As New Look faces more challenges, Drapers looks at what needs to be done to turn its fortunes around.
Six months ago, Drapers ran a joint interview with New Look’s CEO Anders Kristiansen and UK and Ireland managing director Danny Barrasso, in which they set out their plans to transform its product and increase its speed to market, to revive its sales in an increasingly competitive market.
Now, both Kristiansen and Barrasso are gone, as part of a management shake-up that reinstated Alistair McGeorge as executive chairman in November. Meanwhile, rumours swirl of a company voluntary arrangement and store closures.
New Look’s third-quarter trading update, published last Tuesday, piled on further pressure. Group revenue fell 6.3% year on year to £1bn in the 39 weeks to 23 December, and the business made a pre-tax loss of £123.5m.
Worryingly, in a time when online sales are an increasingly vital part of multichannel brands’ revenues, the retailer’s own website sales were down 15% year on year. However, sales from third-party online sites were up 21.9%.
McGeorge said trading “remained challenging” during the period, and sales and margins were hit by a high level of discounts. However, he added that the immediate priority was to exit the current financial year without excess stock – suggesting more price cuts may be on the cards.
He also identified the key issues New Look will need to focus on going forwards, including reducing costs, recovering the “broad appeal” of its product, reconnecting with customers, and joining up ecommerce and stores.
New Look’s offer lacks excitement in comparison to the online players
Charlotte Pearce, retail analyst at GlobalData
In recent months, New Look has attempted to narrow its target customer to a “fashionable 25-year-old” – younger than the shopper it traditionally pursued. By doing this, it moved into an aggressively competitive part of the market, where much nimbler online retailers such as Boohoo and Missguided are fighting to capture young shoppers’ imaginations with fashion-forward product, and fast production and delivery.
New Look has traditionally worked to a nine-month lead time to achieve price advantages. Regardless of age, today’s fashion consumer expects to see trends filter down to the high street more quickly, so New Look needs to speed up its production. However, even if it improves its lead times dramatically, it will struggle to compete with its pureplay rivals. Its decision to shift its focus back to a core offer designed to appeal to a broader age range is therefore a wise one.
Nivindya Sharma, director of retail strategy and insights at WGSN, says: “They are making all the right sounds and I think they’ve identified the right things to change. It is about trying to find the right way forward operationally, a better ecommerce offer and being a lot more reactive.”
A priority now will be to address its product, which is clearly failing to chime with shoppers.
A critical element [in New Look’s recovery] will be coming up with a realistic number of stores to shut
Independent retail analyst Richard Hyman
“Its offer lacks excitement in comparison to the online players,” argues Charlotte Pearce, retail analyst at GlobalData. “It needs more edited ranges, and it needs to work out how to draw shoppers to its own site by running exclusive products, and using social media and online content.”
Moreover, New Look operates a huge store estate. Local Data Company reports it has 594 branches in the UK. By comparison, H&M has 243 UK stores, River Island has 235 and Zara just 64, figures from the Local Data Company indicate. As the fashion industry shifts further towards an omnichannel model, New Look will need to make some brave decisions about the future role of its stores. It is currently thought to be considering up to 60 closures.
“A critical element [in New Look’s recovery] will be coming up with a realistic number of stores to shut,” says independent retail analyst Richard Hyman. “If it had half as many stores, it would still be too many.”
Hyman adds that McGeorge’s re-appointment is one of the few positives to be drawn from New Look’s current situation. McGeorge was previously executive chairman of the retailer from May 2011 to September 2013 and non-executive chairman from October 2013 to May 2014. He completed a turnaround at Matalan before re-joining New Look following Kristiansen’s departure.
They are making all the right sounds and I think they’ve identified the right things to change
Nivindya Sharma, director of retail strategy and insights at WGSN
“He’s a good person to have his hand on the tiller. He’s been there and done that, and he’s somebody with the courage to make really hard decisions,” says Hyman.
McGeorge has already found annual cost reductions of £25m, and it is expected that the business has enough liquidity for the next 12 months. But the fashion market comes with its own set of challenges, which will make it harder to turn New Look’s fortunes around.
Hyman explains: “In the last two to three years the market hasn’t really grown in any meaningful way, and that is uncovering some of the weaknesses.”
These coming months of trading will be crucial for New Look. It must take a long, hard look at its store estate, clearly identify its target market, improve its product, reduce lead times and work out how to draw people to its own website – all while stemming the flow of people leaving, and trying to attract new talent. Meanwhile, acquisitive retailers and private equity firms will be keeping a close eye on the business, in the hopes of snapping up a bargain.