Mega-retailer Super Retail Group Ltd (ASX: SUL) announced this morning that it was changing the face of its sports retailing businesses, Amart and Rebel Sports.
Due to changes in the way Super Retail wants to present itself to customers, it will be exiting the Amart brand by November 2017, and combining all Amart stores and staff members under the Rebel Sports brand. It's thought that:
"…the Group will be combining the best of both brands into one single customer-focused offering that brings together Rebel's strengths in solutions and services with Amart Sports' customer service excellence into the one strong, national omni Sports retailer."
Bringing the two brands together is expected to result in higher margins and cost savings due to the elimination of underperforming categories, as well as synergies due to combining the marketing and administration functions of the businesses.
There are expected to be cumulative savings of $15 million per year after two years, while there will be a $34 million non-cash charge (a 'write-down') taken due to combining the two businesses. This is due to clearing old inventory ($2 million), writing down old fittings ($6 million) and impairing the brand name ($26 million).
What are write-downs?
In simple terms, since Super Retail is dropping its Amart brand, it can no longer count the Amart brand as an asset, so it must 'write down' (decrease) the value of that asset (the brand). Because that asset was worth something but now is worth less, the company has to record this change in value as a 'loss' (Amart's stated profits will be lower) even though it didn't 'cost' anything- if that makes sense!
The actual cash cost of converting Amart stores to Rebel stores is expected to be around $9 million, plus whatever disruption in sales might occur during the changeover. These costs will be borne partly in the 2017 and partly in the 2018 results.
An elephant in the room?
The big question that apparently underpinned the move was, of course, Amazon. By combining its two stores together and lowering their costs, Super Retail Group will be better positioned to compete with Amazon and other global competitors that are making their way to Australia. Slides 5, 6, and 9 from today's presentation had more information on Rebel's customer proposition and competitive position, and are worth a read by all shareholders.
Super Retail Group releases its full-year results on the 25th of August, and you'll be able to read our full coverage at the time.
