THE big chill now afflicting Australia's retailers is part of the longest downturn in the sector since the recession of the early 1990s.
That startling fact will form the centrepiece of research set to be released today from a brokerage house which has attempted to put retail's current woes into some kind of historical perspective.
These analysts say the decline started back in mid-2004, just as the housing boom started to cool, interest rates went up and petrol prices headed north. Hopes for a quick turn-around in the $200 billion-a-year sector were dashed when most retailers reported disappointing results from the Christmas season just passed.
But the pain among shop owners has not been evenly shared. Several chains have enjoyed improved sales and profitability, including Harvey Norman, Rebel Sport and Bunnings. Instead, the slump appears to have hit clothing and apparel companies hardest. Pacific Brands recently flagged a possible earnings fall and Country Road reported an anaemic 1 per cent sales increase over the last half. Just Group and Oroton have also issued profit downgrades as discretionary spending slowed.
Even the Colorado Group of clothing and footwear outlets, which once thought it could ride out the storm, has been unable to escape the malaise affecting its rivals.
Indeed, the Brisbane-based company ended one of its toughest financial years on January 28.
Two days earlier the Brisbane-based company reported a second profit downgrade for the year and the shock exit of long-time managing director Rowan Webb when his contract expires in March. That sent its shares into a tailspin and forced brokers to downgrade the stock.
The one-two punch was all the more remarkable because Colorado had enjoyed a record year previously, with profit up 54 per cent to $44.2 million. Back in May, it had confidently predicted net profit would increase 10 per cent this year.
But by August, Colorado warned that earnings before interest and tax would slide 5 per cent to $60 million. That was later revised down to $57 million and the most recent guidance has now pegged the figure even further south to just $48 million.
In a brief statement to the Australian Stock Exchange, group chairman Bill Gibson blamed weaker than expected trading in December and January.
"Competition for the tightened mid-market consumer dollar remained fierce over this period, and in general men's footwear and apparel felt the squeeze . . . as a result of current market conditions and performance, the company has reviewed both its short-term and long-term strategic plans and is accelerating initiatives in relation to brands, product and infrastructure," Mr Gibson said.
The key question now beguiling market analysts is how much of the company's problems are external factors beyond its control and how much stems from strategic errors or management flaws.
FW Holst research manager David Spry thinks Colorado may have focused on internal issues such as fine-tuning a new inventory management system at the expense of freshening up its store goods.
"They may have lost their way a little in the market. I just think maybe their brands have become a little bit tired. As you know with retailers, you need to come up with new things. And, of course, the competition has increased," Mr Spry said.
"Until this Christmas, retailers have had a pretty easy ride and spending was pretty damn strong. The test is when it's not quite as strong and you have to make it work in a tough environment. That's when you separate the men from the boys."
Apparel takes big hit in protracted retailing slump
Mr Spry said he had not recommended the stock for quite some time but the way forward for Colorado was clear.
"They've just got to make sure they've got the right products. They've got to re-invent what they're doing, perhaps consolidate a few outlets and keep costs under control," he said.
Market analysts will also keep a close eye on the hunt for a new managing director and future growth strategies, including possible acquisitions once the current dark period has passed.
Colorado shares made up a bit of lost ground on Friday, adding 13?to close at $3.47. But that's still way down from a high of $6.58 in late 2004 and speculation is mounting that a cashed-up private equity group may launch a takeover bid. After all, despite the setbacks, Colorado offers a potential corporate raider plenty of attractive attributes.
For starters, it has a strong balance sheet, a cash surplus and no debt. Over the past 18 months it implemented a cost savings and restructuring program while also opening new outlets.
The company, founded in 1989 and floated a decade later, has built up a very solid network of 430 stores across Australia and New Zealand.
It's five divisions ?Colorado, Mathers Shoes, Williams the Shoeman, JAG and Diana Ferrari ?are shopping mall fixtures and attract more than 1.5 million customers every year. It's too early to say which private equity interests may make a move but there are plenty of obvious suspects, among them Pacific Equity Partners, CHAMP Ventures and Catalyst.
Ironically, PEP said last week that it had raised a record $1.2 billion for its third private equity fund, surpassing the $950 million fund raised by CHAMP Private Equity in August last year.
A plausible scenario outlined by a retail analyst would have one of these companies buying out Colorado, implementing a reform agenda and then refloating it. He noted that several companies, including Just Group, JB Hi-Fi, Pacific Brands and Repco, had listed on the stock exchange after private equity investment.
There's even a wildcard possibility that investor Solomon Lew may jump back in to turn Colorado around. Mr Lew's private company ARI sold its 21.7 per cent holding in Colorado in late 2004, netting him about $115 million.
Some analysts note the timing of his exit coincided with the start of the retail slump but Colorado may be attractive to Mr Lew once again given its depressed share price. Part of the calculus of a takeover, of course, would hinge on expectations for retailers in the short to medium-term.
One analyst said last week that Australia had a very pronounced four-year retail cycle, with three good years followed by a bad one. "We think we're at the end of the sales decline. The problem is that there's about a six-month lag so that earnings are hit at the end of the downturn," he said.
Additional tax cuts this year would surely spur more spending but Aegis Equities senior analyst Anne Barnett does not believe there will be an uptick any time soon for the likes of Colorado.
"I think we're going to continue seeing weakness in the retail environment. People have blamed the weather, then petrol prices but we're seeing a structural shift," she said.
Much of the retail boom was fuelled by the refinancing of homes but consumers are now drawing down their borrowings and focused on paying off debt.
"People are so over-extended and if they decide to reduce their debt, that could lead to a structural shift and a downturn," she said.
Colorado, which ended a 25 per cent off sale yesterday, obviously hopes she is wrong.
Chief operating officer Eddie McDonald will run the company until a replacement is found for Mr Webb, who did not return telephone calls seeking comment last week.
