The collapse of handbag maker Oroton is just the start of a fresh round of Australian retail failures, and sky-high rents are partly to blame, according to the chiefs of the Premier Investments conglomerate.
"If we're seeing it before Christmas with brands like Oroton, that's only the tip of the iceberg," Premier chief executive and former David Jones boss Mark McInnes said.
The near 80-year-old company Oroton entered voluntary administration on Thursday, with a hunt now on for a buyer to secure its future.
Mr McInnes, who runs the Smiggle, Peter Alexander, and Just Group brands for Premier, said Oroton had been a victim of strategic mistakes, including losing rights to the Ralph Lauren brand, failed investments in the Gap and Brooks Brothers clothing stores, and expanding into Asia where it tried to compete with luxury brands.
He reckons more Australian retailers will go under in the new year.
"Once Christmas is over and the cash flow isn't there and doesn't materialise come January, which I suspect it won't for many specialty fashion retailers, they won't be able to pay their staff, they won't be able to pay their rent - it's a major problem for the industry as a whole," Mr McInnes said.
"The landlords are being extremely unrealistic ... so landlords really have got to change the way they're doing business to keep retailers in business, or they will lose business."
A string of other major retailers have collapsed in the past 18 months, including Marcs, David Lawrence, Herringbone, Rhodes & Beckett, Payless Shoes and kids fashion brand Pumpkin Patch.
Premier Investments chairman and its biggest shareholder, veteran retailer Solomon Lew, said he had received at least a dozen offers to buy struggling retailers in the past six months, including from major accounting firms.
"We'll see, I'm sure, over the next six to 12 months a lot of doors closing," Mr Lew said.
Premier was not immune to this, shuttering eight of its Dotti stores in 2017 as the women's fashion chain comes up against "extreme competition" from international entrants to the local market.
Mr Lew said Premier was in negotiation with landlords to drop rents, and would close stores whenever they were too high to run stores profitably.
Smiggle flags $450m in sales within three years
In contrast to many struggling retailers, Mr Lew on Friday raised the long-term outlook for his company's star business, kids stationery chain Smiggle.
Mr Lew said Smiggle had been targeting sales of more than $400 million by the 2020 financial year, but the pester brand's successful expansion meant its sales were now expected to surpass $450 million within three years.
"This would mean almost a doubling of the record sales achieved in the 2017 financial year," Mr Lew told Premier's annual meeting in Melbourne on Friday.
Smiggle has 320 stores across Australia, New Zealand, Singapore, England, Scotland, Wales, Northern Ireland, Republic of Ireland, Hong Kong and Malaysia.
A further 12 would open during the first half of the current financial year and, on top of that, Smiggle would make its foray into continental Europe, starting with the Netherlands and Belgium in 2018.
Mr 99 per cent
The company's executive pay report was voted up, not withstanding a 17.5 per protest vote.
However, Mr Lew said he chose not to cast votes with the 42 per cent of shares he controls.
Had he done so, the protest vote would have been diluted to about 8 per cent, which was the result of institutional investors following proxy advisors recommendations.
Mr Lew was re-elected as a director with an approval of over 99 per cent.
There was a 16 per cent vote against the re-election of Arnold Bloch Leibler managing partner Henry Lanzer, and a 13 per cent vote against the re-election of Michael McLeod, even with the support of Mr Lew's votes.
Proxy adviser CGI Glass Lewis had recommended clients vote against the two directors due to related-party transactions worth $3.2 million last year with Mr Lanzer's law firm, which it said could create conflicts of interest, and concerns over a lack of independent voices on the board.
Three-year growth strategy
Mr Lew said Premier's other standout retailer, sleepwear brand Peter Alexander, had a new three-year growth strategy.
The group would invest further in Peter Alexander's online and new bricks-and-mortar stores with the goal of hitting more than $250 million in sales by 2020.
Premier's mid-market fashion brands reported soft numbers last year, with sales at Portmans falling 8.6 per cent, Dotti down 3.6 per cent and Jacqui E down 6.2 per cent.
Jacqui E had seen positive sales growth in the second quarter, while Portmans had seen double-digit like-for-like sales growth in November, which Mr McInnes said was "probably the best in the market".
Mr McInnes said Dotti's problems were structural, with fast-fashion giant H&M entering the same shopping centres and "landlords giving H&M discounts on rent" that Premier did not receive.
Two of Australia's largest landlords and shopping centre operators, Vicinity Centres and Scentre Group, and the Shopping Centre Council of Australia declined to comment on Mr Lew's and Mr McInnes' statements.
Don't sweat on Myer losses
Mr Lew also revisited his months-long slanging match with Myer and told his shareholders Premier was doing everything it could to get a return from its investment in the department store.
Premier paid $101 million for a 10.8 per cent stake in Myer in March, which is now worth $67.7 million.
"I think our shareholders are confident in Premier and its decision-making process," Mr Lew said when asked about the investment.
He pointed to the value of the group's stake in home appliance maker Breville, which had grown from $216.9 million at the end of the 2017 financial year to a current market value of about $470 million.
Premier's shares closed down 0.76 per cent at $14.30.
The story Oroton collapse 'only the tip of the iceberg', says top retailer first appeared on The Sydney Morning Herald.