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Rent reductions keep Shoe Zone competitive

A flexible property portfolio, with reduced rents and lease lengths, has helped Shoe Zone to maintain growth in a slowing sector, chief executive Nick Davis has told Drapers. 

The footwear retailer’s financial results for the six months to 30 March remained steady. Statutory profit before tax was maintained at £1m and gross margin increased to 62% – up 140 basis points year on year. 

Revenue dipped by 1% to £73m and the business had net cash of £3.3m, compared with £5.9m at the same time last year. 

“The footwear market hasn’t been moving forward, and we’re probably quite unique in our growth plans. What we’re seeing is that people are struggling with their prices, where we’re very keen to hold ours,” said Davis. “With the rent reductions we’re seeing, our flexible portfolios are helping us to hold our prices which is protecting our market share, whilst others are seeing leaks in theirs.”

Rent on renewals during the half fell on average by 18.5%, equivalent to a full-year saving of £334,000.

Davis said: “We’re seeing lots of opportunity for softer deals with another 20 stores planned for next year. We’ve found that the sentiment has shifted and it’s easier to get five-year leases where previously they would have been 10-year leases in out of town locations.

“It’s a good time to expand when everyone else is struggling and cutting away,” he added. ”Four years ago we were already negotiating five-year leases and being more aggressive at reducing rents as we thought that would dry up. However, the property market has shifted again and we anticipate getting a further 20% on [upcoming] rent renewals.”

“As other costs increase – including minimum wages – rent reductions help us to maintain our margins.”

At the end of the first half, Shoe Zone was operating from 26 of its “Big Box” stores, which contributed £5.5m in revenue over the period.

By the end of May, it will be operating from 33 Big Box stores and is on track to meet its target of 45 by the end of 2019. A further 20 stores have been planned for after year end.

The retailer has also launched a new, more premium store format “Hybrid” with the redesign of its high street stores in Manchester Arndale and Exeter. Six further stores will be redeveloped by September, after which Shoe Zone will begin to open new stores with the concept. 

Davis said: “The target is 20 in total. It’s a more premium concept, where 25% of the ranges will be branded. It’s not going to be as big as Big Box, which is a longer-term growth piece, but it will be a nice complementary offering.”

Digital sales for the first half increased by 4.9% to £5m, leading to a profit contribution of £1.5m. However, Shoe Zone is only just preparing to fully launch its new digital strategy.

”Over the last few months, we’ve been getting the right bums on seats to launch our new digital plan,” Davis explained. ”Our strength historically is that we have a very narrow line count which gives great gross margins but doesn’t lend itself to a successful online business where you need an increased SKU count.”

“We have a new digital buyer, Zoe Black, whose focus will be to increase the online product range.” 

Online exclusives have already increased from 100 lines to 385 over the last 12 months. The ecommerce site will also be developed, including the introduction of Apple Pay within the next six months, and management are considering the introduction of a credit facility on check out. 

Looking forward to the full-year results Davis said: “We’re really confident – all of our strategic drivers are going really well, with an uptick in digital post-march and Big Box well on track. It’s on the cards to deliver market expectations.”

 

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