Last month, we questioned whether New Look in Leicester was safe. We suspected either Fosse Park or Highcross would close though it has been confirmed today that New Look in Leicester Haymarket will be one of the sixty stores New Look is forced to close to cut back on costs.
New Look reported excessive losses in January 2018 and has been struggling to keep their head above water since before the start of the new year. We stated clearly that store closures and cost reduction alone would not be enough to sustain the company who is nearly due to celebrate their 50th anniversary since first opening their doors in 1969.
The cost reductions are in an effort to not have to enter into a Company Voluntary Arrangement (CVA) which is an agreement insolvent companies make to pay its debts over time.
In late 2017, when we visited NEXT in the Highcross Leicester we noticed that, when walking past the store, it wasn’t clear as to whether or not they even had a men’s section; the first two floors (accessible from the lower and upper mall) featured prominently women’s and children’s clothing whilst the men’s section was right upstairs, on the top floor with no access from the mall. For a disabled person to go shopping for clothes in Highcross NEXT for a man, they would have to enter the store and navigate to the lift which is through all of the women’s clothes and not clearly marked. This is the case with the majority of brick and mortar fashion retailers who appear to suffer from costly, long-term leases. This is the reason NEXT issued their profit warning in January 2017 and it is clear to us that this is the reason New Look are facing such massive losses.
Will Cost Reductions Save New Look?
Taking NEXT into account, it is difficult to believe reducing costs is going to solve the problem for New Look. New Look’s outlook appears dim should they continue to focus on their Brick and Mortar strategy. NEXT plc realised the focus for them should be online and by restructuring their business model and shifting their focus towards their online markets, their online Directory business reported a 5.7% increase in sales whilst they agreed that the high street looks as challenging as ever.
So, what is the solution for New Look? They have two options beyond reducing costs; on one hand, they could take inspiration from Next and develop and focus on optimising their online strategy in the hopes they can imitate Next’s results.
On the other hand, they can do what Next have failed to do so far and pay extra attention to their in-store men’s ranges (this will mean reinstalling the menswear section in the New Look Fosse Park store), making them more prominent and appealing to the male consumer whilst moving their womenswear sections online.
Are There Any Jobs At Risk?
There are 980 jobs at risk across the UK as a result of the 60 stores across the UK closing. We expect between fifteen and twenty jobs will be lost at least whilst other members of staff may be transferred to other stores, however, one of the biggest costs to retailers are staff wages so this number may be set to rise as redundancies are made in other Leicester stores should New Look fail to fix their financial troubles.
What is insolvency?
Companies become insolvent when their cash flow falls into the negative and the revenues aren’t high enough to cover the cost of debts as they fall due.