New Look holds its hands up as profits slump 40%

The (not so) budget retailer described its performance last year as 'disappointing'. That's putting it mildly.

by James Taylor
Last Updated: 19 Aug 2013

New Look has had a rotten time of it lately, and the retailer revealed the extent of its woes today: profits plummeted 40% in the year to March, from £163m to £98m, while like-for-like sales in the UK were down 7% year-on-year. Like many in this sector, it has suffered from rising commodity costs and the general drop in consumer confidence. But some of New Look's problems have been self-inflicted - including the ill-fated decision to relocate its HQ to London, and more recently, its failure to keep its prices down. We're no experts, but inferior ranges at higher prices doesn't sound like a recipe for retail success...

Executive chairman Alistair McGeorge - the ex-Matalan boss who was parachuted in back in March after New Look abruptly parted company with its chairman and CEO - admitted today that the chain's overall sales slipped to £1.46bn last year, thanks largely to a 5.5% decline in overall like-for-likes. What's more, things seemed to be getting better rather than worse; in the UK, for example, sales were down 4.5% year-on-year after the first half, but 7.1% year-on-year by the end of the second half.

'Clearly these are disappointing results, reflecting a business that was suffering significant internal disruption', McGeorge admitted ruefully today. He's talking here about the decision to relocate the chain's HQ from Weymouth to London; a third of its staff refused to go, including many of its experienced buyers, and New Look has admitted that it got its ranges wrong as a result.

But there was another issue, according to McGeorge. Like most low-cost clothing retailers, New Look has seen its sensitive margins squeezed by the increasing cost of raw materials like cotton. However, he thinks that it pushed its prices up too far to compensate - or to put it in CEO-speak: 'We allowed our price architecture to drift upwards' (one of the most tortuously mixed metaphors we've heard all year). This, he said, 'undermined our competitiveness and relative value positioning in the marketplace'. In other words, if you're in the fast fashion market and you stop offering shoppers bargains, they're not exactly going to keep coming back because of the quality of the merchandise. The shoppers New Look targets are very price-conscious, so it can't afford to let its prices get too high.

All things considered - and particularly when you consider its hefty debt burden - it's no wonder New Look pulled its IPO back in February; in fact, it's not clear why it ever thought the markets would be interested. And with the general retail climate unlikely to improve in the coming months, it's going to be a long hard slog for the chain to recapture its former glory. Cutting out the self-inflicted wounds would be a start, though.

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