Wasteland of Leather, more like. The home-furnishings company has suffered an 87% drop in annual profits, saying its pre-tax profit for the year to 3 August was £2.3m, down from £18.5m a year ago. Total sales fell 3% to £232m, and next year isn't going to be much better. Operating costs will be slashed in an attempt to save about £17m. So far, Land of Leather's board has agreed to forgo part of their salaries, cutting group wage costs by a quarter. The firm has also shed 200 jobs in its 109 branches, and store openings and refurbishments have been put on hold. To add to its woes, customer Barry Green of Plymouth is suing the company and its Chinese manufacturer over claims that a £545 sofa bought from Land of Leather gave him a permanent heart condition caused by sachets of anti-mould fungicide under the cushions. Not all publicity is good publicity.
Said chairman Roger Matthews: 'The past year has been one of the most difficult for the retail furniture industry in many years. Trading conditions were severely affected by the impact of the credit crunch on housing transaction levels, consumer confidence and spending on bigger-ticket discretionary items.' Promotional activity and exceptional items were blamed for the profit fall.
THE STRAIGHT TALK
The company was founded in 1994, floated on the London Stock Exchange in 2005, and in July this year had to raise £13.5m in a rights issue, backed by the failed Icelandic bank Kaupthing. Land of Leather caters to the mass market, and the broadening of its product range of cheap leather sofas to include fabric sofas is an attempt to appeal to the cash-constrained consumer. 'Land of Leather's challenge is simply to survive,' said the FT. '(It) has no debt and a management team that has put more than £3m of its own money on the line. Unfortunately, there is little (they) can do, apart from cut costs and hope for the best.'
'We expect, and are planning for, the challenging market conditions to remain,' Matthews says. There's no doubting that sales of pricey items like three-piece suites are going to take a kicking now that the UK is officially in recession. A new era of thrift and a stagnant housing market has put paid to the idea of a new sofa for every season. The future of Land of Leather lies in the hands of chief executive Stephen Jenkins... he'll surely be keeping his fingers crossed for the Boxing Day sales.