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January 8, 2020

Shoe Zone laments business rates burden as FY profit tumbles

Shares in Shoe Zone were down by more than 3% this morning (8 January) as full-year profit at the UK value footwear retailer was knocked by what CEO Anthony Smith called the "increasing financial burden" placed on High Street businesses. 

By Beth Wright

Shares in Shoe Zone were down by more than 3% this morning (8 January) as full-year profit was knocked by what CEO Anthony Smith called the “increasing financial burden” placed on High Street businesses. 

In its preliminary results statement, Smith said government-imposed increases in its operational costs presented challenges in maintaining levels of profitability year-on-year.

As a result, statutory underlying profit before tax for the 53-week period to 5 October dropped 15% to GBP9.6m (US$12.6m) from GBP11.3m the year before. 

Revenue edged up 0.9% to GBP162m from GBP160.6m in 2018, while product gross margin maintained at 62.7%.

Smith, who resumed his role as chief executive on a permanent basis in August, said it has been a difficult year for Shoe Zone and called for a change to business rate reforms to aid future profitability. 

“Town centre stores remain an important component of our proposition and we don’t agree with doomsayers referring to the inevitable “death of the high street”. However, it’s stark that over the past ten years the rates paid as a proportion of our rent has increased from 26.4% in 2009 to 54.3% in 2019. Despite rationalising our store estate, the value of rates paid has increased by GBP700,000 despite having 38% fewer stores and 30% lower sales. 

“For the retail sector to continue to play its important role in the UK economy, and town centres to serve their communities, it is vital that Government recognises the impact of the increasing financial burden placed on businesses on the High Street by successive governments and their policies.”

Looking ahead, Smith said Shoe Zone plans to convert a further 20 of its traditional stores to the more “premium” town centre hybrid model this year. 

Pippa Stephens, retail analyst at GlobalData, notes in the year ahead the company must also continue to focus on enhancing product design to increase appeal, and incorporate more trend-led styles to keep up with rivals, such as Primark and New Look, while remaining price competitive.

“The inclusion of third-party brands such as Skechers and Clarks has led to an extended pricing architecture; however, with prices reaching into the midmarket, at GBP90 for a pair of Lotus boots, Shoe Zone will need to convey a more premium and aspirational image to convert AB and C1 shoppers – its plan to accelerate the roll-out of its new hybrid store format in town centres is the right approach to change shopper perception and lift brand desirability in these locations,” she says.

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