This gives Best & Less a point of difference in the highly competitive discount department store sector, where the dominant player Kmart has a broader focus on homewares and general merchandise.
“That specialisation around baby and kids has held the company in good stead because there’s not many retailers that focus predominantly on that sector of the marketplace,” Rodney Orrock, Best & Less’ CEO told Inside Retail.
The company has approximately 1.5 million members in its Friends Club loyalty program across Australia and New Zealand, and it will continue to focus on understanding and adapting to the needs of its customers to grow the business going forward.
“We know the type of business we are, we know the marketplace that we serve very well, and we understand that value is very important,” Orrock said.
On being everyday low cost
Best & Less sees itself as a hybrid between a discount department store (DDS) and specialty retailer.
“We are a value retailer, like DDS participants, but we approach it with a specialty mindset. For us, quality and value must go hand in hand,” Orrock said.
“We want to [sell our products] at the same price point as DDS players, but at a superior quality. And when it comes to the mid-market, we want to [offer] the same quality but at a superior price point. […] We call it delivering ‘twice the quality at half the price’.”
The key reason Best & Less is able to do this is that it’s a vertically integrated retailer.
“We develop, design and source from our own manufacturers that we’ve got long standing relationships with and specialisation in the areas and the product that best fits their capacity and capability, and then we move it through our own supply chains into our own retail stores and our own online network,” Orrock said.
Eighty-six per cent of the company’s sales are generated from its own brands. At the same, it is a very cost-conscious business.
“We talk often about the fact that if you want to be everyday low price, then you need to be what we call ‘everyday low cost’, and be prepared to put [your] money where it actually makes a big difference,” he said.
For instance, Orrock said Best & Less saves hundreds of thousands of dollars a year by using Petainers, a type of plastic shipping container that removes the need for packaging and reduces the amount of air being shipped, which has helped cut the company’s internal freight costs by around 30 per cent.
“It’s that type of focus and attention that we put on every component of our business that enables us to deliver the types of prices that we need to be able to compete well within this marketplace and win,” Orrock said.
Best & Less reported $663.2 million in total unaudited revenue in FY21, an increase of 10.8 per cent year on year on a like-for-like basis, which excludes the impact of store closures due to Covid-19.
The company said it expects pro-forma EBITDA for FY21 to outperform its prospectus forecast of $60.7 million by approximately 15 per cent, more than double its earnings in FY20. Pro-forma EBITDA for the first half of FY22 is forecast to be $40.2 million.
Continuing to improve the company’s digital offering is a top priority for Orrock, following the successful rollout of click-and-collect in Best & Less stores last year.
“Click-and-collect is now growing faster than any other method of delivery from an online perspective within our business,” he said.
The retailer also recently launched a new mobile platform, which provides a better user experience for the more than 70 per cent of customers whose primary device for shopping online from Best & Less is a smartphone.
“We’re certainly seeing engagement [on mobile] increase as a consequence of the introduction of that particular platform,” Orrock said.
Customers can also now search for products on Best & Less’ website based on whether they want to pick it up in-store, or have it delivered from the warehouse.
E-commerce currently accounts for approximately 10 per cent of Best & Less’ overall sales, which is “good” for the DDS space, according to Orrock. But he sees that figure climbing to at least 15 per cent in the short-to-medium term, which is more in keeping with specialty fashion retail, where online can account for 20 per cent or more of overall sales.
“The work we’re doing in the background at the moment is all around matching the data to the customer record, so that we build a better understanding of exactly who our customer is and what she wants to receive from us,” he said.
This will enable Best & Less to move away from blasting its database with generic communications towards providing more engaging content tailored to the age and sex of the customer’s child, for example, or the type of product that they might be looking for.
“I think data and how we utilise it in the future is going to be really critical to our success,” he said.
“If I roll forward 12 to 18 months, I’d like to be a business that has a very strong data strategy in place, and be very well advanced in our execution of it.”
Enter the millennial parent
While Covid-19 lockdowns have decimated physical retail over the past year-and-a-half, Orrock is not opposed to expanding the company’s bricks-and-mortar store network, provided new locations are in the right areas to reach the company’s target demographic.
“Covid has actually opened up some opportunities to be frank,” he said.
“Where we can have a store and our online business working hand in hand, we definitely see our business opportunity being optimised. We see better sales, better engagement with our loyalty [program] and better growth in terms of customer acquisition and our share of the market.”
However, profitability is key. After consolidating its store network over the past three years, the company’s stores are now all “strong profit contributors, and it’s our intent to keep it that way,” Orrock said.
At the same time, he acknowledged that Best & Less needs to continue to invest in revamping its stores to appeal to millennials who have started to become parents in recent years.
“The amount of bulk we had in the store was not appreciated by the customer, and we’ve done a lot of work over the past five years to address that and improve that,” he said, noting that the retailer has streamlined its options and increased aisles to accommodate prams.
“We know we still have further work to do to optimise that and get it right,” he said.
The company has also sharpened its focus on sustainability and social responsibility, such as its commitment to using only recyclable, reusable or compostable packaging by 2025, and its stance against cancelling orders with suppliers during Covid-19.
“I’m very proud of where our business has moved to, not only in terms of the commitments that we’ve made, but most importantly, [setting] ourselves a very strong action plan to achieve those particular outcomes,” Orrock said.