Quiz moves to boost supply chain visibility amid FY loss - Just Style
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Quiz moves to boost supply chain visibility amid FY loss

By Beth Wright 27 Oct 2020

Quiz says its board has taken a number of actions to strengthen its systems and processes to increase supply chain visibility following a review into one of its Leicester-based suppliers earlier this year.

In its preliminary full-year earnings statement this morning (27 October), Quiz said a series of steps have been taken to ensure that all products are consistently supplied in line with its Ethical Code of Practice.

Among them is the appointment of a new ethical compliance manager who is based in the Midlands, and a new process to prevent unauthorised sub-contracting by providing clearer visibility of the factory address where every Quiz product is being made.

The company has also worked with the compliance team at one of its major UK retail partners to conduct supplier visits and compare best-practice processes; commissioned specialist third parties to provide independent audits of each of the factories within its supply chain on an ongoing basis; and increased the number of audits and random factory site visits across its supply chain.

“The board is acutely aware of the responsibilities the group has to source its clothes in a responsible and ethical way as well as the challenges posed by having a global supply chain. We recognise that our customers expect the latest looks from us, but we know that this comes with a duty to ensure our products are sourced and manufactured ethically and responsibly,” the company said.

“The board will continue to prioritise ensuring that the group has an ethical and responsible supply chain that all Quiz’s stakeholders can be proud of. We are committed to continually investing in this critical area of the business to ensure that the group’s systems remain robust and that the Group’s strict Ethical Code of Practice is always adhered to without exception.”

Quiz launched an investigation into one of its Leicester-based suppliers in July after allegations of non-compliance with living wage requirements at its factories surfaced.

Quiz said while the review confirmed the company named in the report had ceased trading the previous year, the factory in question had been used by one its suppliers as a sub-contractor contrary to the group’s previous instruction.

“The business which operated the factory at the date of the allegations ceased trading in March 2020 and as a result, the group was unable to access relevant records from the sub-contractor meaning that we were unable to substantiate the allegations.

“From our review of our other United Kingdom suppliers we have not identified any evidence of non-compliance with National Living Wage requirements.”

Quiz was the second UK fast-fashion retailer to launch such a probe in under a week, with its review following a similar investigation undertaken by Boohoo

Preliminary FY results

The comments come as Quiz reported its unaudited preliminary results for the year ended 31 March.

Group revenue decreased 10% year-on-year to GBP118m (US$153.9m) from GBP130.9m, reflecting challenges during the year as well as a sharp decline in March sales further to Covid-19 disruption.

Revenue from UK stores and concessions decreased 12% to GBP58.7m, while international sales fell 5% to GBP21.8m, reflecting declining revenues from stores and concessions in the Republic of Ireland and the cessation of certain franchise sales.

Online revenue, meanwhile, was down 9% to GBP37.5m, with the decline predominantly reflecting lower sales via third-party websites. Sales volumes through the Quiz website were consistent with the previous year but more profitable year-on-year.

The company’s active online customer base increased 11% to 638,000 from 576,000.

Given the decline in revenues, an underlying loss before tax of GBP3.7m was recorded. This compares to a profit before tax of GBP0.6m a year earlier.

Further to the impact of non-recurring costs of GBP26.3m, of which GBP23.8m had no cash impact, and the introduction of IFRS 16 leases, the reported loss before tax was GBP29.4m. 

Group gross margin narrowed to 60.3% from 60.7% a year ago, reflecting increased provisions made against slow-moving stock.

Quiz added the pandemic has significantly impacted its sales in the current financial year with stores and concessions closed for a number of months.

As a result, the group’s total sales in the six months to 30 September amounted to GBP17.2m, a 73% decline from revenues of GBP63.3m generated in the previous year.

“Whilst we are pleased with the further growth in our customer base during FY20, this was a challenging year for Quiz characterised by macro-economic uncertainty and challenges presented by the accelerating structural shift towards online retail,” said CEO Tarak Ramzan.

“We continue to rebalance our product offering towards more casual clothing to meet the changing lifestyles of our customers. Looking ahead, we remain confident in the strength of our brand and believe that underlying customer demand remains strong for the brand’s trademark occasion wear which we aim to capitalise on when restrictions on social events are eased.

“We are confident that the actions we have taken to preserve liquidity and reduce our cost base while continuing to invest in the brand mean that the group can return to profitable growth as market conditions improve.

Last month, Quiz said it will close about 15 of its UK stores, while none of its Spanish stores are set to reopen.

Challenging product mix

Shore Capital analyst Greg Lawless notes Quiz’s product mix of occasion wear is challenging given current Covid restrictions across much of the UK.

“Whilst the online business is now 33% of group sales this should, in our view, be powering ahead as we have seen with other clothing brands. Other brands have successfully pivoted towards loungewear and made their sales mix less reliant on going out clothes. The net cash position and liquidity gives the company room for now but we are of the view that whilst management have put in cash preservation measures there are still hard yards ahead.”

Lawless also notes the statement highlights the group’s move to conduct a thorough review of its ethical auditing processes and continues to strengthen its procedures.

“Like the Boohoo saga, we will continue to monitor developments with a keen eye given the fast fashion supply links to Leicester.”