WHSmith demands rent cuts from landlords
News has emerged that WHSmith is reportedly demanding rent cuts from landlords, a few days after it announced a major round of job cuts due to a slow post-Covid recovery. According to The Sunday Times, the books and stationery retailer has drafted in property adviser Gerald Eve to negotiate deals with property owners. The decision to demand rent cuts from landlords has reportedly angered from some property owners, with sources telling The Sunday Times that WHSmith was using the threat of a CVA to encourage landlords to agree terms, or was cutting deals on an ad-hoc basis – including payment holidays. WHSmith refuted the allegations, telling The Sunday Times that a CVA was not “actively being pursued” nor used as a threat. However, a CVA was not ruled out. Last week, WHSmith announced plans to cut 1500 out of its 14,000 jobs across its UK store operations as bosses said its recovery from the Covid-19 lockdown was “slow”.
Superdry secures £70m financial deal as coronavirus sends sales plunging
Superdry has welcomed a new £70 million financing deal with its banks to help it through the coronvirus crisis as it revealed that stores sales continue to tumble. The fashion retailer said its performance in the three months to July 25 was better than first feared as total sales declines narrowed to 24.1 per cent. It admitted that trading remained “materially” affected by the pandemic despite 95 per cent of its shops now having reopened. Total store sales plunged 58.1 per cent in its first quarter, with like-for-like trading down 32.3 per cent in the 13 weeks to July 25. Online sales surged 93.2 per cent in the quarter, though it said they have started returning to more normal levels in recent weeks as stores reopen with the easing of lockdown restrictions. Superdry said previously that growth in its ecommerce business had offset around a third of lost store sales when it was forced to shut all its outlets. Co-founder and chief executive Julian Dunkerton said the new financing deal helps “secure our recovery”. It comes after the company had already taken numerous steps to save cash, including furloughing 88 per cent of its staff at one stage in the lockdown, and rent referrals from landlords. “The actions we have taken to date have greatly strengthened our cash position, which, together with our new asset-backed lending facility, give us the flexibility to execute our current plans and to secure our recovery,” Dunkerton said. “Together, we are making our way through this unprecedented period and I’m confident we can reset the brand and deliver on our transformation plans.”
Zara founder's property arm accused of bullying retailers for rent
The founder of fashion giant Zara, Amancio Ortega’s property arm has reportedly been accused of “bullying” by other retailers as the pandemic heightens tensions between tenants and landlords. The billionaire’s investment vehicle, Pontegadea, was criticised for demanding some of the toughest terms on its leases and for not offering any flexibility in accepting rent reductions, The Times reported. However, the government has implemented a code of conduct to encourage landlords to support businesses if they can, and retailers to pay their rent in full. It has also temporarily banned winding-up orders in a bid to encourage the rent payments. Despite this, Pontegadea, which has a €15.2 billion (£13.4 billion) property portfolio, has been using “bully boy” tactics, an “well-known” but unspecified retailer has said. Pontegadea’s UK investments include a section of London’s Oxford Street and the Post Building in Holborn, which includes McKinsey and Company’s UK head office. The retailer, which wanted to remain anonymous, said Pontegadea had demanded an extra year be added to leases in return for every month of rent holiday before offering three months rent holiday for a two-year extension. When this was refused, legal action was threatened and bailiffs appeared at a store to say they would seize goods.
Amazon to buy up JC Penney and Sears department stores and convert them to fulfilment centres
Amazon is reportedly in talks to buy up shuttered JC Penney and Sears department stores across the US and convert them into fulfilment centres. Simon Property Group, one of the US’ largest mall operators, is in talks with the ecommerce giant regarding the sale of what was once prime retail space, according to The Wallstreet Journal. While the number of stores under negotiation is unclear, the pair are understood to have been working on a deal for months and began talks before the pandemic hit. According to sources Amazon could also buy up space still being used by the pair of embattled department stores. It was also suggested that Amazon is in talks with other mall owners regarding former JC Penney stores with a view to using the space for its upcoming grocery project. In May JC Penney, which has been trading for 118 years, announced plans to file for Chapter 11 bankruptcy and offload 30 per cent of its store estate. It planned to close some 242 stores over the next two years in May, reducing its store estate from 846 to 604 by fiscal year 2021. Sears, which has been trading since 1880, also filed for Chapter 11 bankruptcy protection in a last-ditch effort to continue trading in 2018, threatening 90,000 jobs. It announced early last year that around 400 stores would continue trading, but has struggled to keep its head above water ever since. While Amazon refuses to comment on speculation, the move would be in keeping with its aggressive push into physical retail seen over the past 18 months.
Debenhams cuts 2500 jobs in latest redundancy round
Debenhams has confirmed plans to make 2500 redundancies as part of its latest cost-cutting drive to survive the coronavirus crisis. The department store chain said it was looking to make staff who hold sales manager, visual merchandise manager and selling support manager positions redundant. Debenhams told Retail Gazette that affected staff, who are still on furlough, have been informed of the decision and will exit the business by the end of this week. The latest round of job cuts are part of Debenhams’ plans to streamline its shop floor teams and reduce costs as the coronavirus pandemic shows no sign of abating. The retailer added that it had no plans to shut more stores as part of the latest restructure. Debenhams said that while it has been trading ahead of forecasts since it reopened 124 stores after non-essential retail lockdown measures were eased on June 15, it needed to ensure store costs were “aligned” with a trading climate that remained volatile.
Co-op and Deliveroo expand partnership
Convenience store retailer the Co-op has extended its delivery partnership with Deliveroo to cover 400 of its stores in the UK. The Co-op said more than 27 million potential customers could now access 600 of its grocery and household items via the food-delivery app, making the convenience store retailer “the most widely available supermarket” on Deliveroo. The partnership between the Co-op and Deliveroo was launched in 2019 and has accelerated rapidly. The retailer said that the service was most popular in big urban centres such as London, Manchester, Leeds and Brighton. The retailer noted changing customer behaviours due to the lockdown and ongoing coronavirus crisis, and said that customers were now “placing larger orders” via the app and were also “ordering more frequently” than previously.
Just Eat posts sales increases during lockdown
Food delivery service Just Eat as reported a surge in sales and earnings after the coronavirus outbreak spurred demand. Just Eat said that in the UK it received 77 million orders in the first six months of this year, a rise of 18% versus the comparable period last year as its marketplace and delivery arms generated “strong growth”. Gross merchandise value advanced 28% year on year to €1.77bn (£1.59bn), “driven by higher average order values during coronavirus lockdown periods”. Revenue in the UK was up 28% to €303m (£273m) in the first half.
Asos profits significantly ahead of market expectations
Online fashion giant Asos expects sales and profits this year to come in “significantly ahead of market expectations”. Asos reported that it was benefiting from “stronger than anticipated underlying demand” as well as a “beneficial returns profile” as customers send back fewer purchases. The etailer now anticipates revenue growth over the year of between 17% and 19% and pre-tax profits to be “in the region of £130m to £150m”.
Very Group's annual revenue surpasses £2bn for the first time
The Very Group has posted strong annual revenue growth that saw it exceed £2 billion for the first time, prompting the online retailer to forecast a return to profit this year. In a trading update for the year ending June 30, the owner of Littlewoods and Very said it had seen a 65 per cent increase in website visits, allowing its full year revenue to surpass £2 billion mark for the first time. The Very Group said it now expected to report full year underlying EBITDA to be in the range of £255 million to £270 million, with the board expecting this to deliver a positive profit before tax. The company said its business model has proven resilient in the face of rapidly-changing customer behaviour, and despite experiencing peak trading levels, it also maintained full operational capacity throughout the Covid-19 crisis. The Very Group said it did not utilise the government’s furlough scheme, nor did it need to access government-backed loan schemes. It also boasted a strong liquidity and cash position with year-end cash headroom of more than £200 million.
Watches of Switzerland adapts to covid19 challenges as profits rise
Watches of Switzerland has seen its full-year profits rise despite the Covid-19 pandemic affecting the retail sector during lockdown. During the 52 weeks to April 26, the luxury watch group’s adjusted EBITDA rose by 13.6 per cent to £78.1 million. Operating profit climbed 6.2 per cent to £48.3 million over the same period. Meanwhile, group revenues across the full year increased 4.8 per cent to £810.5 million. However, sales during the final six weeks of its financial year dropped by 84.9 per cent. Sales in the UK dropped by 0.5 per cent to £575.9 million, but rose 9.4 per cent across the 46 weeks to March 15. In the final six weeks of its fiscal year, UK revenues dropped by a colossal 84.5 per cent. Watches of Switzerland’s UK sales dropped 30.1 per cent to £108.3 million during the quarter. Similarly in the US, revenues dropped 85.9 per cent slump in the six weeks to April 26, but were up 36.4 per cent prior to lockdown. Group revenue in the 13 weeks to July 26 dropped 27.6 per cent to £151.6 million despite Watches of Switzerland saying the figures are “ahead of management expectations”.
Is Footasylum becoming an entertainment brand?
Footasylum's Youtube subscription numbers rose by a colossal 2980% last year and it has continued to produce entertainment-focused videos since, featuring a number of top Youtuber stars. Founded by David Makin in 2005 and joined by John Wardle in 2008 – the original co-founders of JD Sports – Footasylum has since become an established UK sportswear retailer. In its Introduction to Footasylum report, the retailer said it was “trend-leading” and had a “strong understanding of the core 16-24 year old customer base”. Arguably, Footasylum’s understanding of fashion-conscious consumers is evident through its Youtube channel, which posts weekly videos featuring well-known UK Youtubers taking quizzes, taking part in rap battles, reviewing and rating trainers, and even providing dating advice. At the time of the Introduction to Footasylum report in 2017, it had not yet launched its Youtube channel, with its first video posted on January 9, 2018. Since then, it’s arguable that the retailer’s Youtube offering may have accounted for Footasylum’s online revenues reaching £76 million in 2019, compared with £59 million in the previous year. For the 52-week period ended February 23, 2019, Footasylum reported an “increasing volume of online traffic,” according to the latest files posted in Companies House. Sportswear retailers working with Youtubers and/or celebrities is not entirely surprising as capturing the attention of young consumers may prove crucial in an age where social media has dominated the entertainment industry.
Gymshark hits £1bn valuation after securing major investor
Gymshark has joined a list of fewer than 25 British firms achieving Unicorn status since 2001, after a major fundraise brought the online retailer’s valuation to over £1 billion. Gymshark announced it would enter a strategic partnership with global growth equity firm General Atlantic, a deal that allows the sportswear brand to achieve its landmark valuation in just eight years since it founded by Ben Francis. The investment will see General Atlantic take a 21 per cent stake in Gymshark, and Melis Kahya Akar, head of consumer for EMEA at General Atlantic, will take a seat on the board. Meanwhile, Francis is increasing his stake in his online retail business to over 70 per cent. He previously had a stake of around two-thirds. The partnership is also designed to facilitate further growth and international expansion, specifically into North America, where Gymshark has already established its largest customer base. Francis founded the business when he was just 19 in 2012, operating it out of his parents’ garage in the Midlands and capitalising on the sewing lessons from his mum. By early 2015, Gymshark had grown exponentially and Steve Hewitt joined as chief executive and Paul Richardson as executive chairman. It now has 12 million followers on Instagram, raked in revenues of over £250 million in its last fiscal year and earlier this year, Francis’ wealth was estimated to be around £138 million. Gymshark had also opened its first ever and longest-standing pop-up store in London just weeks before the coronavirus lockdown came into place in late March.
Debenhams staff to seek legal action after mass redundancies
Debenhams staff have reportedly called for action against the company after hundreds were made redundant earlier this week. More than 500 staff who were made redundant are planning to take legal action against the retailer. Law firm Simpson Millar has begun investigations and is seeking to secure a Protective Award on behalf of staff regarding Debenhams’ alleged failure to properly inform colleagues of the mass job cuts, Drapers reported. A Protective Award is a payment awarded by an Employment Tribunal for when an employer does not follow the correct procedure when making 20 or more redundancies. On Tuesday, Debenhams confirmed plans to make 2500 redundancies in an effort to survive the coronavirus crisis. The retailer said it had no plans to shut more stores as part of the latest restructure. The department store chain told Retail Gazette that affected staff, who are still on furlough, have been informed of the decision and will exit the business by the end of this week. The job cuts are on top of the 4000 head office redundancies announced at the retailer since April, which includes employees based in Ireland, Hong Kong and Bangladesh.
Shoppers could face £3200 fine if they don’t wear face coverings
Fines for repeatedly refusing to wear face coverings in shops could soar to £3200, Prime Minister Boris Johnson announced ahead of further easing of England’s lockdown. At present, people who refuse to wear a face covering where it is required face a £100 fine, which can be reduced to £50 if paid within 14 days. Under the new measures, that penalty will double for subsequent offences, up to a maximum of £3200. In England face coverings are mandatory in shops and indoor shopping centres, as well as public transport, libraries, museums and other public indoor settings, with some exemptions for children or on medical grounds. The tougher enforcement measures come as the PM confirmed plans to open up more of the economy from Saturday, potentially adding to the risk of spreading coronavirus. The moves were postponed from August 1 due to concerns about a slight increase in the number of people in England testing positive but that now appears to have levelled off. However, the changes will not apply in the specific areas where local restrictions are in place.
Key themes of the week - Debenhams / Sales / Rents
Key article of the week - https://www.retailgazette.co.uk/blog/2020/08/gymshark-hits-1bn-valuation-after-securing-major-investor/
Key question of the week - As the hot weather spell breaks, will shoppers queue in the rain?