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Performance against objectives and target in 2017
OBJECTIVES AND PLANS FOR 2017 PERFORMANCE AGAINST OBJECTIVES
Ongoing focus on managing the risk of fashion.
  • Retail sales grew by 4.5% despite tough trading conditions (52-week basis: 2.5%).
  • Gross margin improved from 45.6% (excluding exceptional items) to 46.0%.
  • Buying and merchandise teams focused on delivering the most relevant and fashionable footwear product to the marketplace.
Gain leverage from Truworths’ expertise.
  • Buying processes aligned with Truworths and now more robust.
  • Implemented new merchandise management planning system similar to that of Truworths.
Continue to work closely with key suppliers to track trends and ensure our products reflect the latest look.
  • Trend information sourced through international trade fairs, online subscriptions, social media, international and local retail inspiration as well as global and local street trends.
  • Celebrity styling and events monitored to ensure the ‘must have’ items are available.
  • Collaborated on the launch of many branded products.
Commitment to providing customers with product that is manufactured under ethical working conditions.
  • Specifically with regard to the awareness of modern slavery and human trafficking, Office applies a code of conduct across its own-label supply chain that is based on the International Labour Organisation conventions and recommendations.
  • All own-brand suppliers and manufacturers are required to adhere to the code of conduct.
  • A formal statement by the board supporting Office’s commitment to preventing modern slavery and human trafficking is published on the website.
Reduce reliance on key brands.
  • Brand dependency is diversified across a wide range of brands.
TARGETS FOR 2017 PERFORMANCE AGAINST TARGETS
Gross margin of 44% – 47% Gross margin at 46.0%
Challenges encountered in 2017
  • Initial uncertainty following the Brexit vote dampened product demand in the early stages of the financial year.
  • Brexit concerns also contributed to the devaluation of sterling which impacted the price of euro and US dollar imports.
  • Change in supply operations and reduced customer demand for certain brands was mitigated by planned diversification of reliance across brands.
Key risks and mitigation strategies for 2018
DESCRIPTION OF RISK RISK MITIGATION
Need to ensure that Office remains at the forefront of the UK footwear fashion market.
  • London heritage and consumer demographic ensures Office is among the first to identify continual changes in footwear fashion.
  • Embedded relationships with major brands and collaboration on development of certain product ensures that Office is able to track trends and ensure that product reflects the latest look.
  • Continued customer feedback through store employees, social media and customer polling.
  • Specialist own-brand suppliers identified based on their ability to deliver the most exclusive desirable product at the best quality, coupled with required order flexibility and supply reliability.
Possible increased competition from new entrants into the market.
  • Maintain close ties with branded footwear suppliers.
  • Develop exclusive ranges with certain brands.
  • Extend social media footprint to provide a more ‘lifestyle’ offering to brands.
Medium-term opportunities
  • Leverage the merchandise management system to support implementation of best-practice systems and processes.
  • Provide greater flexibility for merchandise initiatives and improve integration.
  • Develop customer-centric, loyalty-based marketing programme to drive new and repeat purchases and incremental sales.
Objectives and plans for 2018
  • Ongoing focus on managing the risk of fashion.
  • Ongoing development of the new merchandise management system.
Target for 2018

Gross margin of 44% – 47%

Performance against objectives and target in 2017
OBJECTIVES AND PLANS FOR 2017 PERFORMANCE AGAINST OBJECTIVES
Reduce inventory levels while maintaining depth and range of product to meet customer demand.
  • Inventory levels 17% lower at June 2017 compared to the prior period-end.
  • Inventory turn increased from 2.7 times at June 2016 to 3.4 times at June 2017 (in pounds).
  • Levels of marked-down stock reduced by 17.5%.
Alignment with Truworths’ retail processes and methodologies.
  • Extensive engagement between Office’s and Truworths’ teams with emphasis on merchandise to ensure best practice and consistency in methodology.
Continue to improve product availability and efficiency to online customers.
  • Express and standard delivery options extended to international customers.
  • Growth of ‘click & collect’ activity from store.
  • Increase in number of ‘ship from store’ orders allows more store stock to be made available for selling online.
TARGETS FOR 2017 PERFORMANCE AGAINST TARGETS
Inventory turn 2.5 – 3.0 times Inventory turn 3.4 times
Challenges encountered in 2017
  • Managing the impact of the devaluation of sterling on product pricing following the Brexit vote at the start of the financial year.
  • Reducing stock levels to achieve inventory turn targets without negatively impacting sales.
Key risk and mitigation strategies for 2018
DESCRIPTION OF RISK RISK MITIGATION
Office is exposed to exchange rate volatility on imported merchandise.
  • Foreign exchange hedging policy to reduce the adverse impact of currency fluctuations.
  • Net exposure to euro 11% and US dollar 3%.
  • Natural internal hedge as stores in Germany and the Republic of Ireland are euro-based.
Medium-term opportunity
  • Identify new sources of supply to mitigate the potential macroeconomic impact of Brexit.
Objectives and plans for 2018
  • Create capacity for further investment in new stock by further reducing aged stock holdings while maintaining improved inventory turn ratios.
  • Optimise benefits of new merchandising system.
Target for 2018

Inventory turn of 3.0 – 3.5 times

Performance against objectives and target in 2017
OBJECTIVES AND PLANS FOR 2017 PERFORMANCE AGAINST OBJECTIVES
Optimise physical retail presence.
  • Trading space decrease of 0.4% (2016: 2.4% growth).
  • Net three stand-alone stores opened (five stores opened and two closed).
  • Latest international store opened in Essen, bringing German store footprint to eight.
Optimise concession store presence.
  • Opened two and closed eight concession outlets.
Trial new store design.
  • New store design concept being piloted as part of expansion and refurbishment of existing store in Arndale, Manchester.
Continue to expand e-commerce presence.
  • E-commerce now 28% of total sales.
  • 76.5 million visits to Office’s websites, an increase of 11% (2016: 69.2 million). Growth driven by continuous development in web and mobile design and functionality, channel expansion, aggressive product launch calendar and competitive delivery and service.
TARGETS FOR 2017 PERFORMANCE AGAINST TARGETS
Trading space growth of 1% Trading space decrease of 0.4%
Challenges encountered in 2017
  • Business rates (a tax levied by local authorities in respect of non-domestic properties) are usually revalued every five years, but the UK Government postponed the revaluation scheduled for 2015 until 2017, delaying the impact of the increased costs to business.
  • The revaluation of business rates in the UK with effect from April 2017 has resulted in an overall increase of approximately 4% in the business rates payable across the store portfolio. However, certain stores have incurred larger increases, notably in central London where increases have been significantly higher.
  • A number of five-year rent reviews came up during the period, resulting in escalated rental expenses.
Key risk and mitigation strategies for 2018
DESCRIPTION OF RISK RISK MITIGATION
Managing the balance between e-commerce and store profit contribution to the business.
  • New store concept rolled out during August 2017.
  • Managing cost base very closely.
  • Ability to manage e-commerce’s flexible cost base as the business develops.
The planned implementation of General Data Protection Regulation (GDPR) from May 2018 will change laws relating to the collection, storage and usage of customer data relating to the e-commerce site.
  • Currently in discussion with legal advisers to improve processes and implement required changes to systems and processes.
Medium-term opportunities
E-commerce:
  • Customer experience: focus on website design, functionality and removing customer struggle points to further increase conversion rates. Includes improving delivery options and offering customers additional ways to pay, including international payment options.
  • Extend sales of Office products via third party marketplace and concession websites.
  • Customer marketing and relationship management: continued investment in online marketing to drive new customer acquisition and development of customer relationship programmes to increase retention.
Physical stores:
  • Open 10 – 15 new stores in the UK by the end of 2019.
  • Open approximately 5 new stores in Europe over the next three years.
Wholesale:
  • Expand the wholesale channel.
Objectives and plans for 2018
E-commerce:
  • Continue investment in digital marketing to drive new and repeat purchases.
  • Improve customer experience by introducing new Office mobile app, adding new currencies on website to support international sales and enabling customers to check stock levels in-store.
  • Ongoing transformation of the look of all digital platforms to ensure a consistent brand experience across all channels, particularly social media.
Physical stores:
  • Trading space growth of 2%.
  • New store design concept to be incorporated in all new and refurbished stores.
Target for 2018

Trading space growth of 2%