How Kathmandu achieved its massive 27% profit increase – and what you can learn

A 27% increase in full-year net profit, like-for-like sales growth of 5.6% and a gross profit margin of 63%– these are results unheard of in the retail industry.

And yet, they’re exactly what Kathmandu has been able to achieve. The camping and outdoor gear retailer not only managed to boost profit to $NZ44.2 million, but its cost of doing business has even dropped by 30 basis points as a percentage of sales.

“These results are absolutely stunning,” says retail expert David Gordon of Advantage Advisors.

Retail Doctor Group chief executive Brian Walker told SmartCompany the Kathmandu results are a lesson in “focusing on the core of good retailing”.

So how did the New Zealand-based company manage to not only meet but completely exceed any expectations the market had? (Shares jumped over 11% yesterday.)

Gordon says there are plenty of factors at work here – but one is the store network itself. Not only has the company closed stores that weren’t performing, but the targeting of new locations has been incredibly precise.

But it’s not just the store locations that are doing wonders. Kathmandu has been shrewd in making sure the company doesn’t pay more than it has to – rent as an overall percentage of sales remained flat, but was offset by exchange rate transitions and leverage.

Meanwhile, operating costs have fallen by 30 basis points due to lower costs in operating the online business.

The success of the company’s small-store format has been noted, and many new stores are following the same principle – reducing square footage has led to a number of benefits.

Online sales have been strong, growing over 55% year-on-year to 4% of total sales. The company’s social media reach is significant, operating busy accounts on all the major networks with a sophisticated site network.

The company noted improvements are also underway, including an “optimisation and international shipping capability on new online platforms”.

But Walker says the company does more than just operate its network well.

“The lesson for me here is that Kathmandu is really focused on the fundamentals of retail,” he says.

“Kathmandu is all about adventure. It has a theme that’s very appealing, and it speaks to the way people use their leisure time.

“Their message is good, the store experience is good, and they don’t drift from what they are.”

David Gordon says the company’s success comes due to the fact it “keeps its finger on the pulse”.

“It has a very good reputation in the eyes of customers – it stands for something. They’ve never deviated from what they’ve stood for.”