N Brown: Outlook Positive, for Now

N Brown’s latest results make impressive reading. Group revenue is up 13.6% to GBP290.6 million, including a like-for-like increase of 10.6%, while pre-tax profits have risen by 17.5%. The outlook is good, but the retailer needs to focus on building customer loyalty while conditions remain favorable.

Home shopping retailer N Brown has significant growth potential. Despite the declining popularity of traditional home catalogue shopping, N Brown has built up a strong business based on niche ranges and customer groups, mostly focused on the growing and relatively underserved 45-65 age range and plus-sized female segments. Its continued growth has also been furthered by the success of its online business, which grew a further 40.4% year-on-year to reach GBP73 million. The online operation is set to continue benefiting from the growing number of internet users, with internet sales rising for all of N Brown’s core customer groups.

As well as benefiting from favorable consumer trends, the company appears to be more insulated from the potential troubles concerning store-focused retailers. Its higher core age group means that it is less focused on fashion than many rival retailers, which means that many of its products can be held into the next year if sales are not as high as expected, minimizing the need for markdowns.

The unusual weather patterns of the last 12 months have raised concerns over the traditional concepts of seasons and highlighted the challenges of anticipating demand. While its catalogue sales can be expected to suffer during unseasonal weather if its offering does not match customer needs, N Brown is able to be more responsive than store-based retailers, as long as it keeps sufficient out-of-season stock in its warehouse. It is able to integrate changing needs into additional website lines and one-off leaflet mailings at comparatively short notice. Again, this is supported by its non-fashion focus, which makes this a less risky strategy, as well as its detailed customer knowledge.

It is also in a more favorable position than most when it comes to a potential consumer spending slowdown. Its average customer age is 58, so this customer often has fewer financial commitments and little or no mortgage repayments remaining – reducing the impact of the recent interest rate rises. However, this does vary by brand, with some of its younger titles such as Simply Be and Fashion World more vulnerable.

One point of concern, however, is the growing number of clothing rivals launching transactional websites – including a number of value retailers, such as Peacocks and Tesco – which could make home shoppers more price sensitive, particularly through improving the availability of cheaper niche size alternatives. N Brown’s ability to justify its prices for harder-to-find sizes may well come under pressure on this front. This is a particular risk in the younger (30-45 years) target segment, which is more likely to be attracted by the fashionable positioning of many high street rivals. Certainly, it will make continued growth at current levels more difficult to achieve.

Many of its rivals are still in the early stages of web development and few have their full niche ranges online. As a result, N Brown appears relatively safe, at least for the next year, but it needs to focus on building customer loyalty over this period before the impact of the new competition is properly felt.

Source: Verdict Research