Tuesday, June 8, 2010

Michael Hill Downsizes USA Operation

I had an uneasy feeling about Michael Hill International [MHI.NZ] moving into the United States in 2008. Not because of the move to the USA but the price paid for the distressed assets that they bought to get a foothold there.

From my piece at the end of 2008:

"I'm worried because this type of expansion activity veers slightly away from the tried and tested way that the company entered Australia then Canada.

The company set up a handful of stores when they entered their two overseas markets just to test the water".

It has been announced this morning that MHI are closing 8 of the 17 stores they bought from Whitehall Jewelers Holdings to consolidate and grow from this position:

"After a full review of the business, including results achieved to date as well as operational and real estate issues, the company has made the decision to consolidate to a smaller platform of 9 stores, all of which are within the greater Chicago area. These stores will immediately be refurbished to bring all of them up to the company's latest global concept. This group of stores will then give the company the best possible platform and opportunity to position the brand in the US. The remaining 8 stores will be closed at the end of June 2010 with exit terms having been negotiated with the various landlords." Michael Hill Business Review 8/6/10

To be sure MHI bought the stores at a time when retailing in the US was a dead dog and it hasn't improved much since then but the company made a mistake getting into the US so soon and even Michael Hill himself said in a June 2009 interview that he had tripped up in his quest to expand.

A mistake made but good to see the company making a decision to quit and Hill fronting up.

I still feel uneasy about the US and Canadian businesses in the short to medium term but like MHI management remain very optimistic that the model that has made them such a success in Australasia will work in the land of bling and endless shopping malls.

I would have started to business off in Texas though, my favourite State and the home of serious jewelry buyers.

Disclosure I own Michael Hill International shares in the Share Investor Portfolio.

Michael Hill International @ Share Investor

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