Children’s stationery retailer Smiggle has warned that ongoing turbulent economic conditions in the UK may cause its owner Premier Investments to withdraw the financial support on which it continues to rely.
The retailer stressed that Premier Investments will continue to support Smiggle ‘to enable it to meet its liabilities’ for at least the next 12 months. But with ongoing Brexit uncertainty and the volatility of the UK market, beyond this date this valuable funding source looks increasingly likely to dry up.
Just one year ago Smiggle seemed to be an unstoppable force on the British high street. The Australian retailer of fun and fashionable children’s stationery opened 133 standalone stores in the UK between February 2014 and July 2018, including a flagship on Oxford Street last summer. It has also expanded internationally into south-east Asia, New Zealand and Ireland.
At the time of the flagship opening, Smiggle expressed interest in growing its UK store footprint to 200 by 2020, which would have represented over £100m in sales. However, the company has had to scale back these plans. Its latest accounts, for the year to 28 July 2018, show EBIT fell 35.1% to £7m. Net profit crashed by 32.9% to £5.73m on sales of £69m. Sales rose by 25% but this includes online sales, which are growing strongly and account for a fifth of this total.
Premier’s first-half results in March 2019 stated: “As a direct result of Brexit, Smiggle expects its aspirational target of $450 million in annual global retail sales will be delivered in calendar 2021 or calendar 2022.
“Significantly though, the four new pathways to global Smiggle retail sales growth, beginning in 2H19, will deliver much higher EBIT margin with materially less capital and generate far higher cash flows than the originally planned multi country own store rollout.”
Retail Week reports that Smiggle has discussed informally with its landlords the possibility of reducing rents, although there is no hint that a CVA has been tabled. This seems unlikely given that many of Smiggle’s leases were drawn up over the past two years.
The FT cites an unnamed source with ‘knowledge of the company’s revised strategy’ as saying that talks with landlords were also being driven by conditions in the UK property market, and that “they are aware that rebates and discounts are being offered to other retailers in the same centres.”