Find out how Matt created 2 highly successful retail businesses and what was the key factors in their success plus how to capitalise on the growth of online sales.
Neil: OK Matt thanks for agreeing to talk today – how are you?
Matt: I’m good Neil how are you?
Neil: Good also. Matt you are the founder of both MJ Bale (your current business) and Herringbone. Both of these businesses are incredibly successful. You grew Herringbone to over $25m turnover in about 7 years, and you are more than half way there already with MJ Bale in less than 4 years. Matt can you tell us a little bit about the MJ Bale and Herringbone stories.
Matt: I have always loved menswear. At school I would play rugby and organise the team’s uniforms. Fashion and clothing is in my blood, and after a few years of trying my hand at banking in Europe, I listened to my heart and came back home and started Herringbone. I believed that we could bring some of the styles available in Europe to Australia. Good timing played its part and we grew quickly. The Herringbone brand was positioned well to capitalise on the boom times in the 90’s and early 2000’s. However like many people, when the GFC hit, I learned a lot very quickly. We had expanded too quickly into Women’s attire – they accounted for one third of revenues and a massive two thirds of our overheads.
In addition, we had taken on too much debt when expanding and we were behind the curve in moving our manufacturing offshore to Asia. We also had not established a proper online offering. The result – our margins were lower than the competition and our product wasn’t right for the post GFC consumer. So in 2009 I started MJ Bale and 4 years later our profit is double that of Herringbone, whilst our revenue is half.
Neil: 200% profit on 50% of revenue sounds like you really did put into practice what you learned second time around.
Matt: Absolutely – we only stock men’s attire, but our men’s range is wider, catering for more business and casual settings. The MJ Bale concept is a one stop shop for the Australian businessman who is looking for stylish and modern attire with an Australian feel and at great value for money.
Neil: What has been the key drivers behind both of these successes?
Matt: It’s the same in both cases. You can’t achieve significant success on your own – you need good people around you. In both businesses we built a very strong team of great retailers that knew how to sell professionally, and also provide great pre and post sale customer service.
This is the key success factor in retail besides having good product to sell. I have also learned that you need other good people around you – a CFO such as yourself, and a few industry peers. At MJ Bale we have had an advisory board in place from the beginning that meets monthly. It is made up of very experienced retailers and yourself (CFO) all of whom are shareholders. I have found it invaluable and would now have an advisory board in any business I am involved in.
Another very important factor has been the design of the brand and product offering – the brand, offering and price points must resonate with the consumer, and we have worked incredibly hard on this. This includes sourcing your offering from the same suppliers in Asia that the most successful brands use, so that you are landing your stock for the same (or better) prices, and keeping up with innovation and trends.
Neil: How are you seeing the retail landscape at the moment?
Matt: It’s very interesting. There is a lot of noise out there about the poor retailing environment. But the truth is it’s a great market if you are selling what the consumer wants at a price that is attractive. Post GFC, successful brands strike a good balance between quality and value for money. Consumers want to be seen wearing brands that “smart” consumers are wearing i.e. they are cool and of good quality but not premium pricing.
Men’s business shirts are a good example of this. Pre GFC men were happy to routinely pay $150 to $250 on a premium shirt, and just as importantly, liked being seen in it. Post GFC the same men want the same quality (or close to it) for $50 – $120. So this is what MJ Bale sells. There are cheaper brands out there for $40 – $60, but a lot of men (rightly so) don’t want to be seen in them because they are perceived to be cheap (lower quality) brands – MJ Bale isn’t one of those. So the result is that all of our stores are recording like for like growth of more than 50%. That’s pretty much unheard of. And our gross margins and profit margins are higher than any listed menswear retailer that I have seen.
Neil: Where is the retail market going?
Matt: No secret here – it is going online. And in the online world its price competitive. In this environment it is very important to own your brand and its distribution channels so you don’t have direct competition. That’s why department stores are struggling. Consumers can try clothes on for size then jump on their smartphone and buy it online 30% (or more) cheaper – it take just a few minutes to complete the transaction and is frequently delivered to your door next day (delivery free with a money back guarantee). There are hundreds of online stores and retail outlets selling Reebok shoes so it’s very price competitive.
However for a lot of our products you can only buy them at MJ Bale – i.e. there are no direct price comparisons. It is going to be hard for some existing retailers to adapt to the online world, and I see them declining in market share terms, to the benefit of new online retailers and a few existing traditional retailers who transition well over the next 2-3 years.
Neil: How many years were you climbing the mountain in each business before you had that “I’ve actually made it – that I’m truly successful” feeling that I know washes over every successful businessperson at some point.
Matt: I can’t say I’ve had that feeling – maybe I will look back in 5 years time and recognise it in hindsight.
Neil: Its tricky isn’t it when you are taking other people’s money to invest in your concept. What have you learned about this along the way – I know you always talk about the trade-off between equity, operational control and cash remuneration.
Matt: I think you can’t have everything if you decide that bringing in other investors money is the right thing to build the business quicker, like we have done at MJ Bale. You have to be razor sharp clear about which are these is most important to you – equity, control of the day to day or cash remuneration. For me it was #1 control, #2 equity and #3 cash and the deal we did with investors clearly reflected this.
Neil: If there was one bit of advice you would give your best mate when starting a business what would it be?
Matt: You have to love what you do or the inevitable difficulties you encounter will get to you too much. Surround yourself with people that have the skills and experience that will minimise the mistakes and shorten the time you need to reach your goals. Sorry that’s two pieces of advice isn’t it!
Neil: What would you say are the key attributes a business owner needs to succeed?
Matt: Persistence and passion.
Neil: Well I would say you have both of these all right! You don’t take no for an answer that’s for sure. Seriously though I think persistence (coupled with belief) is a big one as well, as well as having a very clear idea of what you are trying to achieve. Now how many hours a week do you work and how much of this is working on the business instead of in the day to day stuff. And I know you have 4 young kids and you’re a devoted dad – how do you get balance?
Matt: I work a lot, continually really but I love what I do so I don’t feel like it’s my work. It’s my life. I live in the country and work 1-2 days a week from home which gives me family time and thinking time. Our size now lets me employ really good people to manage a lot of the day to day so I spend at least 50% of my time working on the business.
Neil: Matt thanks a lot for your time today – as always I enjoy our chats.
Matt: Your welcome and so do I.
This transcript came from a recent CFO Advisory ‘Business Conversations’ seminar.
To find out about our next seminar on the 26th March at the Australian National Maritime Museum click here.