Godfrey’s falls out of love with franchising

Inside Franchise Business: Godfrey'sGodfrey’s new CEO Jason Gowie is winding back his predecessor’s focus on franchisee conversions and plans to double the proportion of the company’s sales coming from online.

The new plan aims to dramatically reposition the struggling specialty vacuum business.

“I’ve decided that a more balanced approach to channels is required,” Gowie said. “The focus for us now is looking at all of our channels to really make sure we’re in the right place.”

“Selectively franchising may still play a role … I stress selectively.”

Less than expected franchisee conversions have weighed on Godfrey’s FY18 earnings by around $3.5 – $4 million given that management had initially expected to book fees from 15 franchisee sales across the network but is now only pursuing two to three.

Gowie said he believes there’s a future for a specialty player in the vacuum segment, despite mounting concerns that Godfrey’s model may be outdated.

“There’s a future for a specialist in this category, all the demographics support growth,” he said.

The third CEO in as many years to attempt to turnaround the business, Gowie acknowledged the need for change on Tuesday morning after the business posted yet another disappointing half-year result, with earnings down 43.3 per cent and comparable sales sliding 6.2 per cent.

Nevertheless, Gowie has set himself a three-year turnaround to bring the business back to black, predicated on changes to branding, in-store experience, product range, internal culture and technology.

He’s started by clearing the decks, incurring a $75.2 million non-cash impairment in this morning’s result and announcing a swathe of leadership changes, including a new chief product officer and chief people officer.

Strategic re-positioning will make FY19 a “challenging” year for the business, but Gowie insists that work to strengthen Godfrey’s core business will make up for the short-term pain, as he charts out his vision for a re-consideration of its store network and a revitalisation of ecommerce.

“The first 12 months are always the most challenging because there are things you are going to have to undo and rebuild within a business,” he said.

“We’re really underweight in ecommerce, so there’s going to be a lot more focus there,” he said, outlining a goal to increase online as a proportion of total revenue from around 5 to 10 per cent.

“We’re in the very early stages of our ecommerce journey – we have click and collect and warehouse to house, but they’re relatively small. Its building scale in the platforms that allows us to generate sales in ecommerce.”

Gowie would not say whether Godfrey’s will close stores in the coming months as it reforms the business but said the network will be “re-shaped”.

“I expect we’ll reshape the network, whether that means closures I’m not entirely sure at this point,” he explained.

A re positioning of product mix will also be pursued, with Gowie conceding that the business had been too slow to cash in on popularity of stick-vacs, ceding market share to competitors such as Harvey Norman and JB Hi-Fi.

A review of customer perceptions and preferences is now underway, reflecting an increasing focus on data within the business, and will be completed by the end of March – at which time management expects to have a better idea of how it will contextualise its changes.

Asked whether systemic discounting needed to be wound back at Godfrey’s, Gowie said value will continue to play an important role in the business, but that a “balance” had to be struck with margin preservation moving forward.

One thing going for Godfrey’s, according to Gowie, is its status as a vertically integrated retailer that can take advantage of wholesale opportunities and drive private label efficiencies through its business.