Kathmandu’s big profit jump: Five lessons SMEs can learn

New Zealand travel and adventure retailer Kathmandu raised the hopes of the retail industry yesterday when it released its annual results, showing net profit after tax rose by 55% to $39.1 million in the 2011 financial year.

As retailers continue to discount and a wave of collapses has prompted analysts to downgrade many popular stocks including Harvey Norman and JB Hi-Fi, Kathmandu recorded a sales increase of 24.5% to $306.1 million, while same-store sales growth rose by 15.7% for the full year.

The company has had a tough year – its home town of Christchurch was devastated by an earthquake, and it has been forced to adapt to a pitiful retail environment. But it has been able to deliver some of the best results out of all the listed retailers.

Here are five lessons small businesses can learn from Kathmandu’s success:

Don’t panic

Kathmandu has not only been affected by a major earthquake in its home city of Christchurch that forced the company to close stores, but is attempting to restructure in one of the weakest retail environments seen in several years.

But while many businesses have attempted to combat this by massive discounting and slashing store numbers, Kathmandu has a much more focused approach.

It has made no huge announcements, no massive discounts and in each press release has appeared calm and neutral. Existing plans to refurbish stores have remained on track, and inventory management has ensured costs don’t explode beyond what is manageable.

Kathmandu is a good example of how to behave in a crisis – by staying calm and collected.

Pay attention to online

While Kathmandu doesn’t provide a breakdown of sales for online and bricks and mortar, there is no doubt the company provides a substantial online solution.

Most of the company’s stock is available, users can input promo codes and membership rewards, and it also provides a number of resources for travellers including information on campaigns, day walking, cycling, and even instructions on how to pitch a tent properly.

The business also charges a flat shipping fee, which encourages shoppers to buy more products. An entire list of stores, their opening hours and contact details is available as well.

There is no doubt the Kathmandu website doesn’t provide anywhere near the majority of the company’s sales. But it has a leg-up on the competition by offering such a substantial online market in the first place.

Maximise your floor space

Part of Kathmandu’s strategy is not just opening new stores in Australia and overseas, but also refurbishing existing stores and making way for new inventory.

This strategy is similar to that undertaken by The Athlete’s Foot in Australia, which has been focusing on making sure floor plans are bigger in order to show off more products.

In the company’s annual report, Peter Halkett said that the company “has made a substantial investment in inventory in FY11”.

“We are very positive about the benefits to come from the new Kathmandu brand… this involves also re-locating a number of our stores to larger and higher profile sites.”

The roll-out of refurbished stores and keen inventory management means Kathmandu won’t overextend itself any time soon.

Be prepared to be flexible

One of the downsides to Kathmandu’s positive report was that the British business is continuing to struggle. In fact, the six stores there saw like-for-like sales fall by 7.1%.

As a result, the company is adopting a different strategy – multichannel retailing with an emphasis on online. It also announced that “no further stores are planned” for the British business.

Kathmandu knows business is tough. Instead of overreaching the company is maintaining existing stores, and focusing on how it can make those stores profitable instead of opening new locations and introducing too many new costs and liabilities.

Think about the long-term strategy

Kathmandu announced it would be preparing the business to step into the North American market – a move that is at least three to four years away.

While some would question the move, considering how poorly the retail environment in the United States continues to perform, it highlights the need to continue thinking in the long-term. In another four years the economy may have stabilised and unemployment will surely be lower than it is now, ushering in new opportunities for spending.

Like any well-run business, Kathmandu is focused on the present, but thinking about the long-term as well.