Cettire Promotions - a pricing analysis
Coles and Woollies eat your heart out
Donner und Blitzverkauf!
Cettire periodically offers storewide discount codes, usually at the end of the month or around promotional periods such as Black Friday, Boxing Day or in this case for Singles day, offering a coupon code for 10% off.
This was Cettire’s most generous promotion this financial year with July, August, September and October’s flash sales offering 5% off with various brand exclusions:
Signs of a more promotional environment perhaps? Or maybe just trying to get some punters through the door by pulling the pricing lever?
Well it turns out: not really.
By matching up in stock items month on month, it’s possible to see in the aggregate how Cettire has changed prices for their stocked items.
These following charts have percentage change in price from prior month along the x-axis and the cumulative percentage of items that have had their prices changed by that amount up the y-axis.
So for instance in July, the majority of items that Cettire sold had their price reduced by -1.5%, whilst about a third of items had a greater price reduction.
Whereas in August, September and October the vast majority of items saw zero change in price:
However as we saw earlier, in these months the discount offered during the regular flash sale around the month end was only 5%. How did Cettire adjust their prices during the 10% off sale period from the prior month?
Well they hiked their prices of course! So what at first seemed like a 10% discount for the majority of items was actually a (1-1.055*0.9 =) -5% discount, same as every other month!
Isn’t this similar to what the ACCC is suing Woollies and Coles over?
1% Inspiration, 99% Perspiration. Still no geniuses…
Should we be surprised that Cettire hiked their prices just before a big promotion event after the ACCC case was launched against the supermarkets?
Perhaps not since after changing their pricing to be duties inclusive and registering for sales taxes, Cettire have lost a source of revenue and their margins haven’t recovered since.
Prior to the 1H24 result and the subsequent scrutiny and exposure of Cettire’s business model, the question in the market about Cettire was “how can they sell luxury goods cheaper than their competitors, who are all going bust because there’s no margin in it?”
Nine months on, the answer seems pretty clear - they can’t.
AGM time!
Since Grant Thornton’s audit has been taken by the bulls to have dispelled the bear case around duties despite a litany of evidence to the contrary, I’m very much looking forward to hearing the auditor Crystel Gangemi explain how thorough the investigation was into the evidence and on what sample size this exhaustive probe was based.
Surely the auditor is going to explain the work that led to a doubling of the price off the lows on her say so? She wouldn’t duck the questions and raise the suspicion that it was a whitewash surely?
Anyway - here are the questions that were emailed to her and to Cettire directly.
Duties:
If we accept that the use of FSFE is valid, have you confirmed that it can only serve to reduce the liability to duties but not to remove it, since the de minimis exemption under Section 321 applies to goods whose fair retail value is USD800? If the item has been sold to the customer for over USD800, then the fair retail value has been established as over $800 so section 321 does not apply. Does this accord with the advice you have received from your internal and external experts?
How was the sample of sales transactions for vouching selected?
Was it provided by the company or was it a sample selected by the auditor to maximise the probability of catching any malfeasance?
Were the transactions selected US based and over USD800?
What proportion and number of the transactions selected had US end customers and items over USD800 included?
What processes were undertaken to verify the HS codes declared to US customs vs the duties revenue charged to customers for items over $800?
What processes were undertaken to verify HS codes declared by Cettire to customs vs high duties/high value items such as wool jackets for items over $800?
In the revenue recognition key audit matter Grant Thornton used data analytics to risk profile transactions. What risk profiling was undertaken to identify high risk transactions for US customs fraud?
AASB137:
Have Grant Thornton assessed that there is a present or possible "obligating event"?
If not, why not?
If there is a present or obligating event, what made Grant Thornton decide that the probability of an outflow was remote?
ASA 200: Professional scepticism:
What investigations were undertaken to determine if customer invoices had been edited?
In the invoices we identified to you, what was changed?
What investigations were undertaken to determine if HS codes and resulting duties had been differentially quoted to customers and CBP?
Revenue Recognition:
The company said not a single Cettire employee had anything to do with shipping the product to the end customer or managing returns. How does the company take control of the goods as required by the standard?
Accounting discrepancies:
Contract liabilities (the revenue not yet earned due to the product not yet being delivered) and Inventory (the cost of goods sold for product sold but not yet delivered) has differed by precisely 35.20000%. If the auditor is aware that this is a plug figure, is the contract liabilities figure or the inventory figure the number on which the other is based?
What processes were undertaken to verify the independent number?
What processes were undertaken to verify the assumption of the difference?
Since the ratio represents the product margin on the goods in transit and the company claims that the product margin reduced significantly towards year end, how has this ratio been verified?
Sales taxes:
What is the invoicing entity for Cettire's sales into the US?
If it's Ark International, why do the invoices show Ark Technologies?
If it's Ark Technologies, why isn't Ark Technologies registered for sales taxes in the US states in which it has nexus?
Deed of Cross Guarantee for Ark International:
Ark International was not party to the deed of cross guarantee for FY23. Grant Thornton was the auditor. On what basis did GT not perform an audit for Ark International for FY23?
What responsibilities does an auditor have to identify which subsidiaries of a company require their own audit?
R&D Incentive:
Do Cettire possess an Advance Overseas Finding for their R&D expenditure?
What proportion of Cettire's claimed R&D incentive eligible expenditure is undertaken in Australia?