Reinvest and innovate: Key takeaways following Fenton & Fenton collapse

Melbourne-based furniture and home-decor brand Fenton & Fenton collapsed last week.

The brand, which has appointed Adam Nikitins and Stewart McCallum of EY to oversee the liquidation process, is one of a number of mid-sized retailers being hit hard by macroeconomic conditions and rising cost of living pressures.

This collapse follows the demise of Australian furniture brand Brosa late last year – which cited declining sales and cash flow pressures – as well as heightened challenges faced by small-to-medium sized retailers that are struggling to cope with rising costs, and a slowdown in foot traffic and consumer activity.

According to recent data, 32 per cent of small and medium businesses are feeling uncertain about the year ahead.

Fenton & Fenton’s website has effectively been replaced with a short statement stating that the business is now in liquidation.

Inside Retail has reached out to EY for comment.

Standing out amid shifting consumer patterns

Brian Walker, founder and CEO of the Retail Doctor Group, told Inside Retail that the furniture retail sector experienced a few golden years during the Covid-19 period when private savings and e-commerce activity relating to household goods were much higher than usual.

Despite not having access to Fenton & Fenton’s financial details, Walker believes that the brand likely experienced the “other side of the curve,” following the end of pandemic restrictions. 

Financial pressures – including inflation, wage costs, the rising cost of doing business and a slowdown in consumer spending – were likely punishing, with excess inventory hurting many retailers operating in a similar category.

Walker also noted a shift in consumer spending, as reflected by June sales results. While consumers have pulled back on non-essential items – with spending on household goods down by 4.4 per cent YOY – café, restaurant and takeaway services sales were up by almost nine per cent.

Meanwhile, strong ticket sales for the upcoming Taylor Swift concert scheduled for early next year, as well as the popularity of the recently released Barbie and Oppenheimer films, indicate that consumers are still spending on certain discretionary items.

“There’s a purchase cycle story here. In a cost-conscious market, the challenge for Fenton & Fenton was to keep reinvesting and innovating its product to entice buyers during a period where [its product range] wasn’t considered necessary or critical,” Walker said.

“I think they might have been caught in a position where they were too small to compete with the larger players, and were probably too restricted with their range.”

Walker added that Fenton & Fenton’s product range wasn’t sufficiently differentiated compared to big department stores, or more boutique, artisan retailers.

Brands caught in the middle ground are more prone to being exposed during challenging economic periods.

“When I think about the Fenton & Fenton range, Kmart, Target and Big W all have their version of it,” he said. 

“If your product can be copied or emulated in some way, shape or form by a value player, it becomes harder to build your brand, and [strengthen] customer loyalty.”

Converting savings into sales

Despite macroeconomic conditions, Walker believes that Fenton & Fenton’s collapse isn’t necessarily foreboding for competitors operating in a similar space.

Rather, he hoped that brands that are able to differentiate and innovate their product range, adapt their pricing model, effectively make use of their customer database, and generate relevant offers, would be more able to withstand economic pressures.

However, he noted how challenging it is for brands to swiftly change course amid a slowdown in spending, especially if they hold excess and ageing stock. 

“Cash flow is the first thing that gets punished in this environment,” Walker said.

Regarding possible scenarios that might emerge from this liquidation process, Walker believes that Fenton & Fenton’s strong social media following – with over 350,000 followers on Instagram – and customer database might make it an attractive acquisition prospect.

“It might depend on how difficult it is to emulate their product range,” Walker said.  

“The jury is out.”

Buyers beware

For consumers, Walker said that there is always the risk of “buyers beware” when making purchases, with consumers raising concerns about the fulfillment of their Fenton & Fenton orders.

He noted that companies in a similar situation are limited in their capacity to communicate their financial situation with the general public. He also claimed that businesses can be blindsided by the severity of their financial position.

“In certain situations, [the management team] wakes up, is told they are trading insolvently, and they can’t continue,” he said.  

“In a perfect world, brands could signal to the buyer that there’s some risk, but I’ve never seen it done,” he said.

He added that homeware retailers were caught in a complex situation during the Covid-19-effected years, with elevated customer demand, as well as supply chain disruptions, compelling brands to build their stock levels beyond what might have been sustainable. 

An additional challenge for brands like Fenton & Fenton, according to Walker, is the growth of online marketplaces, and increasing competition from businesses that, historically, haven’t operated in the category.

He pointed to Bunnings online marketplace as an example of this.

“That wasn’t around when the brand started in 2008, or ten years later, but [this] competition certainly appeared during the Covid-19 period,” he said.

The post Reinvest and innovate: Key takeaways following Fenton & Fenton collapse appeared first on Inside Retail.