How did the early days of the pandemic affect Missguided?
The UK – our biggest market – is in double-digit growth this year, however, it has been tough. Consumer confidence has gone up and down in line with government announcements. In the last two weeks of March consumer confidence fell on the floor. I don’t think customers knew what was happening and therefore they just weren’t spending.
We did see that confidence bounce back quickly [after the start of the first national lockdown]. Customers realised they were going to be at home for a while, and started buying accordingly. Loungewear, activewear, nightwear; sales of anything comfortable and casual went through the roof, while anything we’d normally sell at that time of year, such as festival and holiday gear, swimwear and occasionwear, fell dramatically.
Our suppliers were being impacted across the world in different ways. China, for example, had come out of its lockdown so factories were running, but air freight was almost ten times the price of what it normally is and has stayed at that price throughout the year. We changed our stock profile as quickly as we could and tried to ride the wave of new demand, but during the first two or three months we were running the business on fumes.
It’s been a year of ups and downs, and constant challenges.
Did subsequent lockdowns follow the same pattern?
When the first lockdown was lifted, confidence bounced back and there was some degree of category normalisation. And then we had September, which was unusually hot, and then lockdown again, and that impacted demand. For a business like ours, serving the 20-something customer, students represent a high percentage of our sales – especially around freshers’ week and [student] loan drops. But students weren’t having freshers’ week this year.
Generally, customers in the UK have not been shopping as often as usual – frequency is down because they are not going to events, so there’s no reason to buy new things.
What’s behind
your success in the US?
We decided last year to start pushing our international investment, and we’ve seen good growth in the US and some of our key European territories. The results have been impressive: we’re about 200% up in the US this year. That’s off a smallish base of £25-£30m last year, but we could exit the US north of £85m, anywhere up to £100m, depending on our investment in last four months of this [financial] year.
US customers have responded well to the ranges and marketing. We’ve done some local launches to drive customer recruitment. Our sub-brand Playboy x Missguided is getting more and more successful by the season. We also launched a collaboration with streetwear brand Sean John (pictured).
In the next three years, we expect the US to become a bigger market for us than the UK.
Tell us about the rise in distribution costs
Our EBITDA forecasts will be positive but distribution costs have really hurt us this year. Air and sea freight rates are astronomical, up to 10 times higher than what they usually are, plus there are all the issues at the ports, which are affecting intake, and we have social-distancing measures in place at our distribution centres.
To deal with higher volumes during cyber month [the Black Friday and Cyber Monday deal period in November], we’ve been running three warehouses in the UK, where we normally run one. We have the 2-metre rule in place, so we’ve had to move our wholesale distribution and all returns out of our warehouse, and therefore it’s less efficient than it usually is. Courier charges to our customers are also through the roof. We have to be as agile as possible: we’ve reforecasted and rebudgeted every single month of this year.
How did Black Friday go for Missguided?
Promotion is part of our strategy, 365 days of the year. It’s something that tickles our customers, and it’s what our peers do. Black Friday was up year on year, although it was impacted by lack of demand for Christmas party dresses.
Cyber [month] is a great time for customer recruitment, but I think it is becoming less important than it was because it’s more crowded than it was two to three years ago. As more brands and retailers discount that don’t normally, they’ll take more share of wallet.
Will the casualwear bubble burst?
Our roots are in occasionwear, but even before Covid a lot of our growth was in casual categories – the mix is now about 70% casual. However, my finger-in-the-air view is that, as soon as occasions come back, there will be a lot of pent-up demand, so we’ll see occasionwear categories outperform. Our customers will be sick of wearing casualwear every day.
How has the pandemic affected Missguided’s sustainability efforts?
Sustainability is still very much high up on the agenda for Missguided – it’s gaining more weight as we progress. From an environmental perspective, there are a number of things we’ve done: we moved our packaging to 100% recyclable, including our delivery bags, and signed up as a founding partner to the British Retail Consortium’s Climate Action Roadmap.
We were reliant on air freight and this year we have been still due to category mix changing so quickly, but we’re looking at moving more to sea freight.
We’re also looking at fabrications. We plan to launch a sustainable sub-brand in March or April called Restyled, and we are looking at how we move our core and flow lines to more recycled fabrics.
Has that been driven by customer demand?
It comes up on the list of customer priorities but it’s not at the top, it’s somewhere in the middle. So it’s up to us as a retailer to push that initiative. We’ve tested recycled lines in the past and they’ve done well. We try to launch them at the same price as the main range but sometimes they are a price point up and the customer does still buy into them, which gives us some confidence that it is what she’s after.
How has your UK sourcing strategy evolved, particularly in Leicester?
About three years ago we started on a mission to reduce the number of factories that we work with so we can get more transparency and build more meaningful relationships with fewer suppliers. That is the journey we’ve been on and are still on in Leicester.
We’ve signed up to a number of initiatives, including becoming a member of the Ethical Trading Initiative, we’ve published our tier 1 factories and we now require Fast Forward audits. Leicester as a percentage of our sourcing mix has declined as a result of changes to the overall strategy. But the UK is and will continue to be important to us because it gives us speed.
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