Managing retail presence – Office®
Office is an omni-channel retailer with a portfolio of stores and concession outlets in the UK (114 stores), Germany (8 stores) and Ireland (7 stores). The physical store offering is complemented by a strong online business which contributed 44% of retail sales in the reporting period.
All stores in the UK were closed for 12 weeks during the national COVID-19 lockdown and reopened on a phased basis from mid-June, with 68 of the 129 stores trading by the end of June and a further 47 reopening by the end of August 2020. Online sales continued during lockdown when the stores were closed.
CONTINUING SHIFT TO ONLINE SHOPPING
The past year has seen the continuing decline in high street foot traffic as customers move to online shopping, with this trend being accelerated as a result of COVID-19. Store sales declined by 29.3% for the period, further impacted by the closure of all Office stores during the UK lockdown, while online sales grew by 8.8%.
Declining store sales coupled with increasing national minimum wages, rental costs and business rates are putting pressure on the profitability of stores and management undertook a detailed review of the real estate portfolio to exit unprofitable stores or renegotiate leases on more favourable terms.
UK retail store leases have historically been agreed for periods of 10 years or longer, with rent reviews every five years to re-price rentals to market rates, with upward adjustments only. While lease negotiations have been challenging in the current weak trading environment, the onset of the COVID-19 lockdown has resulted in Office being granted rental holidays and rent reductions on several leases.
Trading through concession outlets allows Office and Offspring to access customer footfall within leading department stores, both physically in the stores and online, while simultaneously offering a more flexible physical footprint and cost base. Office and Offspring work closely with the concession partners to review performance and assess the need to open, relocate, adjust or close space within the host store portfolio. At the end of the period Office had 5 concessions and Offspring 11.
Refer to Material issues, risks and opportunities for more detail.
Three loss-making stores and eight concession outlets were closed during the period, with one store opened, resulting in a reduction in trading space of 4.8%. Office renewed eight store leases at the maximum tenure of five years, including three on a short-term, flexible basis.
The continuing rebalancing of the property portfolio into the 2021 financial period will result in the planned closure of 28 under-performing stores through lease expiries and break clauses, with a consequential reduction in trading space of 20%. A further 30 stores are expected to be closed between 2022 and 2024.
Office remains committed to providing a seamless and engaging shopping experience for customers and in 2019 transformed its Oxford Street, London, flagship store through the implementation of the ‘store of the future’ concept. This concept links the experience of store-based shopping and digital technology and includes multi-channel elements such as digital screens and hand-held technology. Planning commenced on evolving this ‘store of the future’ concept, however all store development was placed on hold due to the COVID-19 lockdown.
ADAPTING STORES FOR COVID-19
All stores were adapted to be COVID-19 secure, with in-store layout being modified to create additional floor space to enable employees and customers to social distance. Entry to stores is restricted to enable social distancing and customers are required to queue if the store is at maximum capacity.
Specific guidelines are followed when footwear is tried on by a customer to ensure safety. If an item is not purchased, it is cleaned with anti-viral spray and left in quarantine for an hour before being returned to stock.
All stores are operating on reduced trading hours which are reviewed weekly for each store to ensure maximum opportunity to generate sales, while acknowledging the greatly reduced footfall, particularly in central London.
ONLINE AND E-COMMERCE
Office and Offspring continue to grow their e-commerce capability with strong support on social media, with over one million followers on Instagram and Facebook.
Improvements in the omni-channel offering including ‘click & collect’ and online returns in-store continue to drive customer footfall into stores.
The new Office website was launched in October 2019. Shortly after launch the website managed Office’s largest-ever trading day on Black Friday in November 2019, processing one order every 1.6 seconds at the peak of trading.
The new Offspring website is planned for launch during October 2020.
During lockdown the biggest challenge for the online business was to ensure that all stock was accessible to customers to meet online demand.
At the start of the lockdown the number of products available on the Office.co.uk website decreased due to the closure of all UK stores and the resultant inability of these stores to fulfil online orders. In response the Supply Chain, Merchandising and Retail Operations teams collaborated to recall unsold stock from 71 stores to the warehouse to be sold online.
In addition to making more stock accessible to online customers, promotional activity was increased to ensure that Office remained competitive and generated good online sales during lockdown. The decisive response resulted in online sales increasing by approximately 35% for the 12-week lockdown period compared to the prior year.