Value retailer Matalan has struggled in the face of increased competition with profit expectations downgraded several times in the past year.
The news last week that Lloyds Bank has transferred Matalan to its special measures unit did not surprise many in the industry. But what is Matalan’s core problem and how might it recover?
The value retailer had been forced to revise down its EBITDA expectations three times over 2015/16. The final forecast in January gave profit guidance of £54m to £56m – about half of its initial £107m to £112m at the beginning of the financial year.
Matalan has shouldered significant debt since founder John Hargreaves undertook a £500m bond refinancing in 2010 in order to take a £250m dividend, one of the biggest in UK retail history, and to restructure the company.
The retailer is besieged on all sides, analysts say, with a lacklustre online performance and poor product design just two of its problems.
“It has seen competition from all fronts,” says Verdict Retail’s Honor Westnedge. “And it has struggled to improve brand image to get people in store.
“In the current economy, some consumers are also starting to trade up to shops such as Next, which is also a destination for family shoppers. Matalan has struggled to stay relevant.”
Retail Remedy senior consultant Paul Thomas believes that Matalan’s market share has been stolen by Primark and that the quality of high street value retailers in general has lured consumers away from Matalan’s out-of-town locations. He adds Matalan has raised its prices “a little” meaning it looks less attractive particularly when compared with Primark.
“TK Maxx is particularly strong in menswear and is in out-of-town locations, which attract the family shopper looking for good value,” Westnedge says. “That lures customers away from Matalan, which is trying to attract the same consumer.”
Matalan’s online problem is twofold. Its recent logistics centre troubles in October 2015 resulted in the retailer trying to push customers away from online and into stores by showcasing limited stock on its website and fuller ranges in store.
“It did the opposite of what it should be doing,” says Westnedge. “Online is the first point for most shoppers – it acts as a shop window. If they cannot find what they want online why would they go in store?”
Westnedge says this issue feeds into a wider problem with Matalan’s online strategy. “It is about prioritising investment,” she says. “It has limited investment funds and online is a small proportion of its overall sales and so it invested in product and stores before considering online.
“It really needs to up its game online. Primark is not online so Matalan should use that to its advantage”
Honor Westnedge, Verdict Retail
“It couldn’t invest in everything at once but it needs omnichannel. It really needs to up its game online. Primark is not online so Matalan should use that to its advantage – it has that opportunity and hasn’t taken it up.”
Although Matalan’s sales mix is weighted heavily towards in-store sales, a growing proportion of its sales are made through its website.
Retail Week Prospect has found that online sales accounted for 4.3% of total turnover in 2014/15, equating to £46.5m. This was an increase of 6.7% on the previous year.
Matalan shoppers are also fans of click-and-collect – 50% of online orders are collected in store and the average additonal in-store spend generated when customers collect their items amounts to £4.39.
“Matalan attracts the female shopper shopping for the whole family,” says Westnedge. “If womenswear isn’t right and doesn’t get customers through the doors the whole business will suffer.
”It needs to get womenswear right to be attractive to the 25-to-55-aged shopper. It needs desirable sub-brands and to get the aesthetic right.
“Matalan offers better quality than many rivals but it needs to get the fashionability right. It did well with its Abbey Clancy range and it needs to continue to run younger and more fashionable ranges.”
Defining the customer
Thomas asserts that Matalan needs to focus on its core customer. “It needs to review who it is providing fashion for,” he says. “It should create a desirable teen range and shake off the frumpy tag that it seems to have picked up recently.”
“It needs to review who it is providing fashion for. It should create a desirable teen range and shake off the frumpy tag that it seems to have picked up recently”
Paul Thomas, Retail Remedy
Westnedge agrees that Matalan no longer knows its typical consumer as well as it needs to.
“Its shopper card means that it is sitting on a lot of data,” she says. “But it has lost touch with who its customer is. Management needs to identify that and then let the buying team target them with designs.”
While it is as yet unclear what route management will take to reinvigorate the troubled business, Matalan will receive extra help from Lloyds for however long it remains in the special support unit.
For Thomas, Matalan’s buying strategy is core to its recovery. While logistics and online problems combined with intense competition are all part of Matalan’s problem, its recovery may lie in improving womenswear designs above all else.