Footasylum saw sales grow quickly online and in its stores in the first half of its financial year. But it turned in a bottom-line loss as it sold more products in its stores at a discount, and as it invested for a future in which it aims to make half of its income via online and wholesale.
The retailer reported revenues of £98.6m in the six months to August 25, 19% up from £83.2m a year earlier. Pre-tax losses of £4m were down from profits of £2.3m a year earlier. Store revenues grew by 12% to £66.3m but, said Footasylum, were hit by challenging trading conditions and delays to store openings. Online sales of £30.2m were 29% ahead, and accounted for 31% of total revenue. That’s up from 28% a year earlier. Meanwhile, wholesale revenues grew by 200% to £2.1m, albeit from a relatively low base of £0.7m last time.
Footasylum, founded in 2005 and listed on the UK stockmarket in 2017, opened one new store during the half-year, taking the total store estate to 66. It now plans to open another five stores and increase the size of five more in the rest of the financial year. From next year, it will slow its expansion rate, opening two new stores and upsizing two stores a year.
Barry Bown, executive chairman of Footasylum, said it had been a difficult trading period with tough high street conditions and delays to its programme of store openings and upsizes. Profits had been hit by lower overall gross margins as a result of higher levels of clearance in its stores, as well as by investment in business systems for the future.
“We are encouraged by the early results and trends that we are seeing from our investments in key areas such as digital and marketing and see substantial opportunity for further progress across these and other parts of our options,” he said. “In the longer-term we remain confident that the company’s differentiated, product-led multichannel proposition, combined with strong partnerships with core suppliers, will underpin our future progress.”
Here’s what else the retailer, a Top100 retailer in IRUK Top500 research, said about its multichannel strategy.
The retailer says it has significantly improved the online experience with investment in the footasylum.com website and the relaunch of its mobile app – which it intends to be at the centre of consumer transactions, along with its UNLCKD rewards scheme. The cross-channel rewards scheme offers consumers the chance to earn benefits, and gives Footasylum greater understanding of its customers’ behaviour. Mobile revenues accounted for 66% of online transactions in the first half.
Improvements to its website were made to imagery, the basket, and the checkout, and through the introduction of live chat. “We are seeing early indicators of success with online conversion rates improving meaningfully,” it said in today’s figures.
In the medium-term, Footasylum plans to make 50% of its revenues from online and wholesale. In order to boost online sales and order frequency, the retailer extended the cut off time for next-day delivery and is also trialling same-day delivery in some areas.
Footasylum says its rationale for stores lies in the solid base that they give to its multichannel approach. “They drive growth by accessing more key brands, a wider range of product and more exclusives,” it said in today’s figures. By increasing floor space in key stores and opening a limited number of new stores, it says it will be able to present its range of products more effectively, improve selling capacity and “become an even more attractive proposition for our key suppliers”. However, it is now slowing its rate of expansion to two new openings and two upsizes a year. It says it is confident that it can improve its brand relationships by investing online to improve the consumer experience, rather than opening stores at a faster rate.
Click and collect services, which bring together online and stores, accounted for 12% of online orders in the first half of the year.
Footasylum’s marketing approach is designed to underpin online sales growth while driving store footfall. It is building its social media content and presence and collaborates with key influencers. It is investing in data analytics and consumer segmentation in order to understand its shoppers, “targeting online shoppers with a high propensity to purchase in-store and rolling out location specific digital campaigns to drive in-store sales”.
It produced its own design, photography and videography from its 10,000 sq ft Manchester studio for online and its stores. Footasylym says having its own studio allows it to create and distribute content more efficiently and “means we are acting faster to evolving trends and maximising relevance to our consumers”.
The analyst view
Zoe Mills, retail analyst at GlobalData, said: ‘”Under normal circumstances, a clothing and footwear specialist reporting 18.5% growth in revenue would be cause for celebration, but when it came accompanied by a second profit warning in September, investors begun to lose all confidence.
“Footasylum has reported adjusted EBITDA of -£1.5m meaning that the clothing & footwear specialist has a lot to do to achieve its revised FY profit target stated in September of less than half of its FY2017/18 EBITDA of £12.5m. The difficult task ahead has been reflected in its share price this morning dropping a further 6%, reflecting the concern investors have in the athleisure retailer’s long-term profitability.”
Mills said hot weather hit Footasylum’s sales during the summer, and higher levels of clearance had reduced its profitability.
She concluded: “Many retailers have become trapped in a discounting cycle, cutting prices to entice customers to purchase. While Footasylum should use clearance strategically as a tool to make way for new season products, the retailer must ensure that it does not undervalue its product range. Footasylum’s should remove footwear discounts that are at the front of its stores all year round and limit clearance periods a few times in the year to protect its profit margins and reduce customer expectation of discounts.’’