N Brown – Selling clothes, etc.

PUBLISHED: Aug 23 2018 @ 10:23 | Comments (0) |

I’ve bought the very unloved N Brown (LSE:BWNG) on a cyclically adjusted price earnings ratio of around 6. The market has a pile of doubts, not least about the difficulty of selling of clothes in the highly competitive UK market. Retailers seem desperate enough to lower margins to keep sales coming in. But N Brown is in a different category because it has, consistently over many years, deliberately offered its product at prices that lose it money.

What is important is whether it continues to increase the amount of product that customers take on credit. If this rises year by year then, all else equal, the profits made in the Financial Services part of the business rise. Of course, this is only true if costs in the Product side and the Financial side do not get out of hand.

So, we are looking for steadily rising product sales together with reasonable increases in costs of achieving those sales.

The Brands

N Brown’s prime brand names, those set for rapid growth, and therefore receiving most marketing spend, are labelled the “Power Brands”. These are J D Williams targeted at the fashion conscious woman aged over 45; Simply Be, aiming to attract the larger, not necessarily older, woman, and; Jacamo, for men aged 25-45 of all body shapes and sizes, from small to 5XL.

Then come the “Secondary Brands”, which while attracting customers comfortable with online purchases, consist of brands which do not have the broad-scale impact of the Power Brands. They are Fashion World, carrying plus-size clothing; Marisota, with ladies plus-size dresses, lingerie and swimwear; Figleaves offering lingerie and swimwear, and; High and Mighty for big and tall men’s clothing up to 6XL.

The Secondary Brands have significant customer loyalty, and reasonably good growth prospects. But little attention, or marketing spend, is paid to drawing in new customers, so the focus is on serving the existing cohort.

Then comes the “Traditional segment” where the target customer is generally more mature and tends to prefer paper-based marketing (60% still prefer catalogue and direct mail offers). House of Bath, is mostly homeware; Ambrose Wilson, mostly traditional ladies undergarments; Premier Man for men’s clothes, and; Julipa for older ladies clothing, including corsetry. These are loyal customers, so despite the absence of growth, are worth serving.

Revenue by brand, £m	2018	2017	2016	2015	Growth over 4 years
J D Williams	163	158	151	144	13%
Simply Be	133	114	104	90	48%
Jacamo	69	65	63	55	25%
Secondary brands	149	155	153	150	-1%
Traditional segment	139	134	136	144	-3%
Product total	653	627	607	583	12%
Financial services	270	261	260	254	6%
Total continuing revenue	922	888	866	837
Revenue by product type
Ladies	268	257	246	249	8%
Men	89	86	82	81	10%
Footwear and accessories	74	69	69	61	21%
Home and Gift	221	216	210	192	15%

Cost of Product operations (warehouse, marketing, admin. etc.)	387	372	361	350	11%

It’s important to note that most of these separately branded websites usually sell a range of goods outside of their main theme, e.g. Jacamo, as well as men’s shirts sells wallets, watches and smartphones; J D Williams sells kids toys, vacuum cleaners and satnavs as well as ladies clothes, and; even House of Bath sells lingerie.

The overall impression is one of steady, if rather pedestrian, growth of sales, amounting to little more than inflation at about 4% per year.

Within that, the Traditional and Secondary Brand sales are falling, while the Power Brands of Simply Be and Jacamo are moving ahead at a good clip.

Power brand revenue in the 12 months to end March 2018 overall was up 8%, with online revenue growth up 17%. In the 13 weeks to 2^nd June Power Brand revenue was 2.7% higher than the same period in 2017, with the number of active customers broadly flat in a “challenging period for fashion retail” (Trading Statement, 14^th June).

Note that operating costs have risen in line with turnover indicating that additional turnover has not been bought at the price of raised costs just to serve the Financial Services part of the business.

J D Williams

A unique selling poi

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