Beleaguered clothing retailer New Look has announced new store closures in addition to the 60 declared earlier in 2018, underlining struggles faced by the company.
Now 85 stores will close, and that number could rise to 120 of the 593 shops operated by the company in the UK.
Revised lease terms and renegotiated rents, resulting in between 15% and 55% cuts in rent for 393 stores, have helped improve profitability. Underlying profits reached £22.2m ($29m), contrasting a loss of £10.4m ($13.7m) the year before.
New Look must look to replicate rivals successful strategy
However, even though the decline in like-for-like sales has slowed – only falling 3.7% in the 26-week period to 22 September – so far, the turnaround plan has improved company finances. Yet the company has much longer-term problems to solve than dropping sales.
According to MarketLine data, the UK apparel market only grew by 1.7% in 2017 and 0.9% the year before, signalling intense rivalry between leading companies. Forecasts predict growth to continue to be slow, meaning New Look is unlikely to be helped by market conditions.
Amid near-constant sales seasons, companies such as Inditex (owner of the Zara brand) have thrived due to exceptionally adaptable and fast supply chains which have greatly reduced the need for discounting.
New Look must replicate that success if the brand is to rebuild. Getting fashionable clothing into stores quicker than rivals enables trends to focus on the products offered by a single retailer.
Selling more products at full price should be the primary aim. Other big high-street names, most notably Marks & Spencer, have struggled to do just that, entering a lengthy series of recovery plans with limited success.
Higher average point-of-sale prices could be achieved through replicating the speed at which clothing ranges in Zara can be transformed to suit swiftly changing consumer tastes. Doing so will not be easy.
Recovery plan is helping but is only a short-term solution
That New Look is closing more stores to revive sustainability suggests the degree of investment needed to match the nimbler Inditex remains unfeasible, at least at present.
Although the decision in June 2018 to slash the price of 80% of items to below £20 ($26) helped to boost sales, and to an extent revive revenues, such strategies are extremely short-term.
However, the turn-around plan is improving the odds of success. If current trends continue, like-for-like sales should soon return to growth, improving profitability and providing much-needed cash flow.