Dec. 1 (Bloomberg) — Billabong International Ltd., the surfwear brand that lost 99 percent of its market value after taking on debt to build a store network, plans to start opening new outlets again as it tries to reignite profits.
Billabong is ready to open new stores “right now,” Chief Executive Officer Neil Fiske said. The company based in Gold Coast, Australia, closed or sold about 34 percent of its locations over the past three years as it slashed debt by A$394 million ($333 million).
“Stores are key to a brand’s health over time,” Fiske said in an interview in Sydney. “The thing you can do in a store that you can’t really do on the Web is connect directly to that customer. You can make it come to life.”
Physical sales are still showing signs of resilience amid the growth of online retailers. Online spending during the U.S. Black Friday retail peak fell relative to brick-and-mortar sales to 42 percent of the total this year, from 44 percent a year earlier, the National Retail Federation said yesterday.
Amazon.com Inc. is opening its first physical store in Manhattan to catch holiday shopping, and British sales of vinyl records will hit their highest level this year since 1996, according to industry forecasts.
“The role of the store now is very much about brand engagement, where it used to be about physical distribution,” James Stewart, a retail partner at accounting firm Ferrier Hodgson, said by phone from Melbourne. “It doesn’t matter if the shopper buys in your store — if they get the right brand experience and then buy online, high-five to you.”
Billabong shares rose 0.8 percent to close at 65.5 Australian cents in Sydney trading, hitting their highest level since Nov. 25. It was the day’s best performing retail stock in the S&P/ASX 300 index after Pacific Brands Ltd., according to data compiled by Bloomberg.
In North America, Billabong’s largest market, demand for physical selling space is driving up store lease costs as spending on online searches slows.
Rent per square foot (0.1 square meter) in the region’s clothing stores rose to $47.19 last year, the second-highest level in records dating back to 2006, according to data compiled by Bloomberg Intelligence. The value of Internet search spending in the U.S. grew at the slowest rate in six quarters in the three months ended September, according to research group IgnitionOne, Inc.
“What you pay in rent in retail but you don’t have to pay in e-commerce is largely offset by what you have to pay for customer acquisition in e-commerce that you don’t have to pay in retail,” Fiske said Nov. 26. “You don’t have people just rocking by your site, you have to pull them to your site, which means you have to spend on paid search or display ads or other things.”
The cost of acquiring new customers online fell by more than half to $10.44 last year after rising to a nine-year high of $24.40 in 2012, according to Cheshire, Connecticut-based Hochman Consultants LLC.
Billabong’s store numbers peaked at 639 in June 2011, according to a presentation in 2012. There are now 424 outlets in Australia, the U.S. and Europe, Chief Financial Officer Peter Myers said in the same interview, a 34 percent reduction.
Fiske, a former chief executive of Eddie Bauer Holdings Inc. and L Brands Inc.’s Bath & Body Works chain, is looking to raise the number of single-brand stores and increase sales through such outlets to about 30 percent of the total within three to five years. He didn’t give a figure for current single- brand store sales.
Billabong wrote down the value of its 41-year-old namesake brand to zero last year. Its entire group of labels including RVCA, Element and Kustom was worth A$49 million at the end of June, compared with A$614 million in December 2011.
While lease costs are still high, a new store in Sydney’s central Pitt Street Mall was “performing extremely well” and above Billabong’s expectations, Fiske said, giving the company confidence to keep increasing its network.
Rent in prime city-center Australian locations like Pitt Street is about 5.5 percent cheaper than it was in 2010, according to property consultants CBRE Group Inc.
“We’re much more on the front foot now, working toward great store opportunities in the great surf locations around the world,” Fiske said. “Where we see those opportunities, we will invest.”