Can Destination Maternity Turn Things Around?

Destination Maternity Corporation, which plans to merge with French company Orchestra Prémaman S.A., posted a net loss of $32.8 million in its fourth quarter 2016. For the year, total sales declined 13.0% including comparable sales decline of 5.3%.

"While the year included several headwinds, including business exits from Sears and Gordmans, certain Macy's store closures, Kohl's business wind down, mall traffic declines, and cancelled fourth quarter orders due to the Hanjin bankruptcy, we continued to advance our key strategies," said Anthony M. Romano, CEO & President.

The company implemented a product allocation tool to assist in sales productivity and reduce markdowns. It also introduced Demandware to support its new web platform that launched February 16, in the first quarter of fiscal 2017. The transition to the new web platform had a one month delay, resulting in web sales only rising 5% for the fourth quarter, Romano noted, however after experiencing a negative impact to its topline in Q4 as it transitioned to the new site the company has been very pleased with the launch.

"Our customers are quickly embracing the enhancements made to our web shopping experience that include a more intuitive navigation, improve site merchandising, elevated product recommendation, and simpler faster check out," he said. "Our mobile first mentality is also working to drive sales."

Since the launch, the company has experienced over 50% growth in its conversion rates, as well as increased traffic and increased order value driven by higher units per transaction. Almost one-third of Destination Maternity's sales came from mobile devices in fiscal 2016 and the company expects mobile sales to continue to grow with this new mobile first platform.

The company also saw gross margin improvement, a result from better inventory management and lower levels of excess currencies in aged merchandise.

Romano said the company made tremendous strides with its new allocation tool. The tool allows Destination Maternity to proactively allocate inventory to stores for future demand; allocate inventory for planned promotions, maximize the full potential of the event, and then replenish store inventory quickly to sustain sales; and direct inventory to stores, lease, and online channels in real-time based on need, thus allowing better management of overall inventory levels.

The company hopes to be able to shorten the in-channel weeks of supply by product class going forward, enabling it to limit movement between channels, focusing on just-in-time replenishment by channel to increase sales.

"And as we enhance our ability to utilize the allocation tool, we expect to be better positioned to provide a more continuous flow of inventory by channel, by location, based on projected demand," he said.

Additionally, the company is working on its customer engagement. In the fourth quarter it launched a monthly, win diapers for a year contest, encouraging consumers to engage with the company through a variety of methods to earn an entry, including signing up for text alerts, providing a customer review, and sharing experiences.

"As we look ahead, we are continuing to work to drive customer traffic and engagement by growing our customer database," he said. "We will also continue to build customer engagement through fun and interactive content on our digital platform and through our new SMS text channel."

Additionally, the company is currently exploring options to more efficiently manage door listings, create individual store pages with personalized offers and information, and provide appointment scheduling to reserve dressing rooms and styling sessions.

Merger

Announced in December 20, 2016, the Board of Directors of both Destination Maternity Corporation and Orchestra Prémaman S.A. approved the merger, which will bring together two companies to create a global provider of maternity apparel, infant and children's wear, as well as baby hard goods.

"As I noted, our company has been in the midst of an ongoing turnaround which has proved more challenging than anticipated given the specialty retail environment," said Romano. "We believe the merger with Orchestra will provide Destination Maternity with additional tools and resources to accelerate our turnaround and fully realize the benefits of all the work we have done to-date."