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Pandora’s bubble bursts
Issue 1871 | 5 August 2011
Inside News & Views on the World of Retail
Not so many months ago, the name Pandora caused mass market jewellery retailers to break out into a sweat.
It was a fast-growing brand based on a charm bracelet concept seen as having a tsunami-like effect on the mid-market
chains when it entered a new country.
In Australia alone, the brand was sold in 577 retail stores ranging from small, family-owned jewellers through to company-
branded flagships, like one in Sydney's Pitt St Mall where the company pays an estimated $10,000 per sqm rent.
But basing an entire brand based on a fad is always a risky business and this week, just 10 months after raising $2.1
billion in a Scandinavian IPO, Pandora is in chaos, its share price losing 70 per cent of its value in just two days.
Its CEO walked the plank with immediate effect and the company’s board has announced a strategic review of the
business - a review it says will take up to 18 months to complete. In retailing, that’s a suicidal time-frame.
Perhaps the most surprising aspect of Pandora’s sudden fall from grace is the degree of negativity directed at the
business - and not just from shareholders who bought
into the myth that charm bracelets would feed their
investment income for years to come.
In Australia, several former stockists posted scathing
assessments of Pandora’s faults on Inside Retail’s
website the day after we posted the news.
“It couldn’t have happened to a more ignorant group,”
wrote one former Pandora reseller whose account,
like many others, was cancelled due to the company’s
decision to aggressively roll out its own stores.
“The writing was on the wall two years ago. Customers
got sick of Pandora; its sales hinged around $30 beads
and not much else. Couldn't Pandora see this? Five
years of collecting sales figures paints a perfect picture...
(but) they didn't listen,” wrote the retailer who identified
himself as John.
“Greed took hold of Pandora, nothing else. I'm real happy - our company made money out of Pandora and plenty of
it. Amazingly, Pandora purchased all our Pandora stock back when they closed our account. We moved on to a better
product (Trollbeads), producing good sales and significantly better service.
“What Pandora was unable to understand was that the 15,722 clients we established over the years remained our
customers, not Pandora's. To date 50 per cent of these customers have been converted to alternative products,” wrote
Several other ex-retailers have told Inside Retail similar stories, and customers in the core young women target
demographic have similar criticisms, suggesting Pandora failed to develop its core charm products and broader range,
yet increased prices and simply lost its mojo.
To be fair, Pandora management concede these criticisms have merit.
It says the trigger for its woes came in a decision to increase prices to recover higher material costs.
In a statement issued this week, the company said the cumulative effect of global price increases of around 15 per cent
on top of price increases already implemented in the US and UK in 2010 “has had a negative volume impact on our sales-
out in an environment where consumers are becoming increasingly value conscious”.
The company acknowledged it “lacked focus on maintaining low entry points in the 2011 price increase”,
had too few attractively-priced products in recent product releases, and too many slow-selling products in
In other words, Pandora failed to adhere to one of retail’s most basic mantras: offer the right product at the
right price at the right time’.
It also admitted it had not struck the right balance between branding and sales promotion initiatives.
Pandora’s sales fell in all four of its major markets - the US, UK, Germany and Australia which, combined,
represent 70 per cent of its group revenue. Australian dollar revenue fell 19.9 per cent year on year with a
worsening of a decline the previous year, although the strong dollar helped recover about a quarter of that
back home in Denmark.
Germany’s sales were down 20.1 per cent, the UK’s down 10.2 per cent. US sales were up 12.1 per cent,
but down when converted to Danish currency.
In product terms, Pandora has discovered that charm bracelets are a fad. In every major market, sales of
charms and charms bracelets have slid, with the trend most notable in the US.
Pandora’s declared ‘action plan’ to address its issues are a mixture of the sublime and obvious: no prices
will be increased in 2011 or 2012 and the recommended retail price of around 60 items will be lowered to
provide a better entry level into the brand’s range.
There will be an “absolute focus on instore space management in existing stores”, a review of future
collections to ensure the right sizing of assortment and price points and ‘fitness for purpose’ sales and
marketing programs introduced.
But at the same time, Pandora apparently still sees itself expanding its way out of its current strife: some
118 concept stores will be opened between now and Christmas and the company will now develop “a more
aggressive approach” to emerging markets.
Investors are optimistic the strategy will work, even if customers and resellers remain unconvinced.
“I still have great confidence regarding the future prospects for Pandora," asserted Christian Frigast, managing
partner of private equity company Axcel, the largest shareholder in the business, with a 32 per cent stake. "Of
course it was a surprise for Axcel. Now we have to look forward and bring the company back on track.
"We still believe that Pandora is a very sound company. However, the next 18 months will be very critical
and of course we expect lower growth rates,” he told an interviewer from Forbes.
Pandora dates back 30 years to a small jeweller’s shop in Copenhagen. In 1989 it established a manufacturing
operation in Thailand where the majority of its employees are based and where it now has four factories.
Pandora’s international expansion began in earnest after the launch of the charm bracelet concept in 2000.
It entered the US in 2003 and Australia in 2004.
It claims to have 1600 unique jewellery designs sold through more than 10,000 retailers worldwide including
420 company-branded stores.
Australian Retail Outlook 2011 - just published
For more information and to order: www.retailbooks.com.au or 02 9901 1800
Australian Retail Outlook features interviews with Australian retail
CEOs including Luxottica’s Chris Beer, Myer’s Bernie Brookes, Super
Retail Group’s Peter Birtles and Robins Kitchen’s Warwick Parer.
Productivity Commission - the findings
The Productivity Commission’s much anticipated report on the retail sector spans a whole 461 pages.
But while it’s a treasure trove of up to date data about the nation’s retail playing field, its core is a mere three
and a bit pages of draft recommendations. Given the spirited debate of the last six months it almost feels
like an anticlimax.
Only a few of the core recommendations of the report have been seen in print to date, although the full
document is available for downloading or reading online, in full or by chapter, here.
The draft recommendations, subject to a further round of submissions which close on September 2,
followed by a round of public hearings, are as follows:
Online retailing and taxation issues:
* The ABS should monitor and report online spending by Australians both onshore and offshore.
* There are strong in-principle grounds for the Low Value Threshold (LVT) exemption for GST and duty on
imported goods to be lowered “significantly” to promote tax neutrality with domestic sales. “However the
government should not proceed to lower the LVT until it is cost-effective to do so - that is, at a minimum,
the tax revenue should exceed the full costs of collecting it”.
* A task force should be established by government charged with investigating new approaches to the
processing of low value imported parcels, particularly those in the international mail stream, with a view to
preparing for significant improvements and efficiencies in handling. After the task force completes its work
the LVT could be lowered while remaining cost-effective.
Planning and zoning regulation:
* State and territory governments should broaden zoning within and surrounding activity centres to facilitate
new retail formats locating in existing business zones.
* Local governments should significantly reduce prescriptive planning requirements to facilitate
new retail formats locating in existing business zones and ensure that competition is not needlessly
* Government should not consider the viability of existing businesses at any stage of planning, rezoning or
development assessment processes. Impacts of possible future retail locations on existing centre viability
(but not specific businesses) should only be considered during strategic plan preparation or major reviews.
* Local governments should facilitate more as-of-right development processes to reduce business
uncertainty and remove the scope for gaming by compe