Premier Investments has suggested that it could withdraw financial support from its UK subsidiary.
According to the Financial Times, Smiggle, the Australian-owned stationery retailer, has warned that its parent group could withdraw financial support from its British subsidiary if economic conditions worsen. The news was revealed after Smiggle approached some landlords about its desire to lower its rental bill.
The UK subsidiary’s annual accounts, filed at Companies House, stated that its Australia-listed parent, Premier Investments, has reserved its right to review the financial support on which its British operation is reliant, and that it had “undertaken to inform the company in the event that . . . it would or might no longer be prepared to continue to provide such financial support”.
Smiggle launched in the UK in 2014 and currently has 134 stores across the country, mostly in shopping centres. It has also expanded into south-east Asia, New Zealand and Ireland.
Premier Investments has apparently declined to comment on the statement or outline the circumstances under which it might decide to stop backing the UK operation.
The statement admits that consumer sentiment continues to be weak in the UK amid concerns over Brexit. At its first-half results in March, Premier delayed its target for Smiggle to achieve worldwide sales of A$450m to 2021 / 2022 rather than 2020, specifically blaming Brexit and the uncertainty it has created.
Property agents have reportedly admitted that Smiggle has been having informal conversations with some landlords over the past three months about reducing rents. According to those agents, the requests have largely been met with an unsympathetic response.
A person with knowledge of the company’s revised strategy told the FT that talks with landlords were also being driven by prevailing conditions in the UK property market, admitting: “They are aware that rebates and discounts are being offered to other retailers in the same centres.”
Earlier this year, rival stationery retailer Paperchase used a company voluntary arrangement to reduce its rent payments and close some stores. However, most observers think it is unlikely that Smiggle would follow that approach, given that many of its leases were signed in the past couple of years.
Premier’s recent presentations to Australian investors have highlighted the growth in channels other than traditional stores. In the UK, it has opened only one new store in the past year, preferring to focus on concessions and the wholesale business. Online sales are almost a fifth of the total and growing strongly. In the year to March 2018, sales rose by a quarter to £69m, but net profit fell to £5.73m — down from £8.51m the previous year.
Smiggle UK said that it had received a letter from its parent pledging financial support for the next year, and its balance sheet is said to be robust, with an even split of debt and equity funding.