The low-cost footwear retailer Shoe Zone has blamed extra costs resulting from changes to wages and national insurance contributions (NICs) in October’s budget and weakening consumer confidence for its decision to close stores.
Shoe Zone said it had experienced “very challenging trading conditions” between the start of October and the middle of December because of lower consumer confidence and unseasonal weather, which had led to falling sales and decreasing profit.
The group, which has 297 stores and about 2,250 employees in the UK, added that consumer confidence had weakened further after the budget on 30 October and had made a number of its shops “unviable”.
The company did not state how many stores would close. The retailer had 309 stores at the end of March. The Guardian has approached Shoe Zone to clarify the number of planned closures.
It said that planned increases to employers’ NICs and the national living wage would cause it to “incur significant additional costs”.
In her budget, the chancellor, Rachel Reeves, announced an increase in the rate of employer national insurance from 13.8% to 15% from April next year. In addition, the threshold at which employers start paying the tax on each employee’s salary was lowered to £5,000 from £9,100.
The measures, expected to ultimately raise £25bn a year, have drawn criticism from a string of large businesses, particularly retailers and hospitality companies, who say they will be forced to cut jobs and raise prices.
The governor of the Bank of England, Andrew Bailey, has described businesses’ reaction to the NICs increase as the “biggest issue” facing the UK’s economy after the budget, at a time of rising economic uncertainty in the UK and globally.
Shoe Zone – which sells almost 14m pairs of shoes a year, at an average retail price of £13.30 – said the combination of higher costs and falling sales would have a “significant impact on our full-year figures”.
This prompted the company to issue its second profit warning of the year, as it halved its profit forecast for the current year.
Shoe Zone now expects to make an adjusted pre-tax profit of about £5m in the year to 27 September, down from previous estimates of £10m. It will also suspend its dividend for the financial year that ended in late September.
In response, the company’s shares tumbled by as much as 44%, taking them to 75p, meaning the shares are trading 66% lower than at the start of the year.
Shoe Zone’s decision to blame its profit warning and store closures on the budget was a “poor fit”, according to Russ Mould, the investment director at the broker AJ Bell, even if the impact of increased costs on the company and much of the retail sector was “undeniable”.
Mould said: “However, attributing weak trading to a decline in consumer confidence since the budget is at odds with UK-wide figures suggesting confidence has ticked higher since the event.
“Perhaps Shoe Zone’s offering isn’t resonating with shoppers as much as it used to. At the very least, you would hope management is looking at what’s gone wrong rather than attributing everything to external factors.”
