As a fashion company, the TOM TAILOR GROUP operates in a fast moving international market environment that is highly competitive. Additionally, digitalisation has radically changed the structure of the textile market in a trailblazing manner. The company’s success is thus based on brand strength, flexibility and the ability to identify and satisfy fashion trends and customer needs in due time.
The significantly changing requirements of the market as well as the rapid expansion of the company in the last years required a critical analysis of existing brand portfolios, sales channels, and especially workflows in 2016. As a consequence, the TOM TAILOR GROUP centered its strategic objectives on profitability and ushered in a series of measures to enhance earnings.
Implementation of the RESET Cost and Process Optimisation Programme
The actions to be implemented as part of this programme are relatively near-term measures and are expected to give a significant boost to profitability within a short time. The Company will therefore strengthen its healthy core operating business in particular by reducing complexity and simplifying processes. To this end, TOM TAILOR has already discontinued its business activities in South Africa. In addition, it intends in 2017 to withdraw from the market in China (end of March), the USA (end of June) and for the most part also in France (end of the year). The Company is also overhauling its network of stores and will close up to 300 unprofitable or less attractive stores by the end of 2018. These plans will affect around 250 BONITA stores and up to 40 TOM TAILOR stores (especially the flagship stores). After withdrawing TOM TAILOR POLO TEAM and TOM TAILOR CONTEMPORARY from the market, the Group decided to also discontinue its BONITA men line in summer 2017. The brands concerned were unable to achieve critical revenue mass and were loss-makers.
STRENGTHENING OF THE BRANDS
Brand profiles are pivotal in a competitive market environment. For this reason, the Group plans to hone the profile especially of its TOM TAILOR and TOM TAILOR Denim brands to make them more desirable. It will achieve this through consistent, pinpointed marketing activities, i.e. by conducting conventional offline marketing campaigns in print and out-of-home media and increasingly through online marketing in particular. Guerilla marketing tactics are also planned that will selectively achieve a high degree of awareness. These will make brand communication bolder, more provocative and more emotive. Apart from this, the monthly collections will be selectively made more fashionable to differentiate the brands increasingly from those of the Group’s competitors in the mass market. At BONITA, the style of the collection was updated with fresher and more contemporary looks. We interpret fashion trends for our customers and incorporate them into our collections along with a customised colour range. This allows customers to use the colour-coordinated pieces to create new looks throughout the year based on advice from BONITA.
STRENGTHENING OF THE GROUP’S OWN RETAIL BUSINESS
The TOM TAILOR GROUP generates around two-thirds of its revenue from its own retail shops. Digitalisation and the associated structural change in the industry have reduced footfall in many stores. To counter this trend, the TOM TAILOR GROUP is reorganising its retail business so as to improve processes and customer service. Its objective is to raise the conversion rate, i. e. the proportion of people who enter a store and actually buy something. Sales promotions will also be scaled back and used more judiciously than in the past. In addition, placement of merchandise in stores and allocation of staff to the different locations and time frames will be optimised and the technical equipment updated. This will give staff more time to assist customers. Having introduced “click & collect” in 2016, the Company will connect the e-shop with the physical stores in 2017 by rolling out an “order from store” function.
EFFICIENCY ENHANCEMENTS IN SOURCING AND LOGISTICS
The products sold by the GROUP are mainly manufactured in Asia, but also in Europe. In 2016, the TOM TAILOR GROUP began to significantly reduce the number of suppliers from which it procures these products. This allows procurement to be consolidated at selected manufacturers and higher volumes to be ordered at better prices. The Group also intends to connect its suppliers to its IT systems to be able to manage processes even more efficiently. What is more, the number of items and samples per collection is to be reduced by up to 30%. This will make the production process less complex and improve the Company’s cost base.
Logistics will continue to be dominated by optimisation of freight rates, which must now be managed more actively once again following the sharp drop in market prices in 2015 and 2016. 2017 will also see the Company stepping up its efforts to enhance efficiency and warehouse logistics processes.
FURTHER DEVELOPMENT OF DIGITALISATION
Digitalisation has radically changed the structure of the textile market in a trailblazing manner and is therefore of strategic importance. With this in mind, the Company intends to increasingly manage its own e-shop itself and develop it further in line with its objectives. The online sales channel will also continue to be connected to the physical stores through the introduction of the “order from store” feature in Germany. This will allow customers who did not find the right item in the store to order the desired products in the shop and have them delivered to their home or to the store. Furthermore, the Company will increase its budget for online marketing. In addition, powerful IT systems will be needed for the internal processes; the Company will likewise invest in these and progressively roll out SAP.
IMPROVEMENT OF FINANCIAL POSITION AND DEBT REDUCTION
The RESET cost and process optimisation programme is focused on boosting profitability. This will mainly involve systematic, long-term reduction of the Company’s debt, which in turn will strengthen its equity base. To achieve this, the TOM TAILOR GROUP intends to improve its cash flow and generate a positive free cash flow that will be used to further reduce its net debt. Its aim is to lower the ratio of net debt to reported EBITDA to below 2.0 in the medium term. This will be aided by the annual scheduled repayment of EUR 15 million of the long-term loan running until 2020.
In addition, based on the RESET programme the Group seeks to achieve net income for the period and substantially improve its operating ratios. On account of the RESET measures introduced, 2017 will be viewed as a year of transition. If all measures are systematically implemented on schedule, the Company expects that EBITDA by the end of 2018 will improve by EUR 30 to EUR 40 million over the basis year, 2016. The TOM TAILOR GROUP can then use this net income to strengthen equity to achieve, in principle, an equity ratio of at least 30%.