Sales tumble at New Look as the high street's resilience fades
Friday 12 November 2010
The chief executive of New Look blamed the fashion retailer's sharpest fall in sales for two and a half years on the "deteriorating" trading conditions and the "disruption" caused by the relocation of staff from Weymouth to its London office this year.
Carl McPhail also had to defend its supplier policy following Channel 4's Dispatches programme, "Fashion's Dirty Secret", on Monday which showed the appalling conditions endured by some workers making clothes for the retailer, as well as other high-street chains, at a factory used by a sub-contractor of one of New Look's suppliers.
New Look said its UK underlying sales on stores that have been open for at least one year tumbled by 4.5 per cent for the 26 weeks to 25 September – its worst sales since a fall of 6.6 per cent for the second half of 2007/08. While Mr McPhail said New Look was up against strong sales last year, its falling revenues contrast sharply with strong sales at rivals Marks & Spencer and Primark over a similar period.
Mr McPhail said: "Obviously, we experienced a deteriorating market and we also suffered some disruption from moving from Weymouth to London." New Look has moved its buying and merchandising team to the capital and nearly two-thirds of the 275-strong affected staff had made the move. But Mr McPhail admitted that there had been "issues" with some of its spring and summer footwear ranges. "We are a bit late getting into wedges – that caused us a bit of a problem."
New Look, which has 1,034 stores globally, said that group underlying profits, before exceptional items, fell marginally to £73.5m over the half year, compared to £77.8m in 2009. The retailer was bolstered by a recovery in its international markets, where international sales rose by 2.4 per cent over the 26 weeks, although they were flattered by a 17.4 per cent slump last year.
Mr McPhail said that New Look, which was forced to shelve a flotation earlier this year, declined to be drawn on the subject but said the business "remained open-minded about the opportunity to float in the future".
The retailer was more specific about how it wants to pay down its debt. At the half year, New Look had paid down its net debt to £998m. But of this debt, £620m is payment-in-kind (PIK) notes, where interest payments do not accrue until a company is sold or the notes mature. As this can rack up huge compound interest bills, New Look aims to pay down the PIK notes and take on more senior, or mezzanine, debt.
Mr McPhail also warned that clothing prices will rise next year, resulting from surging input costs, notably record prices for cotton and freight charges. He said the average prices, including VAT, in New Look's shops would rise by up to 7 per cent next year.
On the Dispatches' findings, Mr McPhail said it was "disappointing" as they had this year "banned" all suppliers from using the Imperial Typewriter Building, where the sub-contractor Sammi Leisurewear is based. While an investigation is ongoing, Mr McPhail said that any individual found to have made New Look clothes and allegedly paid as low as £2.50 an hour would be reimbursed the difference up to the minimum wage of £5.93.
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