Chief executive Peter Wood’s dogged focus on product, marketing and distribution has helped get struggling AllSaints’ operating profit back in the black. But is the new strategy sound enough to withstand future headwinds?
This time last year AllSaints’ finances were in a sorry state. In November 2018, the retailer revealed that its operating profits had fallen dramatically from £11.2m in the 2016/17 financial year, to a loss of £6.2m in the 53 weeks to 3 February 2018.
AllSaints, which has been owned by private equity firm Lion Capital since 2011, was hit by exceptional costs of £9.8m during the year, including a £4m reorganisation of all of its international sourcing operations to its headquarters in east London. AllSaints also blamed heavy investments in non-retail channels – wholesale, licensing and franchising – for the plunge in profits.
However, the benefits of investment combined with a new razor-sharp strategy heralded by CEO Peter Wood, have already started to pay off.
Operating profit at AllSaints climbed to £3.6m in the 52 weeks to 2 February, compared with a loss of £6.2m in the 53 weeks to 3 February 2018. Gross profit grew 1.8% to £216m in the same period. EBITDA before exceptional items was flat at £20.6m, and it reduced its pre-tax loss from £33m to £26m. There was a £29m charge for non-cash intra-group costs to parent company Lion Capital.
It was almost as though the brand only had a perception of being strong in autumn/winter
Peter Wood, AllSaints
Revenue was up 1.2% to £331m – AllSaints’ sixth consecutive year of top-line sales growth. The company said it experienced revenue growth in every channel: retail, digital (up 15%) and non-retail, which includes wholesale, franchise and travel (up 40%).
AllSaints credited several developments for its success, including the strengthening of its leadership team. Wood was appointed as CEO in September 2018, having previously been chief operating officer since 2010. He brought former Ted Baker womenswear director Catherine Scorey Jobling on board as chief operating officer in January. Matt Wilson joined the company as chief financial officer in July 2019 from Lion Capital.
The team introduced three new main strategy components: product, marketing and distribution, alongside a decrease in promotional activity.
“Product is the number one focus for us. We’re investing more in it than ever before,” Wood tells Drapers. AllSaints’ product-focused strategy has been to increase investment in core apparel categories, broaden the brand’s footwear and accessories assortment, and launch new lifestyle categories such as fragrance and watches at the end of last year.
Product is the number one focus for us. We’re investing more in it than ever before
Peter Wood, AllSaints
This year the company also started to increase its spring offering. It focused on four key men’s and women’s collections: “Summer in the city” (summer dresses), “Festival” (graphic T-shirts), “Beach” (swimwear),and “Occasion” (relaxed tailoring). AllSaints did not reveal an overall percentage increase of spring stock, but said there was a 50% increase in the number of dresses, tailoring was up 70% and the number of men’s casual jackets was up 30%.
Wood says: “When I became CEO last year, I was very conscious of the opportunity for AllSaints to do more in spring/summer. It was almost as though the brand only had a perception of being strong in autumn/winter [knitwear, leather jackets, biker boots] – when actually there are 12 months in the year not just three.”
AllSaints’ product offering comprises men’s and women’s wear (split 50:50), footwear, lifestyle and accessories. Retail prices range from £29 for a T-shirt to £1,500 for a shearling jacket.
“AllSaints produces timeless but edgy pieces that have a clear differentiation in the market,” one former premium womenswear CEO comments. “The handwriting is consistent across all product areas. It has the opportunity to leverage this strength and add additional product offers to grow in the future. The shoe offer has expanded and works well with the clothing offer.”
Wood says increased investment in marketing is delivering growth and engagement with the brand’s global audience: “If we’re making and investing in amazing product, we want people to know about it. The focus is on digital and social media marketing.” Instagram is a big focus: AllSaints uses its own staff as advocates of the brand, instead of relying on influencers.
Spreading the word
The third and chief growth driver is AllSaints’ continued distribution strategy. AllSaints is continually expanding its business through wholesale, concessions and franchising and launched licensing for the first time in autumn 2018.
Wood says: “A couple of years ago we were 100% pure retail, through stores, concessions, and websites. What we have started to do is develop non-retail to grow our international audience via new channels.”
Wholesale and concessions is the only way to grow intelligently: it appeals to other people’s customers
Another former premium womenswear CEO believes this is the right strategy: “Stepping forward with wholesale and concessions is the only way to grow intelligently: it appeals to other people’s customers. I think they’re doing all the right things and have every chance of surviving in the future. I think next year’s results will be even more positive.
“Last year was more about cleaning up after several years of recalibration – restructuring and reshaping. AllSaints is now well positioned and has a clear proposition. We can already feel the effects of Catherine’s appointment: there seems to be more variety in the range and it is more feminine and well rounded.”
AllSaints has 255 stores across 26 countries, and more than 3,000 employees. It has 17 concession partners, including Harrods and John Lewis, 40 wholesale accounts (10 in the UK) including Asos, House of Fraser and Stitch Fix. It has franchise partners in the United Arab Emirates, Mexico, Turkey, Chile, Ukraine and Greece, as well as licence partners such as Global Brands Group and Revlon for fragrance. The UK makes up 55% of total sales.
Wood believes that, if the company is developing great product, that is being marketed and distributed well, then customers “will feel the price proposition of our brand is strong at full price, meaning less of a need to promote”.
In autumn 2018 AllSaints reduced its promotional activity and will continue to do so: “In the US we had a less aggressive Black Friday promotion, and also started our end-of-season Sale in the US and UK a lot later. We will still have promotions from time to time.”
The strategy is bearing further fruit. In current trading, AllSaints has enjoyed year-on-year sales growth of 15% in the six months to 3 August 2019, driven by like-for-like sales growth of 14%, as well as a 63% year-on-year increase in non-retail revenues.
Industry sources praise AllSaints for its ability to turn around its fortunes, but said it still has some work to do to clear its debts.
“The turnaround in operating profits is encouraging, but the company still has very high debts, mainly to its owner Lion Capital, leading to very high pre-tax losses,” notes retail analyst Mark Pilkington. “One wonders how stable the long-term picture is for AllSaints with so much debt.”
We have three very big months coming up. I’ll be the last person to be cocky, arrogant, or complacent about that, but the point is: ‘So far so good’
Peter Wood, AllSaints
Retail analyst Richard Lim agrees: “AllSaints has made big strides towards turning the business around in the last 12 months – it’s a big turnaround for the company. [However] it still faces the challenges coming through from this year’s rising business and labour costs – which will be squeezing margins. To get rid of debts, it still has quite a lot of work to do.”
Industry observers believe AllSaints needs to continue to reduce its infrastructure – for example, condensing its store portfolio in the UK and US, continuing to improve operations and managing costs tightly, and “completely change its cost base”.
One retail source says: “They’ve improved on a very bad year, but they’ve still got some fundamental issues such as pricing, which is too high, and huge shops with high rents and rates. The biggest issue is cash – how many years can you lose £25m-£35m? They will have to double turnover quite quickly over the next few months.”
Wood acknowledges the business has more work to do but remains optimistic about AllSaints’ future performance: “We have three very big months coming up. I’ll be the last person to be cocky, arrogant, or complacent about that, but the point is: ‘So far so good.’ At least we go into that peak trading period with momentum and a clear plan in place.”
The Drapers Verdict
AllSaints has done well to turn its fortunes around. Cleared of structural costs, Wood has a sharp and well-defined strategy, focusing on product, marketing and distribution, which has already started to bear fruit. AllSaints can now step into the peak trading climate with momentum.
However, in a particularly tough trading climate no retailer is safe. AllSaints will need to manage costs tightly to lower its debt while continuing to invest in product and its shopping experience to keep shoppers engaged and spending.