Fast fashion retailer Quiz Clothing is hoping to pave the way back to profit growth after reporting a slump in earnings two years after its IPO. Will its plans work?
Glasgow-based retailer Quiz Clothing last week reported a 97% fall in profits to £200,000 in the year to 31 March, down from £8.5m the previous year. This was despite a rise in group revenue of 12% to £130.8m, which the retailer said had been driven by sales growth across all channels.
The crash follows a troublesome financial year for the business, which included three profit warnings and a poor second half, most notably during January and February, when shoppers stayed away, forcing the retailer into heavy discounting.
Quiz is, of course, not alone in finding the current climate tough. However, such a slump in profits two years after it floated on London’s junior Aim stock market in July 2017, raises the question of whether it is paying the price for going public.
Andrew Blain, analyst at Panmure Gordon & Co, thinks not: “In terms of providing growth capital and raising the profile of the brand, the IPO has been very good for the business. Quiz’s performance in the first 12 months was very strong and annual revenue is up by more than £40m, or 46%, since the IPO.”
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However, its share price has tumbled in line with its profits –standing at 17.5p today, down from a peak of 201p in July 2018.
“In retrospect, the City was foolish to buy into a stores-based fashion proposition at that time, as the retail apocalypse was already gaining momentum,” says retail strategy consultant Mark Pilkington. He also points to Quiz’s admission that “some third-party online contracts, which, while contributing to sales growth, negatively impacted the profitability of the business”. Pilkington suggests the high fees charged by third-party websites can eat into margins.
The City was foolish to buy into a stores-based fashion proposition at that time, as the retail apocalypse was already gaining momentum
Mark Pilkington, retail strategy consultant
Quiz founder and chief executive Tarak Ramzan says the board and senior management carried out a review in March, and the business has a “sharpened focused and clearer vision of what is required to ensure Quiz succeeds”.
Its focus now is on improving profitability and it has outlined a cost-cutting exercise to save £3m by focusing on four key areas: addressing store footfall and spend issues; reducing impact on gross margin; re-sizing the cost base; and optimising its omnichannel model. Will the strategy work?
Failing its physical
Quiz has close to 250 physical points of sale in the UK: 73 stores and 174 concessions, most of which are in Debenhams, House of Fraser and Arcadia Group-owned Outfit. During the last financial year, Quiz’s UK bricks-and-mortar revenue grew by 4% to £66.9m.
The business has a high reliance on department stores and was hit badly by the issues at Debenhams and House of Fraser – where it has 106 and 12 concessions, respectively – including a £400,000 bad debt arising from the latter’s administration.
It will close 20 concessions over the next financial year, 10 of which are in Debenhams stores and are due to close after Christmas.
Pippa Stephens, retail analyst at GlobalData, says this is not enough: “The decision to lessen its dependence on the struggling department store channel is necessary, but the small reduction is not enough to fully mitigate the risks posed.”
Quiz says it reviews its concessions frequently and has short notice periods, so it can exit loss-making situations. Meanwhile, it insists that stores retain a central role. It says 8% of customers who shop both online and offline represent 18% of value, and 28% of its shoppers buy online.
We would need to see attractive incentives from landlords to de-risk store openings
Gerry Sweeney, Quiz
Quiz CFO Gerry Sweeney says the company will therefore continue with plans to increase its store count, albeit with a cautionary approach: “We would need to see attractive incentives from landlords, reflected in contributions to fit-out costs and the rent payable, to de-risk store openings. Our average lease length is 26 months, so we have some flexibility to adapt quite quickly if we need to.”
It is also looking at how to make the stores work harder: investment in a single view of stock will allow it to fulfil orders from stores. Return to store is due to launch at the end of this financial year, and click and collect, which has been in operation for five years and represents 25% of online sales, will be expanded.
Leveraging online growth
In line with its multichannel approach, accelerating growth in the outperforming online business is another priority for Quiz. Over the last financial year online revenue was up by 34% to £41m and it now accounts for 31.4% of group sales – an increase from just 13.3% two years ago.
Sales on its own website increased by 58% year on year, and recent updates include the introduction of delivery-saver scheme QVIP for £12.99, which it is hoped will improve order frequency. The retailer is also trialling “buy now, pay later” with payment provider Klarna.
Product is difficult at the moment, as it is all similar and similarly priced
Nivindya Sharma, director at WGSN Analytics
“Quiz is working hard to create newness and give consumers reasons to come back over the year,” says Martin Newman, founder of retail consultancy The Customer First Group.
While these new services go some way towards improving the online experience, they are limited in their ability to differentiate the business, notes Dominique Bonnafoux, strategy director at retail consultancy Fitch: “Services like this are now an expectation for consumers – a hygiene factor that contributes to retention, but not necessarily new business.”
Product and pricing
Historically an occasionwear brand that offers “Glamorous” womenswear, over recent years Quiz has expanded into new categories including bridal, swimwear and menswear, as well as launching petite sizing. It believes that a greater breadth of categories in store will improve footfall.
Nivindya Sharma, director at WGSN Analytics, says it is right to move into new product categories: “Occasionwear is seasonal and consumers’ ideas of what you need to wear to certain events change.”
Through expansion, however, Quiz has put itself “in direct competition with a mind-boggling number of online retailers now targeting that same demographic”, she adds. “Clearly there is a market but product is difficult at the moment, as it is all similar and similarly priced. The consumer has a lot of options.”
In terms of pricing, Quiz says it will “round up” in key categories – understood to mean occasionwear and more formal styles – as part of its measures to improve profitability and margins.
Retail prices range from £10 for tops and blouses to £100 for dresses, and keen pricing has been part of Quiz’s USP.
However, a slight increase would likely go unnoticed by customers and would therefore have little impact on sales, believe analysts.
With management insistent that it has a clearer idea of its vision, and marketing investment up 83% to £4.6m during the year to 31 March, Quiz may get a higher score in its next set of results.
The Drapers Verdict
Like many of its bricks-and-mortar peers, Quiz was caught out by the pace of change in consumer behaviour and channel weakness during its last financial year, and in particular its exposure to struggling department stores.
Despite the fall in profits, its ability to deliver revenue growth of 12% indicates that its core womenswear ranges hold appeal, and awareness of the brand is growing. Its focus now must be on further reducing its exposure to struggling third-party retailers, investing in technology to ensure it continues to capitalise on the growth in online sales, and clarifying its point of difference in the market.
Quiz is clear that stores still have an important part to play, but like any high street operator, it must make its real estate portfolio work harder and keep this under constant review. More efficient sourcing and product selection will also help improve its margins.
These measures, combined with a tighter control of its costs, should put it back on the path to profit growth.