Mosaic Brands CEO Scott Evans at their offices in Sydney. Picture: John Feder/The Australian.
Mosaic Brands chief executive Scott Evans, who plans to close hundreds of stores, has a simple message for shopping centre landlords who refuse to give ground on rent: “This is not a bluff.”
The retailer behind shopping mall staples including Katies, Millers, Rivers and Noni B is leading the charge to wake up landlords to the new realities of a ravaged economy where rents need to reflect turnover. Mr Evans just raised the stakes dramatically by announcing on Tuesday plans to close as many as 500 of his own stores.
It is the biggest poker game in town, pitting the retail sector against the shopping centre industry that every year generates nearly one in every two dollars of all retail sales in Australia, and could lead to more store closures, lockouts and courtroom battles.
Unveiling Mosaic Brands full-year result that showed it slumped to a net loss of $170.4m as the bushfires and COVID-19 seriously dented its profitability, Evans sent a clear and public message to landlords that the rent game had to change.
He warned shopping centre owners they should take him at his word: that the retailer is looking to close between 300 and 500 of his network of almost 1400 stores, which covers outlets such as Katies, Millers, Rivers and Noni B, with his now public plans to walk away from hundreds of leases not a negotiating tactic but a new reality of the retail sector.
“We could have said (we were closing) zero to 500 stores, which probably would have been easier to suggest we were bluffing but we do anticipate as we sit here today that it is more likely than less likely to be somewhere between 300 and 500 stores,’’ he told The Australian.
Investors were nervous and after viewing the deep full-year loss and concerns raised by directors over the retailer’s ability to continue as a going concern.
Shares in Mosaic Brands dived 18c, or 26.5%, to 50c.
The Mosaic boss is already wearing some of the bruises of the battle with shopping centre landlords after Scentre last week locked him out of 129 of his own stores after a deal on rent couldn’t be reached.
There are some in the sector who believe Scentre, which operates the Australian Westfield centres, picked on the relatively small Mosaic — which has a market capitalisation of only $65m — as a signal to other retailers not to start a fight on rent lest they also be thrown out.
This message, if it is being sent, is probably directed at retail billionaire Solomon Lew, who is having similar heated arguments with his shopping centre landlords but represents a much bigger, costlier and more dangerous target than market tiddler Mosaic Brands.
Evans said some shopping centre landlords were in denial about the massive shifts taking place, accelerated by the coronavirus pandemic and feeding a new boom in online sales that suddenly has made it worthwhile to close down bricks and mortar stores.
“What COVID has done is accelerate the web for everybody and what was going to happen in the next three to five years is happening in the last six months.
“On that basis looking forward we believe that necessarily won’t change and therefore if we can’t agree to commercial terms with landlords we will have no options but to unfortunately exit a store.
“It is not our wish to exit stores but we can see already in numerous discussions that some landlords accept and understand what I will call ‘a new reality’ and some are in denial, which is understandable.
“The retail rental market in Australia is not paused because of the pandemic — it is fundamentally changed for the future,’’ Evans said. “Some though not all landlords accept that reality, so while exact locations and numbers are to be determined, the group anticipates potentially 300-500 store closures over the coming 12-24 months. Shuttered stores work for no one, so we aim to minimise closures, but not on uncommercial terms.’’
Mosaic Brands’ loss was dragged down by more than $100m in impairments in goodwill to its brands and provisions for rents as it remains in a rent dispute with Scentre.
In the accounts, Mosaic Brands directors said a number of issues, including almost $200m in liabilities, the impact of COVID-19, the timely discovery of a coronavirus cure and ongoing government support, led them to express uncertainty about the business to continue as a going concern.
Evans said the full-year results did not reflect the consistent growth the group has achieved over the past four years.
“The first third of the financial year saw the business perform solidly,” he said, but then came the bushfires and COVID-19.
“That forecast was utterly derailed, first by the devastating bushfires which directly impacted 20 per cent of our store portfolio over the Christmas period, then by COVID-19 which saw us close all 1333 stores for nine weeks including the peak Mother’s Day trading period.
“There is no roadmap to navigate these circumstances, but our operational priorities have been ensuring team and customer safety, reducing inventory and maintaining a strong cash position. This has allowed us to reshape Mosaic to take advantage of the fundamental changes happening in retail,” he said.
Total revenue for the year rose 16.5% to $736.77m. There was a strong uplift in online sales, which hit $93.7m for the year and were up 35.9% in the second half. This had continued into 2021 with online sales up 40% in July.
