What Happened to Supergroup's Warehouse Management System?
High street star performer Supergroup announced that £9m in profits are likely lost due to Warehouse Management system failures. What happened? How will the markets react?
Posted by Killian McAleese, 6th October 2011
It was fast to gain notoriety across the retail community yesterday, if only because bad news from these quarters is such a rarity. Responsible for the hugely successful, recession-busting Superdry and Cult clothing brands, Supergroup had been the darling of investors until systems failures threw a spanner into their works.
The numbers are straightforwardly terrifying. £9 million, potentially (probably?) in lost profits. Share price down 26.37% yesterday to 740.00p. Why? It's all related to the botched implementation of the group's new Warehouse Management systems over the summer.
As a result of the failures, the group has been forced to rent temporary warehouse space in addition to its Barnwood, Gloucestershire distribution site to accommodate resultant stock and manual workaround needs. The cost of this, coupled with with lost sales of their best-selling T-shirts and hoodies, led to the shocking announcement, with the group's Finance Director and head of IT Chas Howes assuring investors that the “isolated, temporary setback” is contained and would be resolved ahead of Christmas.
Perhaps what's most shocking about this is the fact that the Warehouse Management systems failure occurred in the heart of such a great performer; the group's brands are doing well, bucking the trend on the high street with healthy growth.
But as success can be as challenging to a person or indeed an organisation, as much as failure can, so high growth, particularly at Supergroup's stratospheric pace, presents serious challenges to a retailer. And we at Open Plus would regard such as systems failure as, tragically, typical of such challenges.
"Supergroup won't be the last High Growth business to fall foul of IT banana skins," commented Open Plus CEO Andrew Sykes.
"Of course we all know it won't be terminal and let's hope they can get to the bottom of their problems quickly. It's a salutary lesson in the need to constantly review and formalise IT projects and processes during phases of growth."
While Supergroup has the ability, not to mention the sales and growth potential, to ride the problem out and will no doubt, as Chas Howes claims, sort the problem out ahead of most of the Christmas shopping and sales period, there are the investors to think about, and that's a different challenge altogether, also thoroughly growth-related.
In his Guardian finance blog yesterday, Nils Pratley pointed out that while this is not the most disastrous warehousing setback in retail history, there are aspects of Supergroup's operation which will surely have spooked investors beyond the obvious alarm of a price drop of 26%. When we're looking at 'go go' fashion stocks, the high-growth kind of which Supergroup certainly were, investor confidence tends to return at a particularly tardy pace in the wake of such setbacks.
Supergroup has to face this particular problem with the additional complication that their stock goes on what Pratley calls "a global adventure", such that problems at home are an ill-fated omen regarding the ability to manage the rest of the world.
What's more, Pratley rightly points out what is potentially the most frightening detail of the story: that news of the problem only seems to have seeped out in October, whereas the problem, we've been told, originates in the early summer.
Why has it taken so long for this problem to surface? It cannot simply be argued that the issue has been evident to the group for some time and is only being made public now; this isn't relevant really, since it will still only be resolved by November!
A Warehouse Management systems problem that began in the early summer and will only be resolved by November - and that only at the current projection - is a reasonable investor worry.
Supergroup will no doubt resolve their Warehouse Management systems issue, but will they recover their investors?
David Mitchell and the Evils of Online Retail 15th September 2011
Fishing Megastore: eCommerce from the Glasgow Angling Centre 28th September 2011
Join the Conversation