A little more than a week ago, SuperGroup PLC announced that it would be taking a £6 to £9 million hit to its annual profits because of problems it encountered with a major IT upgrade at one of its brands called Superdry, which bills itself as a "distinctive branded UK fashion retailer."
According to the Financial Times, glitches in the IT upgrade to Superdry's stock management system at its centralized retail distribution warehouse near Gloucester created delays in moving the correct amount as well as the right sizes of clothing to its UK stores. The problems created also meant that the company was forced to rent temporary warehouse space.
CEO Julian Dunkerton was quoted in the FT as saying that the IT issues caused some stores to not have available "... at least one in four sizes [of clothing], and sometimes as many as two in four sizes."
"You would literally go into a store and find an extra-small size and nothing up until an extra large. That has significantly impacted on our sales."
A BBC story said the news - which apparently was a complete shock to investors - drove the company's stock price down 30% on the day of the announcement to 707p. Today the share price hovers about 668p.
"Whilst the majority of the system issues have been rectified, some are still ongoing."
"It is anticipated that our distribution capability will have returned to normal levels of operation and have been fully upgraded with additional capability and efficiency in November."
The 2010 SuperGroup annual report lists business interruption at the Gloucester warehouse as a major risk to the company's profitability. However, the report states that:
"The Group regularly reviews its warehouse and logistics operations to ensure that it has sufficient capacity, is capable of handling required business volumes and has in place appropriate contingency plans."
However, the annual report then goes on to state as another major risk that the contingency plans might not be sufficient.
I guess the corporate risk assessment was correct, but the risk mitigation strategies were a bit weak.
SuperGroup didn't break out the costs of the IT fixes needed versus the loss in revenue, nor give details about what the IT problems actually involved.
The Superdry experience is reminiscent of the time in 2004 when UK giant British food retailer J Sainsbury PLC had to write off its US $526 million investment in an innovative automated supply-chain management system. Merchandise was stuck in the company's depots and warehouses and was not getting through to many of its stores. Sainsbury was forced to hire about 3000 additional clerks to stock its shelves manually. It took the company until 2010 to finally roll out a new supply-chain management system.