Turnover from home shopping was up by 3.0% at
£452.9m, with operating profit before amortisation of
goodwill and operating exceptional items down 10.9%
at £51.0m. The key issues behind the results were the
detrimental impact of the postal strike in Autumn 2003
and a reduction of 1.6% in the rate of gross margin due
to an increased proportion of sales from discounted
activities and higher charges for bad debts.
Our key initiative has been to increase the level of
fashionability of our product ranges in order to improve
customer response rates. Customer choice has been
extended, presentation improved within the catalogues
and overlap of product ranges between the different
catalogue brands tightened. The result has been a
gradual strengthening of core product ranges and a
slowly increasing share of overall sales from the more
profitable main catalogues.
Credit is an important element of our customer
proposition and the average interest bearing balance
has increased significantly in recent years. We started to
see some signs of increasing arrears early in the second
half and we have taken corrective action by tightening
up the credit limit policy across the board to avoid
customers becoming over-indebted. This will impact
on sales growth but should bring down the ratio of
bad debts to sales next year. During the year we have
increased bad debt provisions by £4m which accounts
for half the reduction in the rate of gross margin.
The postal strike during October 2003 severely
disrupted mailing patterns, particularly in the South East
region, at a crucial point in the season. Whilst most of
our deliveries are made by our own couriers, catalogue
mailings and statements are handled by Royal Mail.
The result was a significant loss of business, which we
partially recovered in the pre-Christmas period by
introducing a number of promotional discounts and
free gifts, but these had a detrimental impact on both
gross margin and marketing costs.
We have continued to be successful in increasing
sales per customer, with a 4% uplift for established
customers, including further success from proactive
order building and telemarketing activity. Our challenge
is to increase the number of active customers on the
database. Recruitment was more effective than the
previous year resulting in a 5% increase in new
customers. The established base however has
seen a 2% decline.
We expect the expanded product ranges to drive higher
response rates but we are also undertaking a range
of promotional activities to stimulate response from
non-orderers, including new catalogue formats and
focused telemarketing and email campaigns.
The outlook for home shopping in its widest context is
strong but there will continue to be a gradual shift from
catalogues to digital media such as the internet and
television shopping channels. Our e-commerce sales
have been tremendously successful and have almost
doubled to £28m during the year. We are now looking to
exploit the ability of more of our customers to place their
orders online as this results in higher order values,
reduced operating costs and increased loyalty.
To participate in the growth of television shopping we
have formed a joint venture with Northern & Shell Network
Limited (which owns the Express group of newspapers)
to create the Express Shopping Channel which will offer
a wide range of merchandise. This venture, which will
broadcast on digital television from Autumn 2004, will
have initial start up losses but is planned to be profitable
before the end of its second year.
As part of the strategic review of the group’s activities
we have concluded that the Teleview television rental
business cannot produce an acceptable return on the
capital invested, as the combination of lower retail
prices and the wider availability of credit has made rental
increasingly uncompetitive. We are presently seeking
the optimum exit route, but this decision has given rise
to an exceptional charge of £9.0m in this year’s results.