Adastria to merge Point and Trinity Arts in bid to find new growth

Adastria’s main Point subsidiary hit a wall in the last few years, with much slower levels of growth after a decade of rarely being beaten. To fix this, it acquired fast growing retailer Trinity Arts, which continues to power ahead, up 42% last year. It will now merge the two businesses, hoping that some of the latter’s magic will rub off on Point. At the same time it is investing in expanding the key Niko and… chain to sell a much greater proportion of overseas fashion labels.

Adastria Holdings will merge its Point and Trinity Arts subsidiaries next March. At the same time it will lose its holding company moniker, and become simply Adastria. The merger is being done to reduce overhead and improve supply chain management, both significant weaknesses in the core Point business. Point has long relied on trading companies as its main sources of supply, a dependence which helped it grow quickly in its earlier years but which has left it struggling to respond quickly to market changes and reduce its cost of sales.

Point acquired Trinity Arts in 2012 in an attempt to buy in its product planning expertise as well as its high growth rate. It also acquired an apparel production firm in the same year. However, little progress was made in applying this acquired expertise to the Point business.

Sales for FY2013 ending February came in at ¥153.2 billion, of which Point contributed ¥118 billion and Trinity Arts ¥20 billion. The difference in growth rates were, however, striking; Trinity Arts was up 42%, the 4th fastest growing fashion retailer, but Point grew just 2.4%.

By merging the two businesses Adastria plans to centralise these sourcing and product planning skills and apply them across both Trinity Arts’ nine brands, which include the highly successful Niko and… and Studio Clip chains, and Point’s 11 brands such as Global Work and Lowry’s Farm, which have seen growth tapering off in recent years.

The dissolution of the holding company is a sign of management’s recognition that there is little point in making further acquisitions when it has yet to properly digest its recent purchases and fix the problems in-house. The focus will now be on reorganisation and unification of divisions and creating an effective supply chain alongside its sourcing partners like Mitsubishi. In 1H2014, direct sourcing rose to 40% and it hopes to reach 50% within the next year. However, product sourced from its partners continues to outsell its own production, ensuring that for the next few years at least, Adastria will continue to depend on external sources and have to accept the higher cost of sales.

With little growth at home and a lot of new competition, not least from international fashion retailers, Adastria is also planning to focus its Point chains on overseas expansion. Its overseas division made a loss in 1H2014 but it expects to turn a profit in the next year through expansion.

Trinity Arts meanwhile continues its rapid growth. In FY2013 it opened 100 stores and plans a similar number this year. It is also widening its merchandising skills, adding a greater variety of home and lifestyle goods in preparation for roll out of much larger stores for both Niko and… and Studio Clip.

The model for this is the new Harajuku store which replaced the failed Collect Point multi brand store run by its parent. The 1,150 sqm store is its biggest yet and stocks 1,650 SKUs ranging from bicycles to books, as well as the core fashion lines, which also include a much higher proportion of overseas labels. Future large format stores for stations and shopping malls will be around 600 sqm, about double a typical Niko and… store today, and also stock more overseas brands.