mortgage stress as positive indications for the Australian economy. He also mentions the country’s distance from global disputes as another positive.
“I’d rather be investing in Australia than elsewhere. There might be some necessary pain to get out of the inflationary cycle but (the economy) probably only needs plastic surgery. It does not need an amputation.”
His LK Group has been on an acquisitive path in the past few years, buying Snooze, bedding manufacturer Futuresleep and furniture importer and wholesaler G & G in April for an undisclosed sum from Greenlit Brands.
Before then, LK Group – which Kestelman has built from the proceeds of the sale of his Dodo internet and telecommunications business in 2013 – bought Brand Collective from Anchorage Capital Partners in 2021 and PAS Group out of administration.
Given the spending slowdown, Kestelman admits to be “a realist” about how the retailers he controls will perform.
“There’s absolutely no way around it. I think we will be looking at tight cost control and we’re not aiming for huge profit growth. I think the next 12 to 18 months will be tough for everyone and if we don’t make record profits, that’s okay. The next 18 months is probably not the time for that. But I think if you look at the longer term, we’ve been through all these cycles before.”
Kestelman is harking back to the lessons he learnt from Covid-19 lockdowns and previously the global financial crisis, economic downturns in the early 1990s and even as a young man the stockmarket crash of 1987, when he had an important conversation with a friend of his parents who had suffered big paper losses on his shares.
“I remember he said, ‘Larry, I haven’t lost a cent. Because I haven’t had to sell. Don’t stress, I’ve seen it all before. It’ll come back. The only people that have unfortunately lost are the ones that have had to sell.
“So that has stuck with me always, and I do my best not to be the guy that has to sell. As long as you’re not in a position where you’re stretched and everything is going to collapse around you in a downturn then I think things are going to be okay.
This is a cycle. There’s never a smooth line in growth.”
One asset Kestelman may look to sell though is a stake his private equity arm Queens Lane Capital has in its first ever investment, European stone and tiles business Petra Industries.
Petra’s work includes residential, commercial and infrastructure construction and the business, which QLC has a 55 per cent stake in, has reportedly hired Miles Advisory Partners to look for a buyer.
“We are testing the market and there has been a good amount of interest,” Kestelman says. “There’s been more interest than I thought there would be, and we’ll make a decision in the coming months.”
He is also searching for a buyer for NBL team Tasmania JackJumpers, having launched it in 2020. “We’ve had good interest from the US and Europe … but I would like to keep 30 per cent of it in Australian hands if possible,” Kestelman says.
Kestelman is the majority owner of BPO Acquire, an outsourcing firm with 10,000 employees in the Philippines and the Dominican Republic that operates call centres and provides back office operations such as accounts payable, marketing and other consumer services.
It made about $70m in pre-tax profits last year, and Kestelman says: “We’re actually getting even more interest in Australia at the moment. It is a tight labour market and these aren’t actually taking jobs from Australians. It’s actually doing the jobs that we don’t have enough Australians for.”
Meanwhile, his property arm will not launch any new projects until at least late this year or early 2024 given market conditions. Having previously built the $800m Capitol Grand building in Melbourne’s South Yarra, Kestelman says he has projects planned in Melbourne and Sydney, but is holding off taking them to market.
Kestelman is close to clinching a deal to build a commercial building in Melbourne’s Cremorne but it will be a new headquarters for his companies. “At least that way, we know it will work and have tenants. But I think B and C grand office buildings are a writedown waiting to happen now.”
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