With all eyes on the ikes of Fat Face and B&M, Shoe Zone has come in from left-field to enter the retailing IPO arena.

With all eyes on the ikes of Fat Face and B&M, Shoe Zone has come in from left-field to enter the retailing IPO arena.

I well remember the time when there was a big footwear sub-sector on the stock market, led by the ubiquitous Sears (of British Shoe Corporation fame) but including Stead & Simpson, George Oliver, Church & Co, Stylo and the infamous Ward White.

Big retail conglomerates of the 1980s such as GUS and UDS also had footwear retail interests and even Debenhams at that time had exposure to the footwear market via the Lotus Shoes and Raynes operations.

Fast-forward 30 years and most of these high street names are long gone, although the family owned Clarks empire is still going with its strength in kids shoes.

But these days many women seem to buy their shoes at a fashion retailer such as River Island, Next or New Look, although specialist chains like Schuh, Dune and Office successfully target the young fashion market.

So who is this company called Shoe Zone that announced yesterday that it is seeking to float with a valuation of up to £100m? And how did it come to have as many as 554 stores?

Formerly called Benson Shoes and acquired by the Smith family in 1980, this “value-oriented” Leicester-based business has expanded through a series of major acquisitions of failed high street rivals. 

As chronicled by the invaluable Retail Week Knowledge Bank, the first big move was in November 2000 when the company completed the £6m acquisition of its Leicester neighbour, the chronically loss-making, publicly quoted Oliver Group.

This added 258 shops to Benson’s own portfolio of discount shoe stores, taking the group’s total to 442 nationally (including Ireland). At that stage the corporate name was changed from Benson’s to Shoe Zone Ltd.

In September 2007 Shoe Zone became the UK’s largest footwear retailing multiple when it acquired the former Co-op owned loss-making Shoefayre business from the administrators. The Shoefayre chain had shrunk to about 240 at the time of acquisition and that deal increased the Shoe Zone portfolio to nearly 650 shops.

The Shoefayre acquisition had barely been digested when, in January 2008, Shoe Zone stepped in to rescue Stead & Simpson from administration, adding a further 330 stores to the burgeoning Shoe Zone network, taking it close to the 1,000 mark.

Following the Stead & Simpson acquisition there has been significant rationalisation of the Shoe Zone empire. By the end of 2009, the store network consisted of some 805 stores, comprising 559 Shoe Zone branches and 246 Stead & Simpson shops.

In late 2012 the group closed 131 stores, mainly former Stead & Simpson outlets and then the holding company subsidiary was controversially placed in administration at the end of 2012. As a result, the store network was reduced to some 650 outlets by early 2013 and since then nearly 100 further stores have closed.

But all this fancy footwork and shuffling on the store portfolio has had a decent impact on profitability. The group has reported pre-tax profits of £9.3m for the year to October 5 2013, up from just £5.6m in the previous year even though total sales only grew to £194m from £189m in the year before.

And the focus on secondary locations has helped to reduce the average lease length on Shoe Zone’s stores to just four years, so the business has a lot of flexibility in its store portfolio.

Apart from a low rent bill, what else has Shoe Zone got going for it? Well, it has good buying scale in China, so that it sells over 20m pairs of shoes a year at an average retail price per pair of less than £10.

And although value footwear retailing isn’t everyone’s cup of tea, as it were, Shoe Zone has been able to attract no less a personage than Ian Filby, the chief executive of DFS (which has IPO ambitions of its own) to come on board as non-executive chairman.

Shoe Zone is, nevertheless, not exactly a growth stock, although it makes the obligatory noises about online and international growth potential.

However, investors are also looking for good income plays at this time of ultra-low interest rates and it looks like Shoe Zone should be able to have a good dividend pay-out ratio, given its lack of debt and good EBITDA to cash conversion.

Whether a good dividend yield alone is enough to make institutions swallow up to half the Smith family holding in the IPO remains to be seen, as Card Factory is also targeting income investors with its IPO.

And some may just wait for the much-vaunted Fat Face and B&M IPOs in the pipeline. But Shoe Zone’s management should be applauded for wanting to take on the disciplines of being a quoted company.

About Nick Bubb

Nick Bubb has been a leading retailing analyst for over 30 years. He is a well-known commentator on UK retailing and is a founder member of the influential KPMG/Ipsos “Retail Think-Tank”.