Diversification a major focus for local businesses

Kylie Radford has built Morrison into a highly regarded fashion brand over more than 15 years, so it’s a little surprising to hear the way she talks about the current business environment.

“When people refer to the downturn, I just wonder which one they’re referring to,” she says.

“There is no consistency any more; retail is really tough still.”

Ms Radford says she can’t believe her business survived the GFC, and acknowledges the experience has had a lasting impact.

“Those behaviours that we learned during that really tough period have stayed with me,” she said.

“I work in constant fear; I don’t think it’s a bad thing, it means there is no complacency.”

Ms Radford was among a small group of 40under40 award winners and KPMG clients who joined Business News for a candid discussion recently about current business challenges.

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Adam Barnard says there are extraordinary growth opportunities. Photos: Attila Csaszar

The mood in the room was variable.

Adams Coachlines managing director Adam Barnard was bullish, saying Western Australia was poised to benefit from a surge in tourism activity, helped by new infrastructure such as Optus Stadium and Yagan Square, the upgrade of Perth Airport and new hotels.

“The opportunity for growth from this point is quite extraordinary,” Mr Barnard said.

“I’ve been waiting for this moment to come for a very long time.”

Mars Recruitment founder and director Lorna Lewis was also positive, saying there had been a major pick-up in her WA operations after some lean years.

“A year ago, people were talking about redundancies and wanted us to help find jobs,” she said.

“It was really tough, a lot of those people went over east.

“Now they’re saying they’ve cut staff so much they need to hire again.

“That’s been in the past six months, it’s been a lot more positive.”

Others were more circumspect, including Ford & Doonan managing director Andrew Ford.

Andrew Ford plans to disrupt his own industry.

Mr Ford teamed up with another young fridge technician, Kyle Doonan, to start their air-conditioning business 33 years ago.

The business has been through many cycles, achieving 50 per cent growth in turnover during the housing construction boom.

“We had three to four really strong years before the downturn,” Mr Ford said.

“The past couple of years have been tougher, with project home approvals down 40 per cent.

“On top of that the economy has softened and we had two consecutive cooler-than-average summers.

“It was a perfect storm.”

Mr Ford said the business went into the downturn with a strong balance sheet, so he has put this period to good use.

“It’s been a good chance to sit back and evaluate the business,” he said.

“We know that we need to reduce overheads and make changes to our traditional business model.

“We’re definitely committed to more online business.”

The company has just started an e-commerce site called The Air Store, which supplies air-conditioning brands at discounted price.

“We plan to disrupt our own industry,” Mr Ford said.

Online sales have become a big growth driver at Morrison, which also has 16 bricks-and-mortar stores across Australia.

“We’ve had double digit growth in online sales for the last five years, which has been huge,” Ms Radford said.

Diversification

Diversification was a common theme running through the discussions.

Ms Lewis diversified her recruitment business during the mining downturn.

“When that happened, we started working with other sectors, like healthcare, aged care, not for profit,” she said.

“We recruited some really good people and that’s helped us a lot.”

Mr Ford has been diversifying his business beyond its core residential market, with a commercial air-conditioning division, a services division and a commercial refrigeration business.

Its latest move is to offer air scenting, which means putting a scent through air-conditioning systems in hotel lobbies, offices and other premises.

Mr Ford said the diversification had caused some confusion in the market, so the commercial refrigeration business is now branded ‘FD Refrigeration, a Ford & Doonan Partner’.

“We’re riding off the reputation of the Ford & Doonan brand but not confusing the market,” Mr Ford told the forum.

“That seems to have worked well for us.”

Family owned contracting business Dowsing has also diversified.

It has grown from a footpaths business working primarily for local councils to a civil and construction business with 75 staff.

Agnes Vacca encourages clients to make their business more professional.

Founder Carl Dowsing initially led the business, while his wife, Jacinta, later became chief executive.

“I came into the business when the tendering was astronomical,” Ms Dowsing said.

“We either had to get big or get out.”

While she ran the office, her husband was able to focus on sales and business development.

They moved to non-executive positions in 2016, using a succession model led by Adapt by Design founder Bill Withers.

This has allowed their four sons, led by current chief executive Bohdan, to take over management of the business.

“Concrete is still central to our business, but we’ve diversified,” Ms Dowsing said.

“We’ve invested heavily in specialist road profiling and slipform equipment to meet market needs.”

Ms Dowsing said one of the struggles for the business had been convincing the market it could do more than footpaths.

“There is a lot of work to be done in marketing,” she said.

Ms Dowsing said the mining downturn had cut the volume of work, which led to other contractors competing directly with Dowsing for small jobs.

“It’s been very tough,” she said.

“We’re getting work now but there’s still pressure on margins.”

One of the company’s biggest steps was buying its first slipform machine in 2015, when there was only one other machine of its kind in WA.

Ms Dowsing said this was technically challenging, with a lot of trial and error.

“We had to wear losses but we’ve nailed it and now we’re doing it really well,” she said.

“So that pain was worth it.”

Recent contracts include construction of concrete crash barriers on Roe Highway for McConnell Dowell, and on Mitchell Freeway for CPB Contractors.

The business has also taken a counter-cyclical approach to growth, winning its first major contract in the Pilbara (in Newman) in 2015 and completing its first major mine site contract in 2017.

Brave decisions

Ms Radford, who runs Morrison with her former husband, Richard Poulsen, said there was a big focus on accountability at the business.

“Everyone is accountable, it brings the team together,” she said.

The business has been through a major restructure in recent years, with most of its clothes now manufactured in China.

“One of the best things I did was to recruit somebody from the eastern states with production experience on a large national scale,” Ms Radford said.

“With that came a lot of changes in the business.”

She said the new manufacturing channels were lower cost but maintained quality.

“That has allowed us to change our price point. The offering is broader now – we sell tops for $99, not just for $299,” Ms Radford said.

“We’ve become a lot more accessible, which has been huge for us, and our gross profit has been affected by that, in a positive way.”

KPMG Enterprise partner in charge Agnes Vacca said the changes at Morrison were an example of businesses sometimes having to make brave decisions.

“I see too many businesses that just hold on, and hold on, without saying this is really hard and we need to change,” she said.

Ms Vacca said unlisted businesses were often best placed to respond to challenges and opportunities.

“When you are private or family businesses, you can be very nimble; you can act quickly when opportunities come up,” she said.

Agnes Vacca encourages clients to make their business more professional.

Growth opportunities

Mr Barnard’s bullish outlook for his coach tour business has not stopped him seeking diversification opportunities.

A former soldier and backpacker tour guide, he started with one bus in 2005 and now has a fleet of 45 vehicles.

Mr Barnard said his business was particularly well placed for the expected uptick.

“We are the last remaining large-scale day-tour operator in Western Australia,” he said.

“It’s gone from more than 20 operators at its peak to basically one major operator.

“I’ve been positioning the company for this at a time when everybody else was getting out.”

The consolidation included Adams buying Australian Pinnacle Tours in 2012.

In addition, Adams holds the WA franchise for Gray Line Tours, the largest provider of sightseeing tours on the planet.

Adams also operates bus and train transport on Rottnest Island, where visitor numbers have been rising rapidly.

Adams has reached this point after being buffeted by the mining downturn, included losing a multi-million dollar contract in 2012.

“Our corporate market basically stopped in the space of 12 months,” Mr Barnard said.

This scenario, on top of a marriage breakdown, led to the introduction of new shareholders James Mulholland and Luke Crispin, the owners of Hillary’s based Rottnest Fast Ferries.

Mr Barnard said he was aiming to diversify into the public transport sector, and expects the state government’s plan to enforce local content weighting in government tenders will help.

“I think that is vital for WA,” he said.

“In my industry, bus transport, the entire public bus transport system in WA is operated by multinationals. To me that’s quite disappointing.

“They don’t focus on reinvesting their profits back into WA.

“The problem is that individual departments have budgets.

“They might save a million dollars by going with an international provider, but that small saving means the effect on the WA economy is magnified.”