The struggling New Look fashion chain has plunged to a huge annual loss of nearly £235m after a tumultuous year, which included the return of its former boss Alistair McGeorge to attempt a second turnaround of the heavily indebted chain.
“There was no way I could stop these numbers happening, it was preordained by the time I joined,” McGeorge said.
He blamed the dire performance – including a near 20% plunge in website sales – on the previous management team chasing a “young and edgy” audience. “We lost connection with our core customers and got our stock packages wrong,” McGeorge said.
The grim New Look results contrasted sharply with rocketing sales at its online rival Boohoo and provided new evidence of the gulf between the physical and digital high street.
Overall sales at UK New Look stores open for more than a year slumped nearly 12% in the year to 24 March. Total turnover fell by £107m to £1.3bn.
The chain is owned by Brait, a private-equity firm whose biggest shareholder is the South African tycoon Christo Wiese. Brait paid £780m for a majority stake in New Look in 2015 and the retailer is now saddled with a £1.2bn debt pile.
In March New Look launched a company voluntary arrangement (CVA), a form of insolvency used to jettison unwanted stores. Under the restructuring plan up to 60 of New Look’s 593 stores were expected to close while the rent on nearly 400 other branches was cut, shaving £40m off its annual rent bill.
However McGeorge said he did not expect any stores to shut this year after all because, as a result of the wave of other CVAs from retailers including House of Fraser and Mothercare, landlords were increasingly reluctant to take back the keys and cover the running costs on empty units themselves.
As a result, New Look may end up occupying stores rent free. “We are not in any rush to shut them if it is in our gift,” McGeorge said.
Many retailers with large estates are struggling to absorb big increases in business rates as well as as higher labour costs as a result of the national minimum wage and apprenticeship levy.
At the same time, Britons are cutting back spending on clothing and household goods because of a squeeze on spare cash. In the latest sign of the distress caused by this cocktail discount chain Poundworld crashed into administration on Monday, putting more than 5,000 jobs at risk.
Boohoo, owner of the fast-growing PrettyLittleThing and Nasty Gal brands, is winning sales from traditional high street retailers by targeting a generation that shops via their mobiles and takes its style cues from Instagram.
Group sales were up 52% to £183.6m in the three months to 31 May but the star performers were PrettyLittleThing and Nasty Gal, where sales had more than doubled in the period.
Boohoo shares were down 2% at 215p at lunchtime on Tuesday; two years ago they were changing hands at 58p.
The House of Fraser CVA, which involves the proposed closure of 31 of its 59 stores, is proving controversial with landlords who are angry they being asked to take a hit while other creditors are unaffected.
“A CVA will not save a poor brand,” said McGeorge. “For us it dealt with our over-rented position and stopped us running out of money. Landlords would have come out of an administration in a much worse position.”