N Brown shifts sourcing focus as FY sales slump

N Brown Group saw declines in both sales and earnings in its last financial year, but the UK digital clothing retailer has refreshed its transformation strategy with a shift in sourcing focus to Europe in a bid to improve flexibility.

For the year ended 29 February, adjusted pre-tax profit slumped 28.8% to GBP59.5m (US$74m). Group revenues were down 6.1% to GBP858.2m, driven by 7.8% decline in product revenue and a 2.7% decline in financial services revenue.

The continued managed decline of the company’s legacy offline business, a shift in focus away from the US, and the impact of the closure of its store portfolio all impacted product sales. Excluding stores and the US, product sales were down 5.7%.

N Brown’s transformation to a digital retailer is still under way, with digital sales now accounting for 85% of product revenue, an increase of 6 percentage points over the last 12 months. In the year, digital revenue edged up 0.2% compared to 2019, and was ahead by 5.5% for both the womenswear and menswear brands.

Trading in the first quarter of the new financial year, however, was impacted by Covid-19, but sales in recent weeks have shown an improving trajectory. Group revenue was down 22% for the quarter, while product sales were down 28.8%, and in the last three weeks down 21%.

“The business has responded strongly to the challenges posed by the Covid-19 outbreak, highlighting our resilience as a business,” says chief executive Steve Johnson. “The crisis will cast a lasting shadow over the sector, but we are confident that our agile approach and attractive brand offerings, with clear target customer segments, position us well to navigate the issues and emerge as a stronger business.

Over the last two financial years, N Brown has undertaken a significant restructuring programme in order to create an improved platform for sustainable growth. This has included an increase in digital penetration, an exit of international markets, and the closure of store estate.

Entering the new financial year, N Brown is a top ten UK clothing & footwear digital retailer. The company says its digital capabilities have been enhanced, the executive and senior leadership team has been refreshed, with “a clearer strategic focus” and the cost base is now “more appropriate for a digital retailer”, with further cost saving opportunities identified.

N Brown has now refreshed its strategy and is now pushing on with further work to streamline its brand portfolio, improve product, create a new home proposition, and further develop its digital capabilities and financial services offering.

As such, Simply Be, Jacamo, JD Williams, Ambrose Wilson, and Home Essentials will remain. All other brands will either be folded into its main brands or closed down.

The company says it will also continue to focus on ethical and sustainable sourcing, ensuring “a consistent and consolidated supply base”. This has seen N Brown reduce its supplier base by 50% in the last 18 months, with a focus on increasing the mix of UK and European sourcing going forward, in order to “increase flexibility and speed to market”.

“By evolving our sourcing model, we will be able to respond with increasing flexibility to shifting customer demands, while reducing our lead times,” it says.

For the next two financial years N Brown will also focus on progressing the group with a “digital first” mentality, with a focus on new front-end websites, providing significant benefit to the customer experience, and improving site speed to drive performance of organic search.

Focus on apparel

Sofie Willmott, lead retail analyst at GlobalData, believes N Brown suffered during lockdown due to its heavy reliance on apparel.

”The lack of demand for clothing and footwear during the UK lockdown period has severely hindered the start of FY2020/21 for N Brown as its older customers held back spending on non-essential categories, dragging down Q1 results. N Brown’s younger brands performed better with Simply Be’s Q1 product sales down 16.2% in comparison to its brand that targets mature shoppers, Ambrose Wilson, declining 44.4%, however, the retailer has overall failed to benefit from spend shifting online during the pandemic.

“Other online pureplays have been able to capitalise as more shoppers have ventured online and current shoppers have spent more, namely the Boohoo group which though not a direct competitor, has proven that it is not all doom and gloom in the clothing sector.”

ShoreCap analyst Clive Black says N Brown has been through an extended mill, facing challenge after challenge topped off by Covid-19, which has taken a toll on its share price.

“FY2020 results confirm the well-flagged difficulties but also something much more virtuous, interesting and potentially enduring, in our view. The group has to some degree channelled a couple of years restructuring into three months, doing so in a capital light manner, to make for a refocused product proposition, a top-10 UK clothing & footwear digital business (91% participation), a compliant and supportive Financial Services (FS) operation with notably falling Net Debt (ND) and strengthening liquidity.

“Product sales trends are improving from recent lockdown lows, but visibility remains limited in Financial Services. The UK consumer economy is in a tough place and whilst choppy waters abound, we believe N Brown is in far better shape to traverse them than it was just 15 months ago, with the potential to emerge with more reward for shareholders.”