Outlook: Discounts pay off for clothes retailers
Thursday 02 September 1999
How they love this new found frugality round at Matalan. A virtual unknown until a couple of years ago, this discount retailer now has a bold expansion plan aimed at making it Britain's second largest clothing retailer to Marks & Spencer. Like Archie Norman at Asda, Matalan claims its inspiration came from Wal-Mart. The company was set up after its founder visited some of Wal-Mart's US stores.
John Hargreaves, a former market trader, established Matalan in Skelmersdale 14 years ago and now has a business worth nigh on pounds 1bn. The key is low prices with a claim to be up to 40 per cent cheaper than high street rivals. The secret, it says, is in the buying. Matalan buys direct from factories across the globe rather than through agents or middle men, who add on their mark-up. If it was all that simple one might wonder why everyone isn't doing it. As it is, Matalan looks like a company which has found the holy grail.
But perhaps a part of its success is rather more prosaic, for it has also benefited from coming to the stock market at a sensible price. Floated last May when the stock market was was getting jumpy about the retail sector, the shares were priced cheaply at 235p. Now they stand at 1047.5p, making it one of the best performing new issues of recent times.
Sadly, the same cannot be said of Monsoon, the upmarket fashion retailer whose drip feed of bad news has given new meaning to the phrase `it never rains but it pours.' With profits down for the first time in 13 years, the shares now stand at a fraction of the issue price. This is no surprise. At the insistence of the chairman and founder, Peter Simon, the shares were priced far too highly in the first place. It was always obvious that the company's margins were unsustainable.
Even so NatWest Securities managed to find enough mugs to get the issue away. The company had already been forced to abandon its float plans once before because of investor scepticism. It's now going to be doubly more difficult for Mr Simon to re-establish his City reputation. The kindest thing he could do is to take the company private once more, notwithstanding his insistence that his priority is to restore shareholder value.
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