Anthony Smith, chief executive at value footwear retailer Shoe Zone, talks to Drapers about unseasonable weather, the value market and the changing face of the high street.
Shoe Zone capitalised during the recession and boosted its profits by negotiating better rent deals and closing or relocating loss-making stores. However, a warm autumn last year knocked the business. Despite posting a 124% rise in pre-tax profits to £11.4m for the year to October 4 2014, pre-tax profit fell 26% to £2m in the six months to April 4. Anthony Smith, chief executive since 1997, is confident things are back on track and optimistic for a buoyant autumn this year, thanks to a change in buying strategy.
How are things going at the business today?
Summer was not as tough for us as last autumn. It could have been more exciting but it was decent enough and back-to-school is trading well [sales figures will be released in October]. However, it’s still our property portfolio that’s driving the business’s profitability forward. We are getting lower rents at renewal because there is a large amount of available units, with rents dropping by 28% on average. Store numbers are reasonably static at 540 and we don’t see that changing a great deal because we are relocating stores or closing smaller stores and opening bigger ones. Shoe Zone’s big Grade 1 stores, which tend to be around 2,500 sq ft, carry 400 styles, whereas the small Grade 3 shops of less than 1,000 sq ft hold 300 styles. Our next opening will be a relocation in Bristol in the next couple of months. The business opened nine new stores and refitted 18 shops in the six months to April 4.
How do you feel about autumn trade?
We’re very optimistic about autumn; it can’t be as bad as last year. I’m sure all footwear retailers have looked at their ranges with a critical eye about the shift away from long-leg fashion to ankle-boot fashion. We’ve certainly made our ranges more robust from that point of view as a result of what happened last year. The shift towards ankle and desert boots has followed the sportswear trend and we have moved towards that, which will help whatever the weather. The business has changed 10 styles from knee-length to ankle boot styles for autumn 15. Retail prices for autumn start at £2.50 for girls’ plimsolls and go up to £70 for women’s leather knee-length boots.
How is your online business performing?
Online is only 4% of sales but it is growing the quickest. We offer free delivery and free returns to store and that’s the key to its success. We only have a 10% return rate and 90% of that goes back to store, so we have no reverse logistics issues. That’s why per pound taken it is twice as profitable as an average store. Profit is the driver. Online sales might go to 10% [of overall sales], but if we grow it quickly by spending lots of money on it the profit will stand still. If we keep growing it slowly the profit will keep growing.
A lot of footwear-only retailers have closed over the last number of years [such as Barratts and Shoon]. Is there still demand from shoppers for footwear specialists?
There is still strong demand for the expertise of a standalone shoe shop, even at the value end of the market. Our staff are dedicated to footwear, we’re still extremely competitive on price and the business is still growing. I can’t see a reason why there isn’t a very long future for standalone footwear retailers. We are in a lot of small towns where the likes of Primark and New Look won’t go as they are too small for them. We do very well out of it and shoppers are very loyal and grateful that we are there.
Is the value market getting more competitive?
I don’t think we should overstate the Aldi and Lidl effect. Their fashion business is never going to have a big impact on a standalone footwear business. The Pep&Co stores look great; however, its footwear offering is pretty light and I don’t think their shops are big enough to have an enormous amount. It’s not something we are worried about. However, it’s good news that they are moving on to the high street. Anything that holds people in town centres and stops them from going out to big retail parks has to be good news for us. We are absolutely a committed high street retailer. In order to stay relevant we are rolling out a new store concept featuring light-coloured floors and white walls to give a bright, airy feel to the shop, as debuted in the Meadowhall unit this spring (pictured).
How can we revitalise the high street?
In smaller towns we should force councils to give two hours free parking. Even getting the first hour for free will keep people coming in for a quick shop. The other thing that needs to be sorted out is rates. We don’t need sweeping great reform but we need to have a revaluation. We have shops in the north of England where we are paying £80,000 in rent and our rateable value is still valued at £160,000, so we’re paying £80,000 in rates. Our rates bill as a percentage of turnover has gone up 5% or 6%, equivalent to £3m, over the last five years and that’s when our rent is dropping by 25%.
You have 4,000 staff. What effect will the living wage have on your business when introduced in April?
If anything it will have a positive effect as it will make our customers wealthier. Our shoppers are focused in the bottom-income bracket and if it helps them it will undoubtedly help us and other value retailers. The big headline is going to be what it has done for youth unemployment. I don’t know if that’s what Mr Osborne wants, but people like us are going to target bringing people in as teenagers and in their early 20s. There isn’t a value retailer that isn’t going to look at that.