Noni B Limited (ASX: NBL) shares jumped more than 10% after the women's clothing retailer posted a 58% improvement in net profit for the six months to December 2011 to $2.4m, despite flat growth in sales. The company also announced a fully franked dividend of 2.5 cents.
Despite revenues rising by 1.9% to $64m, and the number of stores falling from 214 to 212, the company still managed to increase profits, and provides a lesson for all retailers on how to survive in the tough retailing environment we are currently experiencing. As I mentioned in this article last week, retailers need to adapt to the challenging conditions, and some challenges are likely to be permanent.
Wakeup call
Noni B is one of Australia's leading women's fashion retailers and has survived for over 30 years, including difficult trading conditions when the GST was introduced. So how has this company managed to out-perform the likes of Speciality Fashion Group Limited (ASX: SFH), David Jones Limited (ASX: DJS) and Myer Holdings Limited (ASX: MYR)?
Noni B received its wakeup call when it announced its FY2011 results with falls in its gross margin, due to discounting to meet the market. The company stated in its FY 2011 Annual report "…the current increase in the saving rate means that our customers may have more to spend on discretionary items when consumer confidence returns. We are focusing, therefore, on ensuring that all parts of the business are operating efficiently so Noni B is well-positioned to bounce back strongly as consumer demand grows."
In the six months since the FY2011 results, the company's share price has risen 78%. It just goes to show that retailers can turn things around.
Retailing strategies
There are a number of strategies that the company has implemented that has allowed Noni B to produce outstanding results in a tough environment.
- Shareholders with more than 2000 shares are entitled to receive a 10% discount on purchases at Noni B stores.
- The company has two exclusive fashion labels, not available at any other retailer.
- According to Noni B, the company has no direct competitor, showing that the company has found its niche market.
- The company targets best fashion with superior value, style and fit, rather than cheapest fashion. Noni B aims to offer a special shopping experience.
- The company aims to provide exceptional service in its stores by providing advice on style, fit and colours, something that online stores don't provide. Other retailers have reduced staff, leading to lower customer service.
- Noni B has increased investment in training, including extending retail qualifications to all store managers and assistant managers.
- The company is focused on low cost promotions to their one million+ loyalty club members. This is similar to the strategy that Super Retail Group Limited (ASX: SUL) follow, club / VIP members receive discounts.
- Conservative management of inventory, expenses and balance sheet. The company has no bank debt, and cash in the bank of $14.2m.
- Management have increased communications with store staff, and streamlined operations so executives are able to provide greater support to the sales team. Several initiatives to improve performance have originated from Noni B staff.
- Noni B provides a "styling by appointment" service, which the company says has proven to be very popular with customers. This free service helps customers work out what colours and designs suit their body shape best. Something you can't get at an online shop.
- The company has accepted lower margins (around 4% currently), for greater growth in revenues, while it investigates ways of improving its margins.
The Foolish bottom line
Many of these strategies could be adopted by struggling retailers, and I'm sure there are many more opportunities that retailers could be targeting. As I mentioned in this article, the death of retailing is greatly exaggerated.
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Motley Fool contributor Mike King doesn't own shares in any of the companies mentioned. The Motley Fool's purpose is to educate, amuse and enrich investors. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. Click here to be enlightened by The Motley Fool's disclosure policy.
