Ahead of the crucial Superdry shareholder vote tomorrow, which will decide whether co-founder Julian Dunkerton should be brought back on board, Drapers analyses what changes need to be made to revive Superdry’s fortunes.
It is one of the most rancorous tales in the fashion sector. This week’s extraordinary general meeting may decide the fate of one of the UK’s most recognisable brands, and the reputation of one of Britain’s leading fashion entrepreneurs.
Julian Dunkerton’s challenge to place himself and Peter Williams, former Boohoo Group chairman and former Selfridges chief executive, on the board of the business he co-founded in 2003 will be decided by a shareholder vote on 2 April.
The proposal has been rejected by the Superdry board, which sees Dunkerton’s time as past.
However, it was reported last week that two institutional shareholders, Schroders and Investec Asset Management, which between them own just over a 10% stake, said they would support Dunkerton’s return.
Nevertheless, some retail experts concur with the board.
Speaking to Drapers one industry veteran says Dunkerton needs to accept that both he and the business have moved on: “When people leave an organisation, they need to forget about meddling in what’s been going on. You can’t be a casual observer to these types of situations. Move on.
“[Dunkerton] obviously did a great job at a point in time. [In March 2018] he handed over to [Superdry CEO] Euan Sutherland, who is a very competent retailer and has his own ideas, and there has been a change in policy.
“The public hanging-out of dirty washing is poor, unacceptable form. If you have an issue, sit down with the people, give your view and, if they don’t accept it, move on.
“Whatever [Dunkerton] wants to do, why didn’t he do that when he ran the company? When he left, why didn’t he just sell his shares? Euan needs the next couple of seasons to be judged on how he does.”
Superdry’s latest results show that it notched up a 5.4% rise in global brand revenue for the 13 weeks to 26 January 2019, to £479.6m. Global wholesale revenue rose 12.7% from £65.2m to £73.5m.
However, stores performed poorly: revenue declined by 8.5% to £126.8m from £138.6m and overall group revenue fell by 1.5% year on year to £269.3m.
Superdry has also issued two profit warnings in recent months. In October the share price fell by 20% after it revealed that it sold less winter clothing, including sweatshirts and jackets.
In December a further profit warning led shares to dive by 38% after poor sales, partly blamed on a warm winter and heavy discounting from competitors. It revealed that underlying profits were down 49% to £12.9m for the 26 weeks to 27 October 2018.
Dunkerton’s investor presentation published on 14 March claimed the performance has wiped £1.2bn off the value of the brand since January 2018 as Superdry’s share price fell 75% (to 14 March).
He said: “This is symbolic and a damning indictment of how poorly performing a business it now is, unable even to maintain its mid-cap status”.
However, retail analyst Richard Hyman says the results have to be considered in the wider context of the retail sector: “Judging any business in the retail industry against its own historical performance has become redundant.
“I am not sure there’s any retail business that can deliver the performance it did in recent years because the market is so much more difficult. Businesses should be judged against their peers.”
Shareholder advisers have been equally unimpressed by Dunkerton’s claims. Last week two leading shareholder advisory groups stated he should not be supported. Institutional Shareholder Services (ISS) recommended that shareholders reject his re-appointment as, in its view, some of Superdry’s problems had “arisen as a result of combined decision-making by Julian Dunkerton and management”.
Dunkerton argues that heavy discounting in 48 of 52 weeks in 2018 has led to poor margins.
The performance of online sales is a particular concern. While many brands are forging ahead online at a time when high street sales are lacking, Superdry is underperforming. Ecommerce revenues for the 13 weeks to 26 January 2019 stood at £69m, down 0.7% on the same period in 2018.
One former Superdry director said: “It is tough out here at the moment, but there’s no excuse for internet sales going backwards. I don’t care how they dress that up.”
Another problem area is product. In a thinly veiled swipe at Dunkerton, Superdry blamed problems relating to “ongoing legacy product issues” for the poor results.
At the time of the profit warning in October Superdry said it was looking to address an over-reliance on outerwear – a strategy it says was led by Dunkerton – by undergoing a product diversification programme that would “redress the balance of product by accelerating growth in other categories”.
However, Dunkerton says he was not involved in designing or buying the autumn 18 collection and claimed that current management has limited the SKU count on bestselling products in favour of less popular categories.
A source close to the business says Dunkerton was responsible for the underperforming autumn collection: “The idea he wasn’t involved in the autumn range is simply not true. You design a range from first to last, a number of things will be changed but about 60% [of decisions] came from him personally.”
Dunkerton said in his letter to shareholders: “I was on the board and brand director until March 2018. The reason for my departure stems from my fundamental disagreement with the strategy adopted in the fourth quarter of 2017 (the “Global Digital Brand Strategy”). I was increasingly marginalised, and largely cut out of the creative and design process from July 2017, some nine months before my departure.”
One analyst observes: “The pivotal thing is whether you believe Julian when he says he was excluded from those meetings and wasn’t at all responsible for the product, even though that was his job. It all seems to hang on that.”
A source close to Dunkerton says: “His main criticisms are that Superdry was always a design-led business, whereas the current management has shifted this to a merchandising model that copies high street trends.
“You will ultimately be a fashion follower, which is not what Superdry was. You make money short term, but long term you are destroying the brand. You are stripping out creativity from the design team.”
At the heart of the issue, however, is the question of what kind of brand should Superdry be.
One source close to the Superdry board said the business is now too big for Dunkerton to run: “The skills that are needed for an entrepreneur to start a business up are very different from those needed to scale it up. If we were still talking about a UK-based physical stores business focused on 16-to-23-year-olds, Julian might be right. But we’re [actually] talking about an international brand.
“[Dunkerton] hasn’t got the right leadership style – he’s very entrepreneurial, which may have been right at one stage, but not now. His view of the business hasn’t moved on.”
Childrenswear is one aspect that highlights the differing visions for the company. For Dunkerton the idea spells the end of the brand as one that will appeal to young adults.
Julian has always said that Superdry is a brand that retails, not a retailer that owns a brand
Source close to Julian Dunkerton
A source close to Dunkerton says: “Julian and co-founder James Holder refused to do kidswear for 16 years because they understood that edgy, streetwear stuff is their core offer. [If you sell kidswear], you will lose an entire generation. You get a short-term sales boost but ultimately kill the brand for the core market.”
One former Superdry director agrees: “The early adopters of Superdry were 16, 17, 18 years old. If you can get that lot to engage, you have future brand influence.
“[Young adults] can just about tolerate people of 35 wearing the brand, but if you are 17 and your nine-year-old sister is wearing the same brand, it turns you off completely. It’s lost.
A source close to Dunkerton said the brand offer is core to his ambition to revitalise the company: “Julian has always said that Superdry is a brand that retails, not a retailer that owns a brand. It has to be a brand that people want to wear, and create exciting things that people want to buy, not some clobber that has a Superdry logo on it.”
Shareholders will decide tomorrow whether Dunkerton has a role in Superdry’s future.
Commenting on what the best outcome for the current spat could be one former director said both sides need to work together: “I think the best solutions for the business is to patch up their differences.
“The hidden genius in this is James Holder – his designs were genius. Even if you got only 10% of his time, if I was a shareholder, I would want him on the board.
“Do I want Julian on his own running it? No. But he should be on board.”
The Drapers Verdict
The problems at Superdry are undeniable: online and store revenues are declining. The position of the brand is also in limbo while the boardroom battles continue.
A key issue for Superdry, Dunkerton and shareholders is to decide what the company wants to be. Dunkerton is an undoubted success as an innovative fashion entrepreneur. However, the business he sold is not a start-up selling on a market stall – that time passed long ago.
Superdry needs to focus on brand, accept that part of the strategy is not working and focus on how to at least defend its core market. Discounting is not a long-term recipe for success.
Dunkerton and the board need to make up for the good of the business. If they can – and the jury is out on that prospect – then there is a potential for Superdry to rediscover what it did well once again.