John Cootes ready for acquisitions as other retailers struggle
While many import-reliant retailers are being hurt by a falling dollar, John Cootes Furniture thinks it is the right time to pursue an expansion, with plans to double its store numbers this year and pursue mergers and acquisitions.
John Cootes chief executive Lance Peters said some smaller furniture stores had struggled to compete as the currency lost value, providing a gap in the market that the warehouse furniture retailer aimed to fill.
“There has definitely been a shortening of competition in the market with bigger players expanding their networks, and there has been a constriction of some of the smaller furniture retailers in the market, which provides opportunities for some of those medium players like ourselves which are ready to expand into geographic locations which are needing our brand,” Mr Peters said.
The weakening of the dollar against the US currency has crunched margins for many retailers, with intense competition making it almost impossible to pass on higher import costs to consumers.
As the dollar has slid from parity in 2011 to the mid-US70c range, retailers in fashion, electronics, homewares and household goods have struggled to maintain margins, causing profits to slump.
“Where some people are going to be struggling over the next six to 12 months, we see this as an opportunity for us to expand; people are seeking more value for their furniture and our brand is value and range,” Mr Peters said.
In line with most retailers, 90 per cent of John Cootes’s products are imported, so a lower dollar hits margins.
“Ideally we would love a higher dollar, but we don’t foresee that in the short to medium term,” Mr Peters said.
“That just means that we have to be smarter about how we manage our business.
“It’s truly going back to the basics in terms of business 101.
“Someone who manages their costs extremely carefully and similar manages their margins is always going to be a winner in this market; we buy in bulk, so that way we can pass on our savings to the customer.”
The John Cootes business started out in a warehouse in western Sydney’s Merrylands 33 years ago. It expanded to three outlets in 1990 after opening another warehouse in western Sydney and one on the NSW central coast.
The furniture retailer last year was bought by the Bill Moss-backed Elanor Investors Group, with capital from the listed fund manager helping fuel growth.
Over the weekend, it opened another western Sydney outlet, in Campbelltown, two weeks after opening a store at Bathurst, in regional NSW. It will also start up shop in the north coast town of Taree in June.
“We service a blue-collar worker who is looking and seeking value furniture and we feel that the customer in Campbelltown would resonate with the John Cootes brand,” Mr Peters said.
Mr Peters said the group was looking to acquire furniture businesses that had yearly revenues of between $5 million and $15m. He said the owner, Elanor, was hungry to grow the company, which may see the NSW business open stores interstate.
“We could either choose to keep the existing brand or we could amalgamate it into the John Cootes Furniture brand and gain the efficiencies of the back of house operations from a buying and logistics perspective,” he said.
“If the right opportunities come up then, with the backing of the Elanor Investors group, we have the ability to raise that capital and to acquire the right entities, so if anything is on the market that is right for us then we will run the ruler over it.”
There had been market chatter last year that Elanor may rezone some of the John Cootes stores and sell them as residential development sites, to cash in on Sydney’s booming apartment market.
“We own all of our properties outright and the opportunity for something like that does exist, but if anything the success of the furniture business over the last year only makes us think: what else can we do with the brand,” he said.
“So in terms of property, yes it’s an option for us but it is not a priority.”
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