Covid 19 Delta outbreak: Investor Simon Moutters message to the Govt as Designer Wardrobe closes stores

Designer Wardrobe is closing its stores in Auckland, Wellington and Christchurch – and the company’s chairman, Simon Moutter, is blaming the Government’s “unclear” pandemic timeline for the decision.

Moutter says the buy-sell-rent clothing company, founded in 2016, had hit an annual revenue run rate of $5 million before the Covid-19 outbreak.

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Although a small business, it had attracted big name backers, including Moutter and his wife Sophie, Shane Bradley, Sir Stephen Tindall, Icehouse Ventures and Sam Morgan.

DW backers have chipped in more over the past few months, and investors are quite willing to accept red ink as part of a business plan, it’s impossible to ask them to cover losses for an open-ended amount of time, Moutter says.

“Whereas if the Government said New Zealand will return to normal on December 1, then we could do the maths around that.”

Similarly, he says many small businesses who are currently teetering probably could make it through the pandemic if they were given a firm date for re-opening, which would, in turn, give investors and banks the certainty they needed to back them, Moutter says.

The Government has said it will introduce a new red/orange/green light system for each region once its fully vaccinated rate reaches 90 per cent of those eligible – a target that Auckland might hit within weeks, with some form of vaccine certificate coming in around the same timeframe to give most double-jabbed people something close to normal life under “orange” -albeit with mask, distancing and (as yet unspecified) capacity limits for retail and events and vaccine card mandates that are still being finalised by industry.

“A business like ours really needs to be at green, where there will be significant events going on – or the old Level One,” Moutter says.

“That might be a year from now,” Moutter speculates. The point is he really doesn’t know.

Designer Wardrobe was able to negotiate a 50 per cent discount from its landlord for its three stores (it also has a head office in Albany with a pop-up store attached).

The business also took $189,621.60 in wage subsidies last year, and has received a further $247,041.20 this year as of October 26.

“The first thing to realise is that although a wage subsidy is helpful, a small-to-medium business have lots of other costs – rent, office expenses, software, all sorts of things. The losses are material and the wage subsidy only offsets some of the loss.

“And the reality is that SMEs don’t have unlimited access to capital. Banks, quite rightly, are not going to fund a business that might not be able to repay,” Moutter says (the ex-Spark CEO was recently appointed to the board of ASB parent CommBank, but is speaking to the Herald in his capacity as DW chairman, and giving his personal views on the Government’s pandemic response).

A post shared by Donielle Brooke (@doniellebrooke)

“And equity investors aren’t inclined to invest in times of uncertainty. So you end up with no access to funding. And that’s what’s happening now. A lot of businesses can survive for a while because their owners increase the mortgage on their house. Or in the case of DW, some of us investors have been willing to put in more credit for a period of time. But in the end you need to have some certainty about when we’re going to get out of this.

Designer Wardrobe cofounder Donielle Brooke made an Instagram post over the weekend with a very end-of-an-era feel about it.

“A huge chapter in DW’s journey coming to an end this week, with the sad news of all of our beautiful stores closing a very special thank you to our incredible team & EVERYONE who played a part in our DW store journey!!,” she wrote.

“Forever will be grateful for the memories that will last a lifetime. From walking into a busy stores & feeling so proud to see our amazing team in their element right to our members who I appreciate so much – DW stores felt like a second home to so many!”

But Moutter stresses that the online element of the business will remain.

DW began life as an online operation, with customers renting high-end garments to each other on a peer-to-peer basis.

While it ended up opening stores after it moved to managing rentals for members, and as a form of marketing presence. Because the idea of renting high-end garments – at least outside of school balls and black-tie events – was new to NZ, it helped to have physical stores.

But the ltimate aim was always to return to an online business, Moutter says, as is already the case with its peers overseas.

“Covid just brought that forward because we could not deal with the uncertain timeframe of the cost of retaining the stores. You’ve got rent to pay and a lot of staff around retail operations

“For a small business, it’s a burden that’s very substantial. You’re burning through a significant amount of cash every month on an uncertain timeline.”

He says DW will come back strongly after Delta recedes, just as it did after the first wave of Covid.

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