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Briscoe Group MD, Rod Duke

Friday 17th May 2002

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Following is a ShareChat Investor Interview with Rod Duke, MD of Briscoe Group (NZX: BGR ). This interview was conducted during April 2002 and published on ShareChat on May 17, 2002.

  1. SC Investor: Given the support your company has from the public (I have shopped at your stores for some years) I thought it was pretty unfair that I was unable to buy any shares in your IPO. Why were they kept just for the big investors and not for customers like me? (I know I could have bought them after they floated but they were 40 cents more expensive!!)

    Rod Duke: We believed it was important for the IPO's success to have an active after-market, that is to say, a bank of shares available for sale at any given time at a given price. To achieve this we must recognize that of the 210 million shares on issue:-

    Approximately:
    - 75% is with the RA Duke Trust
    - 5% is with Harvey Norman and Associates
    - 2% is with the Trust Associated with senior management
    - 3% is with Staff and Company friends

    That leaves approximately 30 million shares that may be considered available at a price.

    I also suspect that customers did in fact buy shares at $1-40 and above, and have enjoyed the substantial rise to levels of around $2.

  2. SC Investor: Why did you choose to float only 25% of the company when there was obviously extremely good demand for your shares?

    Rod Duke: The 25% level was the minimum requirement set by the NZ Regulatory Authority.

  3. SC Investor: Were you pleased with the float being oversubscribed and what advantages are there for the company in the subsequent price rise?

    Rod Duke: The price rise at this point in time does not necessarily give the company any particular advantages. The market price on any given day is simply someone's view of the company's value in delivering an increased value of each share and/or dividend yield.

  4. SC Investor: There has been talk that you are likely to sell-down more of your 75% holding in the company. When is that likely to occur?

    Rod Duke: My answer to everyone on that issue is this. When someone can show me that the company will derive significant benefit by me selling down to (say) 69% from 75%, then that is the point at which I would consider the proposition. Up until now that has not occurred.

  5. SC Investor: Your direct competitor is The Warehouse. How do you differentiate yourself from them?

    Rod Duke: Our offering is quite different.

    Philosophically we differ mostly in the way in which we present our goods (shops) and the quality of our goods.

    - We may very well, in the future, have 100 stores. But those 100 stores may be made up of 4 or 5 different brands, each specializing in a particular part of the retailing landscape. Just as Briscoes Homeware specializes in housewares and Rebel Sport specializes in sporting goods, another brand or two will specialize in a different segment.

    - The Warehouse model is a single brand strategy, a bit like the department store model. Not specializing in any particular segment, simply having a big store with lots of small offerings of a lot of categories but specializing in none.

    Both models have a place and to date both have been successful.

  6. SC Investor: I am curious of what is the current status on the new business proposal for the third complementary chain for the Briscoe Group? Are there any ideas from the management team or yourself of what kind of business the company will be looking at?

    Rod Duke: I can only say we continue to investigate a number of opportunities.

  7. SC Investor: With Harvey Norman/Gerry Harvey being a shareholder of Briscoe Group, are there any plans to build a closer relationship here in NZ & Oz with Harvey Norman?

    Rod Duke: We believe there to be a number of ways we can assist one another, but it's a little early to explore those publicly.

  8. SC Investor: What are the three main reasons behind the company's success to date? Are those likely to continue to be the reasons for future success or will other factors come into play?

    Rod Duke: The single reason for our success to date has been the quality and appeal of our offer. Customers recognize that quality merchandise at a good price is an attractive proposition.

    Our gross margin is not high but our cost of doing business is low. We therefore, can deliver merchandise at great prices and attractive returns to shareholders.

    In the future we will gather momentum as new opportunities come through, e.g. Rebel Sport doubles in size and Briscoes expands and reformats.

  9. SC Investor: When will you have a website up and running for investors

    Rod Duke: We are currently looking at establishing a website for Rebel Sport which we hope to have available in the second half of this year. Briscoes Homeware site will follow shortly.

  10. SC Investor: I have been dubious in the past about the never-ending sale promotional strategy of the Briscoes Homeware stores - although I guess I can't argue with its success. Can you tell me a little about the advertising strategy and how you measure the cost of advertising against its ability to bring in sales?

    Rod Duke: The need to advertise and promote is greatest when you are not in the very high traffic shopping centres. For us and most other retailers the choices are:-

    Shopping Centres:
    - High rent
    - High outgoings
    - High customer count

    Non Shopping Centres:
    - Low rent
    - Low outgoings
    - High advertising resulting in high customer count

  11. SC Investor: What do you consider is the single most important accounting ratio in measuring success in a retail business? Can you also please give the figure in terms of Briscoe Group and say how you plan to improve on it?

    Rod Duke: Outside of the obvious - Sales and Gross margin - for me the most significant is stock-turn. That is our ability to turn over stock (dollars) quickly. In the year ended January 2002 we achieved 4.6 stock-turns, last year 4.1, our target is 5. The only effective way to achieve this is early recognition and action of problem products, together with a "just in time" programme of successful products.

  12. SC Investor: It's been over ten years since you purchased the Briscoe chain. Did it take you longer than you first expected to knock it into shape?

    Rod Duke: The Briscoes business was basically knocked into shape by the end of 1990, one year after the purchase. No it didn't take longer than expected.

  13. SC Investor: A number of the Homeware stores have been redesigned to encourage more customers to "browse" rather than just go in and buy one thing. What improvement in sales have you had from the new layout?

    Rod Duke: We have experienced a sales improvement of up to 28%.

  14. SC Investor: What has driven the same-store revenue growth at Rebel Sport, which at 24% last year was more than twice as good as at the Homeware stores? Is that kind of growth sustainable?

    Rod Duke: Rebel's same store growth of 24% is exceptional and I guess there's a number of factors.
    - The market is likely expanding
    - Rebel's market share is expanding

    Rod Duke: I don't see anything on the horizon that will slow the growth.

  15. SC Investor: Does Rebel Sport offer more growth opportunities than the Homeware chain?

    Rod Duke: Both brands offer good growth opportunities, but in different ways.

  16. SC Investor: How do the Rebel Sport stores compares in terms of margins, sales etc against the stores in Australia? Do you still have access to Australian store data for comparison purposes since you no longer have a franchise arrangement with them?

    Rod Duke: I'm not privy to that information.

  17. SC Investor: What overseas retailing businesses do you admire? Have any of these companies had an influence on the way you have grown the Briscoes business?

    Rod Duke: There are not any overseas influences that have helped grow our business but we have identified a trend. That trend is to specialization. You only need to look at Australian, Japanese and U.S. retailers to see that the trend is clear. If you, as a retailer, have a significant differentiating feature you are more likely to attract more customers. If your offer is only "a little bit, of a lot of categories" you will lose customers to the specialist.

  18. SC Investor: How much use do you make of overseas retailing consultants in future plans for the business or do you find that New Zealand and possibly Australia has enough expertise in this area?

    Rod Duke: We use no overseas consultants; we have local experts to deal with local opportunities.


ShareChat thanks Rod Duke for taking part in this Investor Interview.

Bond Offer: Infratil Ltd, 7.2 year & 10.2 year unsecured unsubordinated bond


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