Casualwear focus, BHS clearance sale and too little newness hit Bonmarché profits
It was a tough year for Bonmarché as the weather, too much casualwear, too little newness and a reliance on China for supplies hurt its ability to react to trends, even though it's targeting a customer not necessarily seen as trend-driven,
The year ended April 1 wasn’t exactly a stellar one for the women’s budget fashion retailer. The company, one of the largest UK retailers in its segment, reported a series of lower figures on Monday and admitted that its recovery isn’t happening as fast as it had planned for.
And even though the headline figures looked bad, they were flattered by the latest financial year (FY17) having contained 53 weeks rather than the 52 weeks of FY16. That extra week added a sales boost and when factored-out of the equation, the figures looked even worse.
However, the company is very obviously not in terminal decline and has plenty of interesting plans to kick-start its growth in a market where its target 50-plus customer has shown a clear preference for shopping at value-focused chains. And given at last year saw an improving picture in its second half after a very tough first half, that also gives cause for optimism, albeit muted optimism.
Let’s look at the figures and for easy comparisons, let’s take them on a 52-week basis. Total revenue dipped from £188m to £186.1m (although it rose slightly with the 53rd week included), while comparable sales fell 4.7% to £186.6m from £197.9m. Online sales edged up to £15.7m from £15.4m, although again, with the 53rd week included, they rose a better 2.2%. But group pre-tax profit fell to £5.8m from £9.6m and on an underlying basis it fell to £6.3m from £10.6m, both the figures having been dented by that comparable sales fall.
Not great but not disastrous either. What’s the explanation? The company said long lead times and a supply base heavily dominated by China restricted its ability to react to changes in seasonal demand and “offer diversity of product handwriting.”
The clearance sale at major rival BHS also dented its takings early in the financial year, although its sales improved once that was over. And the climate has a big impact too with the “weather pattern during the first half of the year providing a disincentive for consumers to shop for seasonal clothing, impacting footfall.”
It also blamed “too significant a shift towards ranges with a casual end use, sales of which tend to be particularly dependent on weather, and therefore did not perform well” and said that the “casual ranges were not sufficiently appealing to our customers.”
There was not enough focus on newness compared to product it has offered customers previously. Bonmarché’s customers typically shop with it on a regular basis and “we must ensure that we continually create a reason for them to buy - this is therefore a key focus for the coming year.”
PLANNING FOR THE FUTURE
What the company also plans to do to improve these figures is to develop and modernise its product, “guided by a single, clear customer profile”. It previously had four target customer profiles and has honed this down to one, which it thinks will make it easier to get the product right.
It also wants to “unlock [the] true potential of [the] Bonus Club loyalty scheme; to “build on foundations laid in FY17 to drive online performance”; and to modernise the store experience and improve consistency through a renewed retail focus.
CEO Helen Connolly, who joined a year ago, said: “We remain well placed to serve the 50-plus women's value clothing market [but] a combination of internal and external factors over the past year prevented us from improving at the rate we had aimed for. However, we believe that the business is now well positioned, with a compelling proposition and robust plan.
"As outlined previously, it is clear that the direction of travel is broadly right, albeit the effectiveness of execution needs to improve.”
Chairman John Coleman added that the market backdrop “was more challenging than we had expected, even in the context of the cautious state of mind which prevailed a year ago.”
He said the decline in the clothing market “created by factors such as price and wage inflation, uncertainty linked to the referendum on Brexit and unseasonal weather patterns,” meant that in order to grow, Bonmarché needed to deliver a “significantly improved offer to its customers.”
But he believes “the rationale for Bonmarché's strategic positioning remains compelling.” Despite the difficulties in the apparel market, the size of the demographic group on which the firm focuses is still forecast to increase in the year ahead. In addition, this sector continues to be relatively poorly served which presents the retailer “with a great opportunity.” He added that: “The continuing validity of our strategic positioning means that there is no requirement for significant change and therefore the strategy is evolutionary, and low-risk.”
And it needs to be low-risk given market conditions of late. Trading since the beginning of the new financial year has been in line with the board's expectations which means it expects the challenging market conditions are likely to continue. But it seems confident that it can drive through improvements to boost its market share. We await the next update with interest.
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