More than £7m will be invested in home shopping business Express Gifts to enable it to compete more effectively in an increasingly crowded marketplace.
Parent group Findel says it will put the money into the online and mail order business in order to help it to improve its profitability. It said Express Gifts remained a profitable and major player in the UK direct mail market despite a lack of investment historically.
"We believe that with the right strategy, focus and investment the business can be improved substantially," said chairman David Sugden in a half-year statement to the City.
Express Gifts has three online brands: toys to gifts and discount clothing business Studio, Ace, which sells homewares and garden products, and beauty, home and garden accessories store Health and Home Shopping.
Sugden said: "The marketplace in which Express Gifts operates has become increasingly competitive. High street retailers' catalogue and online offerings, and pure online players, now compete with traditional catalogue operators in the home shopping market.
"At the same time, customers' expectations of the home shopping experience have grown significantly, with immediate feedback and multiple service options the norm. Whilst the business has an efficient and low-cost distribution capability, our existing systems platform both on and off-line has been underinvested and has not been able to compete effectively in this fast-moving environment."
He said the company was planning to spend £7m on updating systems over the next three years, producing benefits of an estimated £3m a year. A further £0.6m would be spent on behavioural scoring for home shopping credit customers, a move expected to produce benefits of £2m a year following investment. Buying and merchandising processes would also be improved in order to improve stock levels. The company believes up to 25% of unmet demand, orders lost through lack of stock, could be recovered as a result.
Today's update came as Findel, which operates in markets from home shopping to education and healthcare, posted its results for the 26 weeks to October 1. This summer Findel sold Confetti and I Want One of Those to concentrate on its core businesses. The two businesses previously traded as Findel Direct. In June it also sold home entertainment supplier Webb Group. As well as Express Gifts it also owns sport kit replica company Kitbag.
Today the company said that Express Gifts had seen product sales per customer rise by 1.4% during the six months, compared to the same time last year. It said growth came from a lower base after it introduced stricter credit controls last year, which have had the effect of reducing bad debt. It has also renewed its focus on value and has seen sales rise by 5% in the last six weeks.
The overall Home Shopping division saw sales from continuing businesses stay level at £152.3m in the six months, compared to £152.5m at the same time last year, while operating profits reached £1.9m, up from £0.9m last time.
Across the group, which also includes education supplies and healthcare divisions, the company reported sales of £255.8m, down from £260.0m. Pre-tax losses of £15.5m, reduced from £22.7m at the same time last year, included £7.9m of costs from exceptional items including a debt refinancing in July 2010, and £3.9m loss resulting from the operations moved out of during the period.
The company is now looking to raise £80m in an equity fundraising to repay debt and to invest in the company. It said today that its two largest shareholders had already agreed to underwrite up to £59m of that equity.