On the day Footasylum floats on AIM, Retail Week Prospect analyses the retailer’s current state of play and its outlook for the future.
In a competitive market, Footasylum has established itself as a credible source for sports and leisurewear for a younger customer. Having launched as recently as 2005, it now generates annual sales close to £150m, compared with just £78m in 2014/15.
Despite significant investment in its physical expansion, the business has continued to improve its profitability. Its EBITDA margin of 7.6% in 2016/17 represents a healthy level considering the sector in which it operates, although it is still some way behind JD Sports’ 10%.
Footasylum benefits from the expertise of John Wardle and David Makin – the founders of JD Sports. Wardle is executive chairman (until 2018, when he will be replaced by former JD Sports chief executive Barry Bown), while Makin has remained involved as advisor. The latter’s daughter is chief executive and now the youngest boss of a listed company.
Strong online presence
Footasylum has always been about multichannel retailing and its online channel currently generates close to 30% of overall sales. However, it might be difficult to maintain this level over the coming years as the retailer presses ahead with ambitious expansion plans to grow its portfolio from 60 to 150 stores.
Like JD Sports, Footasylum prides itself on its relations with suppliers. It has even established two offshoot fascias – Drome and 7Liverpool – in order to enhance its access to up-and-coming brands.
The retailer has proven to be able to trade successfully across a variety of locations and its store network includes stores in major cities and secondary cities and towns, as well as in regional shopping centres and retail parks.
Lack of scale
Footasylum is still considerably smaller than main rival JD Sports and as such will lack the economies of scale that the latter benefits from. However, its float should provide it with the financial firepower required to grow at a quicker pace than previously possible.
While Footasylum carefully designs its stores to ensure they appeal to its trend-following audience, visual merchandising would still seem to be somewhat lacking when compared to its key footwear rivals JD and Schuh.
Despite the retailer’s impressive growth over the first decade of its existence, it could still benefit from greater brand recognition. This should be rectified over the coming years, however, if the retailer’s ambitious plans for physical expansion are realised.
Proceeds from IPO
The flotation of Footasylum has raised gross proceeds of around £65m, some of which will be directed towards investment in technology. The retailer says it expects to “make significant investments over the next three years in increasing the company’s digital presence as part of a broader upgrade of its IT systems to support growth”.
Scope for over 150 stores
Footasylum still sees scope to nearly triple the network to “at least” 150 stores over the coming years, although it will take a considered approach with eight to 10 openings each year. However, if it does reach this long-term target, it will have become a sizeable competitor to JD Sports – an interesting prospect given the background of the founders.
A small proportion of Footasylum’s online sales are to overseas customers and the retailer is thought to be mulling the launch of dedicated international sites to make this a bigger growth-driver.
Development of range
Menswear currently accounts for 71% of overall sales, but the retailer is bulking up its ranges of womenswear and childrenswear to bring it more into line with the split at JD Sports. Further development of its stable of own brands could also help to boost its margins.
The retailer launched a wholesale business for its own brands in 2017, which generated sales of £650,000 between March and September 2017. Its most significant wholesale agreement is currently with Asos, but there is clearly scope to target other retailers.
Athleisure bubble bursting
Footasylum’s rapid development has come against the backdrop of a booming athleisure market. However, some observers believe this segment might now be running out of steam, so Footasylum will need to be careful not to put all of its eggs into that particular basket.
Brands going direct-to-consumer
Although it has a number of own-label ranges, Footasylum’s sales rely heavily on proprietary brands. As the likes of Nike, Adidas, New Balance and Asics increasingly open standalone stores and push their own transactional websites, consumers could be encouraged to cut out the retail ‘middle men’ and purchase directly from their favourite brands. Should the trend of brands going direct-to-consumer accelerate, Footasylum’s top line could be vulnerable.
UK economic outlook
The economic uncertainty caused by Brexit is of concern to any retailer operating in the UK, particularly now that consumers appear to have become more cautious in their spending. But spending among Footasylum’s younger, trend-driven target market is expected to hold up well, since it is an image-conscious demographic that tends to prioritise discretionary spending on fashion.