Fashion group Mosaic Brands (ASX:MOZ) will close between 300 and 500 stores over the next one to two years as it grapples with rapid change in the retail sector and the shift to online retail.

The group is known for its fashion brands for women including Autograph, Beme, Crossroads, Katies, Noni B and Rockmans, and has been reducing its exposure to long-term leases over the past three years.

Leases for 87 per cent of the retailer’s 1,333 stores are due to expire over the next two years, but the company has yet to decide on the location of potential store closures.

The possible store closures amount to 20-37 per cent of its retail outlets.


Fundamental change to retail

“The retail rental market in Australia is not paused because of the pandemic – it is fundamentally changed for the future,” managing director and chief executive Scott Evans said.

Earlier in August, Mosaic announced the temporary closure of 129 of its stores in Westfield shopping centres in Australia, which employ 400 staff.

Mosaic revealed underlying earnings before interest, taxes, depreciation and amortisation (EBITDA) loss of $45.8m for the 2020 financial year, including a $49m provision for rents following nine weeks of store closures due to COVID-19.

Pre-COVID, the company was on track to post an EBITDA of $75m for the 2020 financial year.

“That forecast was utterly derailed, first by the devastating bushfires which directly impacted 20 per cent of our store portfolio over the Christmas period, then by COVID-19 which saw us close all 1,333 stores for nine and a half weeks including the peak Mothers’ Day trading period,” Evans said.


Online sales at Mosaic’s nine digital stores advance

The company has used its strong cash position of $77m to take advantage of the fundamental change, and it has expanded sales for its nine digital department stores.

Online sales for Mosaic accelerated to $93.7m in the 2020 financial year, up 36 per cent in the January-June half year, and up 40 per cent in July alone.

Mosaic chairman Richard Facioni said the group’s focus on cost savings and margins meant it was positioned to return to profitability in the 2021 financial year, pending no further COVID-19 related disruption to its business.

Mosaic Brands’ (ASX:MOZ) share price chart


Online trend is bringing challenges to physical stores

Rojie Tadros, founder and CEO of online retailer Payday Deals, said radical changes to Australia’s retail sector had affected traditional physical stores and patterns of behaviour.

“It’s no surprise that another big retailer is closing stores. The reduction in regular shopping centre foot traffic plus the relative ease of online shopping, have made regular trading conditions for ‘bricks and mortar’ stores beyond challenging,” Tadros said.

Retailers needed to entirely rethink their traditional business models, as a failure to innovate and the changing nature of consumerism could spell doomsday for some, he said.

“People no longer want to battle queues of traffic and busy car parks when they can comfortably shop via a few clicks on their laptop, and have their products delivered to them on the same day of purchase,” Tadros added.

“It’s no wonder that shoppers are voting with their feet to enter a new retail paradigm, which is online.”