Soma nonetheless struggles to tidy up Hering’s home a 12 months after buying the model
When it bought Hering, in April 2021, Grupo Soma (SOMA3) did not know about all the operational problems it would have to solve before implementing its strategy of giving the brand a new face. The diagnosis was that the basic clothing chain had difficulties in supplying stores, in addition to pricing problems. Owner of Farm and Animale, Soma had no experience with higher-volume, low-cost products – which explains the delay in turning the business around.
In a recent report, Citi analysts João Pedro Soares, Sergio Matsumoto and Felipe Reboredo said they gave Soma the “benefit of the doubt” regarding the group’s ability to meet growth targets. The most difficult route, in the analysts’ view, is precisely the operational turnaround at Hering, which represents about 40% of Soma’s sales. The group competed hand in hand between Hering and Arezzo, in 2021, in a deal worth more than BRL 5 billion.
“Doubt is natural and inherent to the moment. If we look at Hering’s last five years, before the pandemic, the market became skeptical because the company went through a process of stagnant growth. It was a sequence of quarters after quarters in which there was no consistent growth. The keyword now is consistency”, says Gabriel Lobo, Soma’s CFO.
Within the group, who leads this moment of transformation is an executive who carries the brand in his surname: Thiago Hering. A member of the founding family, he assesses the evolution of the plan, which runs until 2026, as positive. This planning was divided into two parts: the first focused on operational efficiency and the second, on the brand.
The expectation is that, in 2023, the first phase will be more advanced. At the end of 2021, Hering could not deliver 27% of what it sold to multi-brands and franchises. By the end of this year, the forecast is that this rate will be 13% – the sector’s target is 10%. In 2021, the average delay for deliveries in the own network and e-commerce was 27 days. Today, the delay is 20 days.
To achieve these rates, Thiago Hering says that Grupo Soma has added technology, artificial intelligence and algorithms to the network. In addition, better assortment management, with the concentration of revenue in a smaller number of articles, has helped to establish more adequate prices for the pieces.
In terms of supply, the main focus has been on increasing production capacity. The company has been looking for suppliers outside Goiás, where Hering was focused. With the improvement of inventories, the stockout rate has fallen. A year ago, it was at 5% in owned stores and 10% in franchises; now, it has dropped to 1% and 5%, respectively.
For Citi, if Soma succeeds in accelerating Hering’s pace of growth, it is estimated that value will be created at approximately R$3.40, on average, per share. They point out, however, that the “high risk” attribution is based on Soma’s limited time as a listed company, inherent problems in the fashion industry, and one-off execution issues relating to Hering.
For XP, the picture is more optimistic. Analysts visited Hering’s operations in Blumenau (SC). “We left even more confident that the company will continue to deliver better results”, wrote Danniela Eiger, Thiago Suedt and Gustavo Senday.
The information is from the newspaper. The State of São Paulo.