Bonds – Shaken & Stirred!

If ever there were a sadder indictment of the journalistic coverage of the financial markets meltdown than the Bonds coverage, I can’t find it. A straightforward business decision has been picked up and kicked as hard as any political football by every side with a propaganda agenda. Although in fairness, many would question the issues management skill of Pacific Brands in the way they handled the announcement of both the job cuts, business performance and CEO’s pay rise within the same time-frame. The truth, as is increasingly the case, is a long way from the headline perception. Firstly, Bonds – far from being a contemporary Australian icon brand – has over time been relegated to the ranks of commodity, me-too products eeking out profits through low margin, high volume sales. Secondly, I for one was surprised they still had 1,800 manufacturing jobs left in this country to cut.

In a retail market that saw – contrary to media perception – growth of more than +6% year on year in both December 2008 and January 2009 compared to the same period the year before and is well ahead of +3% MAT growth for the last 12 months, Bonds has been shrinking its sales and profits for some time. Pacific Brands, its parent company, like just about every other volume manufacturer has been progressively shifting production offshore in an attempt to reduce cost of production and maintain quality at a price point.

The fact that the numbers – despite the fall in the exchange rate of the Australian dollar – still support off-shore production just shows the true state of affairs of both Australian apparel production costs and the brand itself. This is a brand that has very little magnetic customer appeal left and is relegated to competing on pure cheap price.

Despite claims by unions, politicians and the media who are using any and all examples to support vacuous negative claims in an effort to use the chaos theory to create opportunity for change which supports their specific agenda, Bonds has been slowly backing itself into a no-win corner for some time. The simple fact – as Marks and Spencer is also finding out in the UK – is that customers will no longer pay a brand premium for what they perceive as a commodity under-garment that no-one else will either see, recognize or award bragging rights for.

This is the historical strength of Bonds and a strength that is no longer supported by customers in the contemporary context. House brands and exclusive generics now increasingly dominate the low-price apparel area globally and while Bonds may have a vaguely recalled sentiment linked to our adoption of Chesty Bond as an Aussie character, it would need to invest heavily in product development to create differentiation that supports not only brand price premium, but also retailer interest in passionately supporting the products at all. And the lesson out of all this for retailers?

Unlike Chesty Bond who led with his considerable chin, brands cannot rest on their historical laurels and must constantly maintain relevance to their customers in their contemporary context. Magnetic differentiation – in the customers’ hearts and minds – is the only thing that sustains profit growth. Given time, energy, creative passion and money Bonds could end up in a good place. For this to be allowed to happen would require ‘time-out’ for the football to be worked on before someone else takes another kick at it. Otherwise Bonds will continue to slowly deflate, independent of the true state of retail in Australia or retail business practice as it evolves.