Is N Brown on track to deliver its digital transformation strategy?

Half way through its three year digital transformation strategy and N Brown's infrastructure investments are continuing to eat into its profits. But the retailer – who is having to play catch up in a digital world – is showing signs of online engagement with customers according to its latest financial results.

N Brown is managing to shift its customers from catalogue to digital channels, the retailer stated online penetration increased five percentage points to 63% in the six months to 29 August 2015. Meanwhile, online penetration of new customers increased further by seven points to 69% – a key improvement metric for the retailer with a loyal group of older repeat customers who are unlikely to transition to online.

Meanwhile, online performance for its 'Power Brands' – JD Williams, Simply Be and Jacamo – has continued to increase. CEO, Angela Spindler, said: "JD Williams delivered an encouraging performance, as the improvements we are making begin to take effect. For example, new customer online penetration increased by 21 percentage points to 74%. Simply Be and Jacamo, performed very strongly with revenue up over 20% year-on-year."

N Brown's total group revenue increased 4.2% to £415.8 million, and overall active customers  increased 2.8%. But pre-tax profits told a different story, as gains dropped by 15.9% to £35 million year-on-year.

Verdict analyst, Nivindya Sharma, said the strategy's negative impact on profits is a short term sacrifice the retailer has to make to put the company in a stronger position in the long run.

"N Brown must ensure it maintains momentum by investing strategically in its presence across devices, especially mobile which now generates 64% of all traffic. These initiatives combined with investment in its warehouse, a right-sized store portfolio, growing international business and improvements to product proposition will position the business well for long-term growth," she said.

Strategy on track?

But N Brown's boss insisted the retailer is on track with its transformation, saying tangible results from the newly implemented digital infrastructure will be weighted significantly in its second half, as investments begin to pay off and Christmas orders roll in.

"H2 has started well, with a pleasing performance in September, in line with our expectations and underpinning our confidence in the full year outturn," Spindler said.

Speaking to Essential eCommerce, Rebecca Marks, fashion consultant at Conlumino, agreed with Spindler's positive outlook.

"N Brown had a difficult year last year, and I definitely do think the investments have caused the drop in profits," she said. "But compared to the rest of the company's performance, with increased customer numbers and online transactions, it's still very positive compared to last year."

Marks pointed to the company's brand awareness drives through social media and TV advertising campaigns, as well as new clothing ranges and collaborations, such as Simply Be's recent formal wear line with high street retailer Coast.

"If they continue to do this while enhancing their online capabilities and get it up to scratch with competitors in a short space of time, I do believe they will be successful," she added.

The digital race

But N Brown is still very far behind in the digital race, with competitors like Shop Direct now established online.

"Shop Direct's has always been online, not only is N Brown behind, it needs to grow while understanding that customers at JD Williams are older and still need the mail order option," explained Marks.

Shop Direct, on the other hand, completely scrapped its Littlewoods catalogue last year, after circulation dropped from millions to a few thousands. It now offers the brand aimed at older women only online.

"Catalogues have a wider consumer base and brand loyalty," described Marks. "And customers tend to use catalogues on a seasonal basis, while some customers are still wary of shopping online. I think it's good for N Brown to continue with its JD Williams catalogue due to its older demographic."

Meanwhile, N Brown's younger brands – Simply Be and Jacamo – have been helped by its high street presence, social media efforts and fashion collaborations which attract younger customers.

But in order to keep growing new customers, Marks said N Brown needs to continue its work on its mobile apps and website. "People use their mobile when they're out shopping to compare prices," she said. "And while N Brown's mobile usage is 64% of online traffic, compared to Shop Direct with over three quarters mobile –they're still a bit behind."

But how long will it be until N Brown catches up and is finally on a level playing field with its online competitors?

"At the rate that they're going it could be quite soon," said Marks. "They have been a bit late in their digital transformation and now they want to push brand awareness as they do have the online capabilities.

"But you've got to remember that so many online retailers are a good few steps ahead of them, especially when it comes to delivery, with some players today offering one-day delivery, N Brown still has to compete with that."