“The first is that any retailer must get online right, something which Fishing Republic clearly feels it has not judging by the instant promotion of Chris Griffin, a former director of e-commerce at SuperGroup, to the position of acting chief executive.
“The second is that pricing power is everything for companies. Fishing Republic’s admission that is has suffered from price competition is a worrying sign of weakness and that may explain why the shares have taken such a battering today, falling by 40% in early trading.
“If a company can charge the prices it wants to charge it can potentially generate the lofty operating margins which in turn drive cash flow which in turn funds the dividends which over the long run provide such a big portion of total returns from shareholdings.
“If a company cannot charge the prices it wants, then you can get a lot of volatility in sales and therefore profits and cash flow and therefore ultimately dividends, assuming there are any paid in the first place.
“Investors must therefore spend a lot of time assessing a company’s competitive position and how it is placed relative to its direct rivals, possible alternative offerings and how strong (or weak) it is when it comes to negotiations with suppliers and buyers and ultimately how easy it is for customers to buy the same or similar products more cheaply.
“Fishing Republic operates in a fragmented market, where there are lots of independent retailers battling hard for share with the company’s 19-shop estate. Even allowing for the launch of a new website in March the AIM-quoted firm has found it hard to turn revenues into profits, as it now expects a loss for the year, compared to the £500,000 profit analysts had been expecting.”