Michael Hill knuckles down on North American market - CEO

Michael Hill International [NZX: MHI], the jewellery retailer named for its founder, is bedding in a strategy to gain traction in North America, which it eventually sees as supplanting its strongholds in Australia and New Zealand, according to chief executive Mike Parsell.

In an interview with BusinessDesk, Parsell said the Brisbane-based company's Canadian store footprint surpassed New Zealand's and is on track to reach 100 outlets in coming years and the retailer is focusing on the top 100 US malls as part of its North American growth plan. While the Canadian market is similar to Australia's, Parsell said the US was quite different in terms of its mall structures, how customers shop, and how they use malls, which has required a fair amount of market testing.

"We're concentrating on proving up the model, we're concentrating in the US in getting stores to a cash-positive position, and then we'll start growing from there," he said. "We're talking about getting the model right, expanding towards the top 100 malls and pursuing the strategy that way. Long term, our hope would be the North American market is larger than the Australasian market."

Michael Hill's Australian unit continues to dominate the company's business, generating A$64 million in sales in the three months ended Sept. 30, followed by New Zealand with revenue of A$19.8 million, then Canada at A$15.2 million and the US at A$2.6 million.

The retailer's renewed focus on North America comes after it pulled back from a US expansion in 2010, closing down half the stores it bought from the Whitehall Jewelers in a distressed sale process in 2008, just two weeks before the Lehman Bros collapse that precipitated the global financial crisis.

Parsell said that foray into the US was hugely valuable, sharpening the company's focus as a jewellery retailer and throwing up a number of new ways to do business.

"The US is recovering, albeit it's patchy. For us we're still continuing with our strategy, pursuing better real estate, trialing new mixes of merchandise, particularly in the diamond space," he said. Current growth in North America was "bucking the trend."

While the New Zealand business was relatively stable, Australia was more of a mixed bag as the slowing resources sector weighed on the wider economy, he said.

To that end, Michael Hill continued to assess its store locations in prime shopping centres, with expansion and shifting to better locations "always a primary objective" to drive more volume, better growth and a stronger brand presence.

The retailer also expects to generate savings from new software that predicts inventory demand on a store by store level, using real-time sales data.

The company has also launched the Emma & Roe brand of stores, which aims to generate a higher frequency of purchase with lower value items, and has just opened a store in Manukau, Auckland.

Shares of Michael Hill fell 1.5 percent to $1.28 today, and have declined 6.5 percent this year. The stock is rated an average 'buy' based on three analyst recommendations compiled by Reuters, with a median target price of $1.55.

(BusinessDesk)