Online fashion retailer N Brown (BWNG) is considering closing its 20 brick-and-mortar stores in yet another blow for the ailing high street and for landlords.
The latter cohort is having to contend with a string of retail casualties (Toys “R” Us, Maplin, Poundworld) and store closures from the likes of House of Fraser and Marks & Spencer (MKS) to Carphone Warehouse, Mothercare (MTC) and Carpetright (CPR).
Following a review of its store estate, and given its focus on winning online market share and ‘continued very disappointing footfall’, N Brown plans to shutter its loss-making stores before their leases expire.
‘In line with our online strategy, and given continued weak high street footfall, we have today commenced a consultation process with colleagues over the future of our small store estate,’ says CEO Angela Spindler.
‘This action has not been taken lightly and we will do all we can to support the colleagues affected during this process.’
ELIMINATING LOSSES
The self-styled ‘specialist fit fashion retailer’ - its brands target a larger-framed, older demographic - is overwhelmingly an online business; 75% of its sales are now generated online and online penetration for new customers is even higher at 84%. It does however operate a small 20-strong estate of physical stores to help showcase its brands, but visitor numbers are dwindling.
This estate generated a £3m EBITDA loss last year, although the physical store estate is a tiny part of the overall business, its £15m of sales speaking for a mere 2% of last year’s the top line total.
‘We anticipate that the consultation process will be completed around the time of our half year results in October,’ continues N Brown. ‘Should the decision be taken to close all 20 stores, we anticipate an exceptional cost of £18m to £22m, of which approximately half will be in cash.’
Spindler stresses: ‘We continue at pace our journey to become a global online retailer, uniquely delivering fashion that fits. This will underpin our future growth, both in the UK and Internationally.’
A SUBDUED QUARTER
Eliminating losses should be positive for the investment case, so today’s 6.1% share price decline to 185.6p reflects N Brown’s underwhelming first quarter showing, albeit delivered in a tough period for most UK apparel retailers.
In the 13 weeks to 2 June, Manchester-headquartered N Brown’s group sales edged up 0.4%. However, Product sales were poor, down 2.8% due to a combination of a tough prior year comparative and a slow, weather-impacted start to the new financial year.
The good news is N Brown’s ‘Power Brands’, the drivers of long-term growth, grew by 2.7%; Simply Be remained the star performer with sales up 9.3%, Jacamo remained in growth with sales up 2%, and there’s optimism in the air following the relaunch of the JD Williams brand.
Elsewhere, international revenue fell, with USA sales down 7.2%, although encouragingly, N Brown’s Financial Services business grew by a better than expected 9%.
WHAT ARE THE EXPERTS SAYING?
House broker Shore Capital insists ‘N Brown is in good shape in our view, being well positioned to drive medium term growth through its online, specialist fit model.’
With management’s guidance for the year to February 2019 unchanged (aside from the one-off costs relating to shop closures), Shore leaves its full year forecasts intact for now, looking for pre-tax profit of £83.4m (2018: £81.6m), flat earnings per share of 22.9p (2018: 23p) and a maintained dividend of 14.2p, meaning N Brown does offer a juicy dividend yield of 7.7%.
‘It’s a sign of changing times that retailers are brave enough to reshape their business to match how consumers buy goods today and not feel compelled to keep ailing stores alive simply because that channel is traditionally how items were sold in the past. It seems inevitable that many other retailers will follow suit in time,' says AJ Bell investment director Russ Mould.
‘To put the situation in context, N Brown generates 75% of its sales online and three quarters of these transactions are made via mobile devices. The company makes the remainder of its money in areas like customer credit.
'If few people are visiting stores, why keep them open? On one hand, they help to keep the brand in front of the public and act as a showcase for a retailer’s products. On the other hand, they incur costs which may not be justified if the returns are inferior.'
