Priceline owner, Australian Pharmaceutical Industries (API), is speeding up its omnichannel investments to keep up as subdued discretionary spending and increasing competitive pressures threaten growth in its core beauty and personal care ranges.

CEO Richard Vincent, who today delivered his first full-year result at the helm, told investors that API will focus on operational excellence, the continued roll-out of a new store format, investment in digital and further assessment of a possible expansion into China in FY18.

Priceline booked modest growth, but was impacted by what Vincent described as “difficult market conditions” during FY17, with first-half growth being offset by second-half weakness, driving like-for-like sales across its 125 company-owned stores down 0.4 per cent.

Retail register growth (excluding dispensary sales) slowed by 5.8 per cent to $1.15 billion, while total network sales increased by 5 per cent to $2.1 billion on the addition of 20 new locations to the overall 462 store portfolio.

Underlying earnings before interest and tax (EBIT) for API more broadly increased by 5.5 per cent to $91.9 million, underpinned by a 5.8 per cent increase in total revenue to $4.06 billion, while net profit after tax increased by 5.4 per cent, ahead of guidance.

Speaking to Inside Retail on Thursday, Vincent said planning for a Chinese expansion that would focus on skincare and cosmetics was underway, but that API was being sensible about its prospects in Asia.

“Growth has to be profitable, you hear lots of stories about growth into China and then you hear about people not making money through that growth,” Vincent said.

“Growth for the sake of growth isn’t what I’m about, we’ve got a number of connections into China and other countries in Asia, so we’ll look to leverage skincare and cosmetics – but it’s very early days.”

The Chinese market has run rivers of gold for some of API’s competitors in recent years, particularly Chemist Warehouse, which has emerged as one of market specialist Alibaba’s most successful partners, having turned over $2 million in the first 13 minutes of its ‘Singles Day’ shopping festival last year.

Preparing the Amazon bulwark

But Vincent isn’t in any rush, saying local operations will be the top priority in the coming twelve months as competitive pressures tighten with the entrance of Amazon and intensifying promotional activity, particularly in fragrance and vitamins.

Vincent told investors on Thursday that deterioration in consumer confidence was “looking like a sustained trend”, and that Priceline would need to adopt a much keener focus on operational performance, the maturity of its omnichannel offer and its ability to respond more quickly to trends.

“Faced with the current retail environment we need to increase the speed of our evolution, we know that economic conditions are likely to remain unchanged and the impending arrival of new competition is well documented,” he said.

Priceline is backing a step-up in its experiential credentials in-store combined with a move towards digitally integrated retailing and more exclusive product launches to bolster its defence against Amazon.

“I’m not underestimating in anyway the Amazon impact in Australia or anywhere else, but the reality is we’ve been competing with Amazon for 5-10 years in terms of product sales,” he said.

Priceline’s new store format, a digitisation strategy designed to better enable customer communication across channels, a re-launch of its Sister club program, as well as renewed efforts in in-store availability and franchisee bench-marking have been earmarked as key opportunities in FY18.

“The customer experience, taking it to the next level, the digital strategy, that singular digital customer experience – that’s what these things are for… providing that insulation from Amazon or any other retail competitor,” Vincent explained.

On-site flu-shots, of which 100,000 were administered in FY17, and growth within in-store beauty advisory services were touted as examples of API’s experiential credentials.

Christmas approaches

Vincent said he anticipates earnings growth in FY18, but when asked whether Priceline will be able to find positive like-for-like growth he said a firmer view will be developed post-Christmas.

“Let’s get through Christmas, trading has been lumpy, so let’s see where we sit after Christmas when we’ll have a firmer view,” Vincent said, adding that its “too early” to say how holiday trading will go.

Priceline committed to remaining competitive on price in the second half of FY17 in a bid to remain relevant with customers, but Vincent said he wasn’t going to “double down” on being a price leader and would look to exclusive launches in October and November as well as a commitment to marketing and engagement to generate demand leading into Christmas.

“Whilst we’ve invested [in price] what makes Priceline different is its range of product and the experience that women have when they come into our pharmacies – it’s all the services we add,” Vincent said.

“We aren’t winding back the level of marketing and engagement with customers, which isn’t necessarily ploughed into price, but into experience.”

Landlords “out of step”

Priceline does have a “strong” pipeline of franchisees looking to join the network though, which Vincent said had intensified recently due to more difficult trading conditions.

New franchise partner metrics have emerged as an opportunity for the network to increase profitability, while API has signalled its intention to assist its partners with upcoming landlord negotiations, with Vincent joining a host of other retail executives today by criticising centre owners publicly.

“Some retail landlord’s expectations are out of step with trading conditions, we’ll be taking a tougher line in those negotiations,” he said. “Even though it’s not our preferred position we might have to close some stores that have become un-economic.”

Vincent later confirmed that negotiations with landlords are underway with mixed success.