Thorntons bemoans ‘toughest ever’ high street conditions

By Ben Bouckley

- Last updated on GMT

Related tags: Retailing

Thorntons bemoans ‘toughest ever’ high street conditions
Thorntons chief executive Jonathan Hart has described the firm’s 2010/11 trading year as “one of the toughest consumer spending environments we have experienced”.

Reflecting on a “difficult year”​ for the chocolatier’s retail channel, he noted that overall sales grew 1.7% to 218.3m for the full year to June 25 2011, while Thorntons grew its UK branded chocolate market share to around 7.7%.

However, this optimism could not mask some gloomy fundamentals for Thorntons in its centenary year. Pre-tax profits slumped to £4.3m this year compared with £6.9m in 2010, while recent restructuring costs meant the business posted an overall pre-tax loss of £1.1m.

Own-store closures

Thorntons blamed the “unprecedented impact”​ of poor weather that hit Christmas 2010 sales and the hottest Easter on record in the UK on poor retail sales.

But the firm was only able to grow sales due to it its multi-channel strategy, with increased retail sales online via Thorntons Direct and increased commercial sales to major multiples.

Commercial sales rose 25.9% to £78.8m (2010: £62.6m), Thorntons said, noting that it was now the ‘inlaid box’ market leader in terms of market share. But total retail sales (own stores, franchises and Thorntons Direct) slumped 8.2% to £139.5m (2010: £152m).

Difficult high street trading led Thorntons to announce the results of a strategic review in June that it claimed today will create a “profitable and sustainable”​ own-store network of around 180 stores over the next three years.

This included the shock announcement that the current balance of remaining stores, around 180, will be replaced by franchises in the majority of locations, mainly due to the natural expiration of leases.

In 2006 almost 80% of Thorntons sales passed through its own and franchise stores on the UK high street, a “vertically integrated retail model”​ that the company said it realised at the time it had to move away from.

It did so by accelerating commercial sales to supermarkets from 2006, as well as developing online sales via Thorntons Direct to “decouple our manufacturing operations from our own stores”.

Through growing commercial and online sales, Thorntons claimed it was now in a good position to “deal with the under-performance and restructuring of the own-stores estate without causing any significant impact on our manufacturing capacity”.

The company also claims its outsourcing of distribution and warehouse functions will deliver significant cost savings over the next six years.

High street wilderness

FinnCap research director David Stoddart told ConfectioneryNews.com that he thought thought Thorntons' results were "better on profit, not so good on cash, but broadly speaking OK".

"Should Thorntons be closing high street stores? The answer is unequivocally 'yes', it's abosolutely the right thing to do. Having made that decision, in the 120 or more high streets across the UK where they are selling something, perhaps not enough, ​[you need to ask] is there another way to address that market?"

The obvious move, Stoddart said, was to "knock on the doors of existing franchisees who trade in locations and say 'would you like to put a 4ft bay in of the stuff that sells best for you', and see what happens".

"Some will definitely say 'yes', so that's a way of maninting capacity utilisation within the factory, and some brand presence in an area where this would otherwise be lost, as well as keeping cashflow ticking-over.

Identifying Thornton's commercial channel as the "future of the business"​, Stoddart said he felt Thorntons was on the right track given falling high street footfall in the UK.

"Unless Thornton's wants to be sitting in the wilderness there ​[on the high street], with the tumbleweed blowing across the dusty pavements and no customers in site, it needs to acknowledge that and get out of those high streets,"​ he said.

Exports presented another opportunity to boost sales, Stoddart added, although previous retail expansion attempts had "bombed badly" ​in Belgium and France.
"But If it works for Tesco to sell Thorntons branded stuff in the UK, could it not work for Tesco and other retailers abroad in the same channel? It's part of the move away from being a retail business to being a branded distributor.​"

Related topics: Manufacturers

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