Smythson stays loss-making but digital acceleration is key for future
Luxury leathergoods company Frank Smythson has filed its latest accounts and it seems the year to March 29 2020 was a difficult one for the firm. But a sale and licence-back deal since then has offered stability and a focus on digital appears to be yielding rewards.
But first, those accounts. The company, which sells from stores as well as online and through business-to-business channels, reported turnover down to £27.6 million from £29.3 million a year earlier, and EBITDA was a wider loss of £5.2 million compared to a loss of £4.6 million in the prior year. It's pre- and post-tax loss was £6.45 million for the period, slightly higher than the £6.23 million loss of the previous financial year.
The company had continued during the year to refine its retail network, exiting unprofitable stores in order to “create a more stable base of overheads and enable effort and investment to be concentrated on growing brand visibility, our digital channel, expanding our presence in key markets and investing in product development and marketing”.
During the period, it shut its concession in the Harvey Nichols London flagship and its store in Heathrow Terminal 3. And shortly after the year end it also exited its concession in Harvey Nichols Hong Kong following a challenging period there that began with political unrest and ended with the impact of Covid-19.
But what was perhaps most interesting was the information the company gave about developments since the 2019/20 year ended, especially given that the past 12 months have been among the most financially devastating that the luxury sector has seen for decades.
On the plus side, it said that against the pandemic background with long periods of closure for its shops, it has seen significant growth in e-commerce in the UK and around the world.
This was helped by the arrival of its new digital and marketing director Zoe Colegrave (who joined in January 2020), as she put digital “at the epicentre of the brand, and [it] aligned its strategy accordingly”. It means that since its financial year ended (the period that covered multiple lockdowns and other pandemic-linked restrictions) the company has seen 50% growth in e-commerce and said that its focus will remain a digital-first one.
But the big development after the period its accounts cover was on July 1 2020 when it entered into a sale and license-back agreement with Tivoli Group, involving the sale of the company’s trademarks at fair value for €11.5 million and a license-back granting an exclusive use of the trademarks globally. The company will pay the licensor a percentage of net sales as royalties with a guaranteed minimum royalty payable each contract year.
It said this deal has allowed it to guarantee continuity in the supply of its leathergoods, improve its cash reserves and meet its ongoing commitments while it worked to regain stability during the pandemic. For the future, it should also allow management to focus on delivering its strategy.
Stefano Giacomelli, CEO of Tivoli Group, also became deputy chairman in order “to create more synergy across the supply chain and support the company’s strategic direction”. And Colegrave was promoted to the position of chief commercial officer in January this year, adding responsibility for merchandising to her digital and marketing remit.
Xavier Rougeaux resigned from his position as CEO and company director in January this year as well, to take up a new position outside the business after leading the development of its overall strategy and supporting it through its period of organisational change and transition.
But the fact that the company felt the need to get itself on a more stable footing underlines the problems that it had last year, especially given that it was loss-making before the pandemic hit.
It said that Covid-19 has unsurprisingly “posed a significant challenge”. But it has done a lot to conserve cash and reduce costs and has accepted government cash as part of the various schemes that the UK introduced to support businesses during the pandemic.
For now, the firm said it's focused on ensuring its infrastructure is appropriate for the current business and is investing in people, systems and processes. With the acceleration of its digital operations, reduction in its portfolio of loss-making stores and rationalising its cost base, it's confident it's laying the foundations “for a successful and profitable business model”.
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