Discounting ; product strategy shift

CCX exposed a major weakness in its business model in the second half of calendar 2022; a product range that lacks sufficient differentiation from what is commonly available.

This weakness forced it into a severe bout of discounting to meet the activities of its peer group.

80% was common across the Collective, triggering huge falls in gross margins and, for what was inconceivable at 30 June 2022, a loss result for the first half 2023.

The best thing Phil Ryan and his team could do over coming days is to take a group tour to a store like their local Lululemon to review and learn what true brand and product line differentiation looks like and the power in pricing that it delivers to its owners.

The Board’s AGM special incentives for stock reduction didn’t go far enough; the executive team should be mandated and incentivised to progressively grow non-(heavily) discounted product sale categories. By way of example, 40% of product categories to be sold no lower than 20% of list price in year 1, 50% in year 2 and so forth.

This will force the executive team to move away from a discount shop culture, more Peter Alexander and Lululemon rather than Katies and the rest of the Mosaic brands stable that the management team knows only too well.

I believe the executive team has invested heavily both by way of time and cost in the online and distribution capability of the business in recent years, unfortunately at the expense of limited product differentiation. Whilst distribution capability has a long way to go - Evans is not directly sold outside of the UK, Avenue not outside of the USA (sadly and embarrassingly), design and non-discounted product has suffered as a result.

’She’ will buy the uniquely branded product of desire ahead of a discounted line that ‘she’ can buy on multitude of competitor websites.

Another way of looking at this is that a focus on margin rather than gross sales reveals the following; higher gross sales (sheer volume) benefit third party manufacturers in second and third world countries, including the executive team that justifies its effort by way of a larger business managed whereas better margins and head office cost control equate to higher multiples on earnings benefitting shareholders, the stakeholders funding the Board and executive team’s remuneration.

Once that switch is enforced, step 2 for the Board is to task the executive team with a total global sales target: $1 billion in 4 years.

I doubt the Board has the depth of talent and muscle to sufficiently act and think independently of management to do this, which is why Board renewal is a pressing issue at CCX.

One needs to look no further than the catastrophe that we have endured over the last few months.