Shoe Zone could close up to 90 stores over the next couple of years if the British government goes ahead with plans to reintroduce the “antiquated business rates system” in April 2021.
The British shoe retailer said that the suspension of rates in April 2020 by the government to help retailers was a “significant benefit” to its business during the financial year that ended on Oct. 5. But it noted that the government has announced plans to reintroduce rates, “and to make matters worse has delayed the revaluation.” The company warned that the decision will force it to close up to 45 stores prior to April 2021 and potentially close a further 45 stores in the 12 months following the reintroduction of rates. It noted that the closures would represent up to 20 percent of its fleet.
The retailer pointed out that in 2015 the government delayed the rates revaluation by two years, a move which cost it £1.25 million (€1.38m-$1.62m) a year. The latest revaluation postponement will be even more costly, it estimates. “Never has the rating system been more unfair,” commented chief executive Anthony Smith. Because of a decline in rents and the delayed recalculation of the tax, rates as a proportion of the company’s rents have increased from 26.4 percent in 2009 to 54.3 percent in 2019 and are forecast to be close to 60 percent in 2021, according to Shoe Zone’s estimates. “This is unsustainable for most high street retailers and closures will continue unabated until the government makes substantial changes,” Smith added.
During the full year ended in October, Shoe Zone generated revenues of £122.6 million (€135.4m-$159.2m), down from £161.9 million (€178.8m-$210.2m) a year earlier. The retailer had to close its stores from March 23 to June 15 due to the Covid-19 pandemic. It expects to report a loss before tax of £10.0 million (€11.0m-$13.0m) to £12.0 million (€13.3m-$15.6m) for the full year.
Since their reopening in June, shops have registered a decline in sales of about 20 percent, while online sales have doubled, but failed to compensate for the drop in physical stores. Shoe Zone noted that the reintroduction of Covid-19-related lockdowns in the Republic of Ireland and Wales on Oct. 21 and Oct. 23, respectively, and of a new tier system in England, with varying levels of restrictions, have created further uncertainty about future business performance. It noted that stores situated in England’s Tier 2 and 3 areas “have been greatly impacted.”
The company finished the financial year with a net cash balance of £6.3 million (€7.0m-$8.2m), but no dividend will be paid as it gives priority to debt repayment. It added that additional funds may be needed for one of its legacy pension schemes and does not anticipate to restart a dividend policy until at least the 2024/25 financial year.
Shoe Zone ended the year with 460 stores, having opened 10 Big Box stores and closed 40 stores during the full year. At the end of the financial year, 50 Big Box stores were trading. All new openings are on hold until trading conditions improve while a small number of relocations will happen as needed. The compay claims to sell 16 million pairs of shoes annually at an average retail price of £11 (€12.2-$14.3).