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More questions than answers for Quiz as board starts review

Quiz clothing issued a fresh profit warning on Thursday 7 March – it was the second time this calendar year and the third time since its July 2017 IPO that profit forecasts have been cut.

The retailer, which counts cast members of ITV series TOWIE as brand ambassadors, has now started an internal strategic review as a result of its recent under-performance.

For the period between 1 January and 28 February 2019, Quiz said sales were down by 1.7% year-on-year due to an uncertain consumer spending environment and higher than anticipated discounting activity. A decline in standalone store and concession sales offset continued growth in eCommerce.

Tarak Ramzan, Quiz CEO, admitted the last few months have represented a “highly disappointing trading period for the group”.

“As a result, the board will be reviewing all aspects of the business over the coming months to ensure that we can deliver the group's long-term potential despite the changing consumer backdrop and challenging trading conditions," he said.

Full-year revenue is forecast to be £4 million less than expected at £129 million, and group EBITDA is predicted to be around £4.5 million, which is just over half its previous estimate. That latter figure does not include £400,000 debt owed to the business, which was written off in the wake of House of Fraser’s (HoF) collapse and restructuring in 2018.

Broker view

In the immediate aftermath of last week’s announcement, broker Peel Hunt downgraded its investment rating in Quiz from “hold” to “sell”. In an accompanying note, it said the ongoing uncertainty at HoF and Debenhams – where it has multiple concessions – are not helping the fashion retailer.

But Quiz’s challenges are more complex than wholesale partner woes. Peel Hunt analysts Jonathan Pritchard and John Stevenson said sales since flotation have generally “been below expectations” and a planned international expansion “looks like a diversion the management doesn’t need”, although it noted online sales have been relatively positive.

“There is a fundamental problem here that the ranges are just not resonating with customers,” they said in an investor note.

“The business is now in day-to-day losses and with little strategic inspiration emerging with this profit warning, we can only assume that it will be a very long road to recovery. EBITDA may be positive next year but pre-tax losses are assured, and there seems very little reason to hold the shares.”

Online hope

Amid what is undeniably a challenging environment for Quiz, its eCommerce position offers the business hope – albeit it is battling for market share against some tough competitors, including digital-first players Asos, Missguided and the Boohoo brands.

In 2017, Quiz built strategic online partnerships with third parties such as Next and Zalando which helped increase its reach across the UK and internationally, but last year it refocused on improving sales from its own digital properties.

This month, Quiz is making improvements to its online content management system to improve its performance on mobile devices. A tie-up with Amplience is expected to advance its online marketing techniques, optimise web imagery and site performance.

Martin Newman, retail and customer behaviour expert, and co-founder of eCommerce consultancy Practicology, which was sold to Pattern Inc last year, says Quiz has “nowhere to hide” when it under performs because of its status as a listed business.

“The question for Quiz is how to scale profitably,” he says of the retailer which showed strong growth as a private company and initial success post-IPO.

“How do you go from being a successful, multichannel retailer with relatively thin geographical coverage of the UK and a good online business, to true national coverage? It really needs that to prove the scalability of the business but without that and marked improvement in profitability, it will struggle to win back the confidence of the market.”

Newman is positive about the Quiz website, noting it contains “some engaging content”. He adds: “It looks like a carbon copy of other market leading sites, so it’s doing the online basics pretty well.”

Point of difference?

Perhaps herein lies a problem. If its differentiation from closest competitors is a circa 300 standalone and concession store estate where sales have been sluggish, then its website must consistently stand out to keep attracting new shoppers.

Sofie Wilmott, senior retail analyst at business intelligence group GlobalData, remarks: “Fierce competition from online pureplays, namely Boohoo and Pretty Little Thing – the former has an ‘always-on’ approach to discounting, while the latter regularly partners with high profile celebrities and influencers – is proving too much for Quiz, which is struggling to stand out in the youth fashion market.

“Quiz must strive to differentiate itself while also reducing the number of physical locations it operates – it had 70 stores and 160 concessions at 30 September 2018 – in order to safeguard profitability as spend continues to shift online.”

Anusha Couttigane, principal analyst for fashion, EMEA, at Kantar Consulting, says there are brand-centric pain points in the Quiz business model around product, positioning and purpose.

“The cash injection from its IPO was targeted at new talent, boosting digital capabilities and international expansion,” Couttigane explains, adding that Quiz’s approach to social commerce has been an important way of meeting the needs of its target audience.

“However, the evolution of its product offer has been comparatively slow and therefore leaves shoppers with little motivation to shop with the brand between festive occasions."

She comments: “As it expands internationally, it also needs to ensure that the strategy it takes abroad fits with the popular paths to purchase in new markets, as well as future growth channels like voice and video, which could help future proof its reach.”

Lots of questions around the Quiz proposition remain. Its workforce, shareholders, and loyal customers will be hoping Quiz has some answers in June when it announces findings from its review alongside full-year trading figures.

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