Shoe Zone, the UK’s largest value footwear retailer, recently announced its preliminary results for the period ending October 5, 2019, showing a modest 0.9% increase in revenue to £162 million. While these results may seem lackluster, there were notable positive signs for the company’s future. The company’s ongoing store upgrades have continued to yield stronger results, and its product gross margin remained steady at 62.7%. However, it’s important to consider that this latest reporting period covered 53 weeks, compared to the previous year’s 52 weeks, making the results weaker when directly compared. The company also saw a decline in statutory underlying profit before tax, which fell from £11.3 million to £9.6 million, and its cash balance decreased to £11.4 million from £15.7 million due to higher capital expenditure and a special dividend payout.

Shoe Zone has been strategically transitioning a portion of its store estate to a big box format, with 21 such store openings in the past year. This brings the total number of big box stores to 45 by the end of December. These big box stores, which offer the company’s own brands as well as popular labels like Clarks, Skechers, and Hush Puppies, have shown promise for future growth. In fact, these stores contributed £15.6 million in revenue, a significant increase from the previous year’s £7.1 million. With this success, Shoe Zone plans to open more big box stores this year.

In addition to the big box format, Shoe Zone has also successfully experimented with four new “hybrid” town center stores that combine elements of the big box concept with traditional shop formats. The company plans to convert an additional 20 stores into this hybrid format in 2020. Moreover, Shoe Zone was able to negotiate better lease agreements for 60 of its town center stores, resulting in a remarkable 23.6% reduction in rents. This achievement is particularly striking given the challenging condition of the UK fashion retail industry.

Shoe Zone is also prioritizing its e-commerce business and witnessed a noteworthy 9.2% growth in digital revenue, which reached £10.6 million in the past year. With over a million engaged users on their shoezone.com database, Shoe Zone boasts a solid customer base and tremendous potential for further online growth.

The company sells approximately 18 million pairs of shoes annually, with an average price of £10 per pair. Throughout the year, Shoe Zone launched various endeavors, including the successful relaunch of its premium own-brand, Lilley & Skinner. This brand offers women’s shoes priced around £30 and boots priced around £50. Lilley & Skinner contributed £535,000 in sales and consistently delivers margins of over 70%.

Despite facing a challenging year, Shoe Zone experienced changes within its executive team, with CEO departure leading to executive chairman Anthony Smith returning to the CEO position. Smith acknowledged the difficulties encountered but emphasized the revenue increase and the fact that underlying profit before tax exceeded their revised expectations. He also expressed support for physical retail, stating that town center stores still play a vital role in their overall proposition.

Nevertheless, Smith also addressed the rising costs that significantly burden physical retailers. He highlighted the substantial increase in rates paid as a proportion of rent over the past decade, rising from 26.4% in 2009 to 54.3% in 2019. Despite streamlining their store estate with 38% fewer stores and 30% lower sales, Shoe Zone had to pay £700,000 more in rates. This issue of business rates has been a concern for many brick-and-mortar retailers, who argue that the burden is disproportionately high compared to online retailers.

Despite the challenges faced in the past year, Shoe Zone remains optimistic about its future prospects. With continued store upgrades, expansion into the big box format, investment in e-commerce, and the success of its premium brand, the company is positioning itself for growth. However, it will be crucial for Shoe Zone to navigate the changing retail landscape and find ways to mitigate the impact of rising costs to remain competitive in the industry.

Further reading:
1. Shoe Zone Preliminary Results (Link: click here): Find out more about Shoe Zone’s preliminary results and trading update on the company’s official website.
2. The Impact of Rising Business Rates on Physical Retailers (Link: click here): Read about the concerns raised by retailers regarding the impact of rising business rates on the industry in this article from Retail Gazette.