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Matalan first quarter sales down by 72% as online fails to compensate for effect of Covid-19 on its stores

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Matalan’s sales fell by 72% in the first quarter of its current financial year, as online sales failed to compensate for the effect on its stores of the “biggest challenge ever faced by the sector” – the Covid-19 lockdown. 

The value fashion and homewares retailer closed its shops in March, at the beginning of the Covid-19 lockdown, and then started to reopen them from May 18. It was able to reopen ahead of non-essential retailers because it sold homewares, classified as essential. But while Matalan does sell online and across channels, its online business was too small to compensate for the loss of the sales it usually makes through its stores, the retailer said. 

The value fashion and homewares retailer today reported total revenues of £75.3m in the 13 weeks to May 30, down by 72% from £273.5m at the same time last year. It reported a £10.2bn loss in its earnings before tax, interest and asset write downs (EBITDA) . That’s down from a profit of £50.4m last time. The retailer closed the period with cash of £40.9m, down from £71.2m a year earlier.

Matalan chief executive Jason Hargreaves said the results reflect the severity of the impact of Covid-19 on its business. He said: “The stores were closed throughout most of the first quarter as the UK endured lockdown in what has been without doubt the biggest challenge ever faced by the sector. The scale of revenue lost from our closed stores could not be offset by our smaller online channel which continued to trade throughout the quarter.”

He said the business had acted immediately to conserve cash and manage working capital before raising further cash through a financing. This, he said, will help it to navigate the period of recovery and adjustment that now lies ahead.

“We used the lockdown period to adapt our stores, implementing social distancing protocols ahead of a phased re-opening commencing on May 18,” said Hargreaves. “Our estate of predominantly large and out of town stores performed strongly upon re-opening as customers responded well. They recognise that we offer a very convenient, comfortable and safe shopping environment, but it’s still early days in the recovery period.

“There can be no doubt that consumer uncertainty and broader economic challenges present a tough market going forwards. We remain confident though that whilst we proceed with caution, we have been successfully evolving our business model over recent years and as such are well placed to respond. During the last few months we have also accelerated initiatives that will make us more agile and efficient across all channels. We have done this alongside clearing the spring/summer stocks, enabling us to return to a more profitable level of performance in the autumn.”

Sofie Willmott, lead retail analyst at GlobalData, said: “With Matalan’s stores only open for around five weeks of Q1, its underdeveloped online channel has not been strong enough to carry the value retailer through the COVID-19 crisis with total revenue almost £200m lower than the same period last year, at £75.3m. Its stores re-opened on 18th May giving Matalan a head start on its clothing rivals that could not open for another month, allowing it to test safety measures and gauge shopper interest, however demand in the last two weeks of the period will have been subdued, doing little to boost the overall quarter.

“Matalan’s online performance has ramped up in recent years with FY2019/20 online sales rising 24% and digital channels accounting for a growing proportion of total sales. However, other non-food players (such as Next and John Lewis & Partners) that have prioritised a best-in-class online experience over a long period, driving high online penetration, have been able to rely on their digital channels much more so than Matalan. Despite this, by at least having an online proposition Matalan has been able to generate some revenue, unlike value rival Primark which was completely cut off for three months owing to its lack of transactional website.”

She said that Matalan’s retail park sites would now appeal to shoppers who want to buy everything in one place and to avoid more crowded shops. 

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