Amid an industry-wide effort to right-size store networks, analysts at Citi have singled out Flight Centre as a business which could particularly benefit from such an effort.
According to Citi analyst Bryan Raymond, approximately 10 per cent of Flight Centre’s Australian store network could be culled – largely the result of a network consolidation which has led to many locations featuring several Flight Centre stores located closely together.
“Following Flight Centre’s brand consolidation, 83 per cent of the ~950 store bricks-and-mortar network is now branded as Flight Centre. This has resulted in a high store density for a single brand, particularly as online penetration is rising,” Raymond said.
“Our geospatial analysis of Flight Centre’s network has identified 259 Flight Centre branded stores that are located within 1km of another Flight Centre.
“In our view, this creates an opportunity for store network consolidation to drive higher levels of profitability through lower rent and labour costs, and the expense of [total transaction value].”
According to Raymond, this could drive an improvement of $8 million in profit before tax over two years.
This could be particularly helpful for the brand as the Australian leisure bricks-and-mortar industry has seen a significant contraction in the last 12 to 18 months, falling from $106 million in FY18 to an estimated $29 million in FY19.
A Flight Centre spokesperson told Inside Retail the travel retailer instead utilises this network to create more specialised business travel teams in CBD locations, and will offer “alternatives to Flight Centre” in shopping centres with multiple stores, such as the Universal Traveller brand.
“We close some shops every year, relocate some others and, when good opportunities arise, we work closely with landlords to secure new sites and open new shops,” the spokesperson said.
“Within Flight Centre brand in Australia, most of these openings in recent years have tended to be specialist shops and teams, rather than traditional Flight Centre shops.”
However, many of the factors that led to the contraction of the leisure market are unlikely to continue into FY20 and FY21, Citi argues, with the leisure bricks-and-mortar industry forecasted to rebound by $5 million, to $34 million in FY20.
Partially as a result of this market contraction, Flight Centre recently amended its guidance for the 2019 financial year from between $390 million and $420 million, to between $335 million and $360 million – roughly a 10 per cent decrease.
“Our FY19 results will highlight the challenges we are addressing in Australia but will also underline two of our great strengths – our emergence as a world leader in corporate travel and our changing earnings profile,” Flight Centre managing director Graham Turner said.
“While we expect Australian leisure results to improve as short-term operational improvement plans gain traction and as longer-term transformational strategies are implemented, we also expect these trends to continue.”
This story first appeared on sister site Inside Retail Australia.
