US owners of local retailer chain Culture Kings warn the trading environment has worsened after 12 months of rate hikes

The sneakers and baseball cap retailer, whose stores feature basketball courts, DJs and barbers, is struggling with sales down sharply as rate hikes hits consumer spending.

The US owner of streetwear retailer Culture Kings – one of the hottest retail brands in the country with its collectable sneakers and hyperactive in-store entertainment – has warned interest rate hikes have dented consumer confidence, creating a worse than expected trading environment in Australia.

The domination of variable mortgages in Australia has been particularly damaging to households as interest rate rises are quickly passed on to households, US analysts have been told.

This has seen Culture Kings sales in Australia, where the majority of its nine stores are, suffer a more than 20 per cent fall in sales growth over the second quarter which stands in stark contrast to the retailer’s rocketing growth of the last few years when shoppers would line up for hours outside a store.

Although in the US the picture is very different with Culture Kings’ maiden store there situated under the glittering lights of the Las Vegas casino strip doing a roaring trade in sneakers, baseball caps and streetwear to deliver above initial expectations.

A recent sponsorship deal with mixed martial arts combat sport UFC saw a Culture Kings boot become the top-selling shoe at the recent UFC X, a two-day immersive UFC convention in Las Vegas.

Culture Kings opened its maiden store in the US late last year among the bright lights of the Las Vegas casino strip. Picture: Supplied

In Australia, however, the cumulative weight of 12 months of interest rate tightening by the Reserve Bank – the fastest pace in decades of rate hikes – looks to have taken some of the heat out of the sector for expensive sneakers and baseball caps.

Culture Kings, founded on the Gold Coast in 2008 by entrepreneurial couple Simon and Tahnee Beard and later sold to US company a.k.a Brands for $600m in cash and shares, has had its most recent financial performance revealed after its US owners issued their results to the New York Stock Exchange.

Culture Kings founders Simon and Tahnee Beard at their home in the Gold Coast. Picture: Justine Walpole

According to a.k.a Brands SEC filings, in Australia its quarterly sales dropped by 28.4 per cent to $US48.04m ($A74.94m). And while the US company also owns fashion brands Princess Polly and Petal + Pup, the bulk of its Australian division is believed to be dominated by sales and earnings driven by its seven Culture Kings stores in Australia and one store in New Zealand.

a.k.a Brands interim chief executive Ciaran Long told US analysts in a briefing the impact of higher interest rates in Australia had been felt at its Culture Kings stores as consumers felt the pressure of tightening rates. The tougher environment in Australia was worse than initially anticipated by the company.

“Similar to the US, the Australian consumer has been challenged post-pandemic. However, the environment there has remained more challenging than we anticipated. They’ve had 12 interest rate increases over the last 12 months, which is particularly impactful, as the majority of the country have variable rate mortgages, leading to increased consumer pressure as we’ve gone through 2023,” Mr Long told US investors.

“We saw pretty consistent pressure in the Australia region.”

Mr Long said despite the inline performance in the US, a.k.a Brands’ overall net sales was dampened by continued macro pressures and consumer challenges in Australia.

He confirmed that Culture Kings stores were experiencing negative like for like sales growth, as were many other local fashion and apparel retailers in Australia.

“I think, look, we are aggressively taking actions in Australia, … as we look to the peer set there we also see them negative comping, but we expect to be doing better. And so there’s a lot that we’re doing on newness in product, but also just operational efficiencies that we want to make.”

Culture Kings stores are known for their hyperactive in-store entertainment with basketball courts, barbers, DJs and other events, making the store more of a mix of sports stadium and nightclub than pure retailer.

Its first store in the US, situated in the famed Caesars Palace casino, features a 75-foot hat wall and a “secret room” featuring the most sought-after items on the streetwear market. Its opening party in November was followed by an invitation-only afterparty sponsored by champagne house Moet Hennessy and featuring a performance by DJ Drama. Earlier this year, US rapper Snoop Dogg visited a Culture Kings store in Melbourne, with thousands of people lining up to see him.

Mr Long said Culture Kings’ Las Vegas store, which was opened in November, was exceeding expectations.

“We remain pleased with the momentum that Culture Kings is gaining in the US, where it continues to disrupt the US streetwear industry. The Las Vegas store is performing ahead of our expectations, and we are equally pleased with the positive impact it has had on our online sales.

“Culture Kings embodies the collision of music, fashion and culture, and they’re bringing this to life in the US through unique marketing activations, partnerships and their signature retail ethos in stores.”