Card Factory’s reliance on stores detrimental as COVID-19 forces shops to shut

“Card Factory’s latest results highlight that its overall sales performance continues to be driven by new store openings (it added a net 50 new stores in the period) while its existing stores failed to achieve l-f-l growth. With these results covering the period prior to the impact of COVID-19 in the UK and its store estate closed as a consequence, current performance will be considerably worse given its low online penetration. Card Factory has stated that, sales via its website have increased 153% YTD in FY2020/21, while sales rose 27% YTD. Yet, this strong performance online will have a minimal impact on its topline results, with the online market for greetings cards dominated by the online pureplays, Moonpig and Funkypigeon.

“Similarly to John Lewis & Partners, Card Factory is set to take a tentative approach to store reopenings from the 15 June, opening just 10% of its stores initially to enable it to test trading conditions before opening fully. With safety paramount, this is a wise first step ensuring Card Factory is perceived as a considerate retailer by its customers and staff. With many of its stores being quite small, and customers tending to touch multiple cards while browsing that they do not intend to buy, altering the way we shop for greetings cards will be important to help reduce the spread of COVID-19. Although non-essential stores can reopen just before Father’s Day in the UK, Card Factory is unlikely to see strong sales as footfall will remain low due to social distancing measures, meaning this occasion will fail to hit the mark.

“While Card Factory continues to make several cost-saving measures, such as leveraging its vertical supply model, the retailer’s profit before tax continues to come under increasing pressure, falling 4.4% to £65.2m in FY2019/20, driven by a rise in the National Living Wage, higher card payment fees and storage of increased stock levels. Christmas was also a weaker festive period compared to the last as lower consumer confidence hindered demand, which will have hurt full-year profitability. With the card specialist having seen a significant drop in sales in the first few months of its current financial year, focusing on growing its online proposition and its gifting categories will be essential to help it weather the storm.”

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