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New Look needs to do more to turn itself around

New Look has managed to return to operating profit, but industry experts say shutting stores and renegotiating rents is only half the battle, and claim the retailer’s real success will come from redefining its product offer.

New Look almost doubled its half-year EBITDA to £49.8m for the 26 weeks to 22 September. Underlying profits rose to £22.2m, compared with a £10.4m operating loss in the same period last year. However, the retailer’s sales continued to slow. Revenue fell by 4.2% on the same period last year to £656.9m. New Look own-brand sales fell by 3.7% – although this was a smaller drop than the 8.6% in the previous year.

Earlier this year, New Look’s company voluntary arrangement (CVA) set out the closure of 60 stores and the loss of nearly 1,000 jobs. But this week the business upped the number of stores it is shutting to 85. A further 13 are in negotiation and another 26 trading rent free. Further afield, the retailer is pulling out of China, closing 120 stores.

Jonathan De Mello, head of retail consultancy at property firm Harper Dennis Hobbs, says New Look “fundamentally had too many stores”: “The CVA was too little in terms of the amount they wanted to close, so 100-plus stores will give New Look a better, healthier looking portfolio, and ultimately ensure its future success.”

In the meantime, New Look needs to improve its online presence, says Sofie Wilmot, senior analyst, retail, at GlobalData: “New Look has transferred some of its online sales to third-party retailers such as Asos and Amazon, which takes away from its own online sales. Why would shoppers go to New Look to shop online when its website isn’t as compelling as the others?”

Stephen Springham, head of retail research at property firm Knight Frank, says New Look’s decision to expand its menswear business by opening standalone stores, and diversify its age range led it to stretch itself too far.

He adds that the decision to focus on brand equity is “really getting to the nuts and bolts of what went wrong in the first place”: “New Look’s salvation will come from its product and its brand. It’s easy to look at the operational side of things to make cost savings, but ultimately if you’re going to thrive as a retailer it boils down to your product.”

New Look executive chairman Alistair McGeorge said part of the company’s focus for the second half of the financial year will be to capitalise on New Look’s brand strength.

Retail consultant Richard Hyman agrees that New Look needs to focus on its brand, but adds it will be more challenging than getting its business operations in shape: “The big issue is the question of exactly what it stands for. When you look at New Look’s key competitors – Primark, Topshop, River Island, Zara, H&M, Asos, Boohoo – it is clearer to know what they stand for. That’s a bit of an inherent weakness for New Look and effectively addressing that is hugely difficult in this market.”


The Drapers Verdict

New Look’s plan to ramp up store closures in a bid to cut costs is a sensible decision, given its vast UK portfolio and the continued tough trading on the high street. However, shutting stores is only half the battle. Once New Look’s operational cost savings have been made, its journey will be far from plain sailing. The retailer needs to invest in a best-in-class ecommerce offer and renew its focus on the core principles of the brand. Making its product stand out from the competition will take time and money, but if done properly, could set it on a new and profitable path.


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