Shares in Shoe Zone were down by more than 3% this morning (23 June) as the UK value footwear retailer swung to a loss for the first half amid the early impact of Covid-19 and announced 20 stores will not reopen after lockdown. 

In its interim results statement for the six months to 4 April, Shoe Zone reported a statutory loss before tax of GBP2.5m (US$3.1m), compared to profit before tax of GBP1m in the prior-year period.

Revenue, meanwhile, fell 5.6% to GBP68.9m from GBP73m last year. Digital sales increased by 31.9% to GBP6.5m, achieving profit contribution of GBP1.9m, compared to GBP1.5m a year ago. 

“During the period we experienced both disruption in the supply chain and a fall in consumer spending in March resulting in the subsequent closure of retail stores from the 24 March,” CEO Anthony Smith said. “Prior to this, the five months to February showed a year-on-year increase in revenue of 2.6%.”

The retailer reopened all of its stores in England, Northern Ireland and the Republic of Ireland on 15 June and said its locations in Wales and Scotland will reopen on 28 June and 29 June, respectively. 

Smith said Covid-19 will continue to have an “unprecedented impact” on the UK economy and the retail industry, noting while the group has taken all possible steps to ensure that the business will survive through the crisis and continue into the future, the impact is likely to continue to be felt for several years.

“As a result of this and following an extensive review of the store portfolio Shoe Zone has closed an additional 20 stores during lockdown and will only open 470 when permitted. The group has also taken immediate action to reduce costs at head office and pause all areas of discretionary spend. Negotiations with landlords have also been accelerated and supplier orders reduced, cancelled or deferred as far as possible.”

Smith said the head office rationalisation programme has meant an additional GBP0.3m has been incurred in redundancy payments after the balance sheet date. The retailer has also undertaken a review of freehold values held resulting in a write-down of GBP0.9m, giving an additional Covid-19 impact, not included in the first half results of GBP1.2m.

He added cash remains the “key focus” for the business with an immediate focus on rebuilding cash balances to a higher level than previously carried and repaying the debt taken on as part of the CBILS scheme whilst fulfilling other statutory obligations.  

“The board remains confident that the group’s current level of funding will be sufficient to secure the future of the business, assuming that sales return to a high proportion of previous sales during the next year.”

A drastic hindrance

Pippa Stephens, retail analyst at GlobalData, notes while Shoe Zone made a promising start to FY2019/20, with total revenue up 2.6% to February, the impact of Covid-19 has “drastically” hindered its resurgence.

“Though previous digital enhancements have helped online sales to rise 31.9% during H1 FY2019/20, it has not been enough to outweigh the lost sales from its store estate, with total revenue dropping GBP4.1m to GBP68.9m. In order to boost digital sales amid the outbreak, Shoe Zone has been running significant promotional activity to help generate revenue as quickly as possible. However, it must ensure that it does not become too reliant on this technique in the long term considering it will heavily impact its profit margins.”

She adds: “The retailer announced today that it has permanently closed 20 stores, as it continues to focus on the expansion of its Big Box format, of which it had 47 locations operating at the end of H1 FY2019/20. As these Big Box stores are primarily positioned in retail parks, the easy accessibility and plentiful parking at these locations will be appealing to more cautious shoppers in comparison to high streets and shopping centres. Moreover, these larger store formats will allow for simpler social distancing, giving shoppers more confidence to visit. It should better communicate the safety measures it has in its stores, including Perspex screens, floor markings and maximum capacities, via its social media and digital marketing channels, to drive greater awareness of the steps it is taking to keep shoppers and staff safe.”

Stephens says due to its reliance on footwear, Shoe Zone is particularly exposed to the waning demand for non-essential items amid the pandemic, as clothing and footwear has been the worst hit retail sector with UK spend forecast to decline by 31.4% in 2020. However, she notes its comprehensive range of children’s footwear will be advantageous, with this sub-sector expected to remain the most resilient due to a greater dependence on replacement purchases.

“Shoe Zone’s value proposition will also enable it to quickly regain appeal following the crisis, as many consumers will begin to trade down as they start to feel the effects of the impending recession. While its main rival Primark was forced to halt trading in the UK for nearly three months due to store closures and a lack of a transactional website, this will have created an opportunity for Shoe Zone to attract new shoppers, so it must encourage repeat purchases through personalised emails and marketing to continue growing its customer base.”