After three years of record results, 2023 finally broke jewellery retailer Michael Hill (ASX: MHJ). Like many Aussies, the Company faced tough retail conditions prompting cost-cutting measures.

The fine jewellery brand encountered formidable headwinds due to a bitter cocktail of factors, including the macroeconomic environment impacting consumer sentiment, tough trading conditions, inflated input costs, and aggressive competition.

Throughout 2023, heightened inflation pushed customers into cutting back on their discretionary spending. Even while November provided some relief, with Black Friday and Cyber Monday sales, major competition led to the most affordable brands pulling in big bucks. 

And, for Michael Hill, it didn’t help that production costs grew while customers’ spending capacity dwindled. The Company saw higher input costs for gold and diamonds and more aggressive retail trading conditions, Michael Hill’s margins were down and are expected to be in the range of 61% to 62% for the half. 

For H1 FY24, Group sales (including Bevilles) were up 4.1%. Sales trends improved throughout the half, yet they remained negative in comparison to the record first half of FY23.

With the challenging economic conditions unlikely to subside soon, what happens to the likes of Michael Hill?

Managing Director and CEO of Michael Hill International Limited, Daniel Bracken said, “Whilst the first half was definitely a challenging period for our business with sales for the core Michael Hill brand down, we are encouraged by our performance against the broader jewellery sector. 

“Clearly, margin was under pressure from both input costs and promotional activity, and inflationary forces saw elevated costs across many aspects of the business, which together impacted EBIT for the half. As a result, the company has taken direct actions to reduce operating costs, including the exit of a number of senior management roles.”

This has bled into the second half, with the former Company Secretary Emily Bird resigning on January 4 with just a day’s notice period. Following that, Andrew Lowe, the Company’s CFO donned the hat of the secretary as well.

Michael Hill also reviewed its footprint across its bases in Australia, New Zealand and Canada. For its Bevilles brand, four new Australia stores opened taking the network to 30. However, for its core Michael Hills brand, six under-performing stores were permanently closed (AU: 5, CA:1) taking the network to 272 (AU: 141, NZ: 46, CA:85). The total Group network was 302 stores at the end of the half across all markets (FY23: 304). This decision also followed New Zealand’s revenue declining by over 10%.

Digital sales have been doing relatively better, returning to growth and making up 8% of the total Group sales for the half. Overall, for H1 FY24, Michael Hill ancitipates earnings (EBIT) to be in the range of between $30m to $33m.

Bracken added, “Even though consumers continue to monitor their discretionary spend, our multi-brand strategy puts us in a strong position to continue taking market share from our competitors as we expand the Bevilles network and elevate the Michael Hill brand.”

Addressing a downward graph after three years of wins can be a tricky slope. For Michael Hill, crisis management—if you can call it that—has involved shutting down stores and making the team leaner.