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N Brown (LSE:BWNG) has gone through five years of upheaval: it has moved most of its custom to digital platforms; replaced most of the senior management and reduced the workforce; pushed into overseas markets, and; invested in a costly IT system.
During this period of transition earnings per share fell from around 29p to only 16p, or 23p if we ignore the PPI recompense. Its share price has gone from £5.93 to only £2.67 today.
So, is the company through the worst of the pain, and it will now emerge stronger and more profitable than ever? This is impossible to answer with any great certainty, but I can point out some relevant factors.
The plan
The phenomenon of online shopping (now 20% of non-food sales in the UK), taking share from catalogues and physical stores, puts N Brown in a stronger position than many of its competitors because it has an established presence and respected niche brands.
They have economies of scale through selling over £600m per year, and economies of scope through the recruitment of new customers via the fashion offering, but then enticing them to use their accounts to buy home wear, electrical items, etc.
The gradual movement of customers online has resulted in cost savings. So far a third of the workforce has been culled at the same time as establishing “new teams of colleagues, new skill sets and capabilities, new outsourcing partners and a focused and consolidated portfolio of brands” (2016 Report)
The past three years have seen an almost entirely new top team. All members of the operating board are “digital natives”
It opened its first in-country sourcing office in 2015, permitting closer working with suppliers in Bangladesh and reducing reliance on costly third-party agencies.
Previously N Brown relied on external design agencies, but over the last two years it invested in a new in-house team of designers to “to ensure that we are always on-trend and providing our customers with clothes which fit, flatter and make them look and feel amazing.” (2016 report).
Stock management has been improved, meaning less drastic discounting. Instead of selling surplus through 18 physical stores (now closed) the company will sell it through the Crazy Clearance website.
The CEO sees stock management as central to business success. She said to Retail Week in March 2016: “stock management will sort out the winners from the losers in fashion retail….excess stock means drastic discounting for protracted periods….the shift to online clearance de-risk our balance sheet, by reducing our aged inventory position.”
The new IT system will allow more international reach. With that in mind Boohoo’s former Marketing and International Director, Richard Clarke, has recently been appointed N Brown’s International Director. He starts with a small base: only £15.5m sales in the US and £15.9m in Ireland, but there is much to play for.
The quality of the customer loan book is being improved. Already customer account arrears (over 28 days) have dropped from 10.9% in 2016 to 9.9% in 2017.
Angela Spindler, CEO. Aged 54
Started her career as a Mars graduate trainee, 10 years. Then a decade at Asda, put in charge of George and got the bug for fashion retail. A brief spell at Debenham’s followed and then a few years as CEO of a privately run value retailer Original Factory Shop. Appointed to N Brown CEO in 2013. Paid over £600,000. If things go well she could receive £2.2m in a year.
She has been criticised for dropping the ball on……………………….To read the rest of this article, and more like it, subscribe to my premium newsletter Deep Value Shares – click here http://newsletters.advfn.com/deepvalueshares/subscribe-1
