Carpetright is to ramp up its small-format store opening programme as it eyes more profitable expansion.
The floorings specialist has also called the bottom of the market in the Netherlands, which dragged the group’s full-year profits down.
Carpetright group finance director Neil Page said the retailer’s 3,000 sq ft sample-only shops could represent half the estate, marking a shift in its property strategy away from large shops, which cover up to 12,000 sq ft.
At present, 105 of Carpetright’s 614 shops are in the small format. Page said they are more cost-effective because they hold no stock and employ fewer people.
“We’re getting above-average returns,” said Page. “It’s encouraging us to commit to smaller stores with smaller operating costs. We’re not saying every store will be 3,000 sq ft, we still need hubs. But there is a shift that we will be moving to in the coming years.”
Page said new small stores will be relocations of existing larger stores predominantly. In the next five years 21% of Carpetright’s leases are coming up for renewal.
The move comes as Carpetright battles tough trading conditions, particularly in the Netherlands where low consumer confidence hit sales and drove a £3.8m underlying operating loss in the retailer’s European arm in the year to April 26.
However, Page said conditions are expected to improve in the Netherlands. “The early signs are that the market is bottoming out… and we are past the worst,” he said.
Page said Carpetright is gunning to get back into the black in Europe. “We’re cautiously optimistic we can get it back,” he said. “Whether in the current financial year or not, let’s see.
“We’ve got a recovery plan in place and we’ll reduce costs by £1m a year in Europe. It’s a question of getting momentum.”
Carpetright hired former Dreams boss Nick Worthington in March to lead the European turnaround. The retailer has consolidated its European head offices, closing its headquarters in Belgium.
Page noted the “speed at which the economic situation contracted over the last two years” in the Netherlands. He added: “We weren’t immune to it.”
Carpetright executive chairman Lord Harris said: “If they win the World Cup it will improve things.”
Harris will now stay at Carpetright in his current role until the retailer finds a new chairman, despite last month saying he planned to step down in September. Harris said he wanted to ensure stability. “We don’t know when the chairman’s going to be appointed,” he said.
Harris also today said he may stay on as a non-executive director. “I’m a large shareholder,” he said.
Incoming chief executive Wilf Walsh will join Carpetright from Fortuna Entertainment Group next month. Harris said: “Wilf will be very good. He’s stores-driven, which is what the business needs.”
At Carpetright’s UK arm, underlying operating profit slipped 1.8% to £10.7m. UK sales fell 1.5% to £375.8m. Page said the UK had suffered from sales volatility and described the customer as “deal driven”.
However Harris was optimistic the market is on the turn. “Over the next two years it will improve,” he said. “We have to make sure we’re ready to take advantage.”