Country Road puts CEO legal action behind it, eyes South African expansion

The listed upmarket clothing retailer Country Road has sought to put last year’s shock dismissal of its chief executive and subsequent lawsuit behind it by announcing a greater push into South Africa.

Country Road shareholders yesterday approved $1.1 million in termination benefits to John Cheston, who was dismissed on September 13 last year after just 10 weeks in the top job.

Country Road is 88% owned by South Africa group Woolworths (no relation to the Australian company) and 11% by retail mogul Solomon Lew.

Cheston took legal action against Country Road after his departure, seeking $7 million in damages. He argued Country Road had made “misleading” representations while trying to hire him, and breached his contract when dismissing him without notice.

At the time of his departure, Country Road cited “irreconcilable differences” with the board over the company’s direction. It later argued that it was entitled to fire Cheston without notice because he was guilty of misconduct, had acted in a way that might injure the business and had committed a material breach of the company’s policies.

In March, the parties agreed to a $1.1 million payout, with Country Road saying it wanted to concentrate on trading and avoid time-consuming and expensive legal action.

MM&E Capital managing director Tom Elliott, who used to work for Country Road, says the messy departure of Cheston has cost Country Road “a lot of money and reputation.”

Bu as Elliott says, these kind of disputes can happen. “Sometimes it’s better to bite the bullet than persevere.”

Elliott has also given a qualified thumbs-up to the company’s decision to open its 19th store in South Africa.

He says Woolworths’s experience in the country and working in the same season as its local operation should be an advantage.

“Nineteen stores is a reasonable investment,” Elliott says.

New chief Howard Goldberg told The Age that South African consumers are “enjoying Country Road” and “view it as an Australian/international label.”

But Elliott notes that Country Road hasn’t had a great run in its overseas expansion, particularly in the US and Singapore.

Elliott says the company’s move into cheaper prices – partly because of cheaper production out of China – seems to have worked, despite some calls to keep the product and prices at the premium end.

And with the likes of Zara launching in Australia, the company will battle more competition, he says.

Country Road yesterday announced a 4.4% profit increase to $9.4 million for the first half, with sales up 6.4%.

Comment is being sought from Country Road.