Findel moves Kitbag’s goalposts

NEW partnerships to sell kits from US basketball and American Football teams and a renegotiation of existing contracts will help to improve Kitbag’s margins says Findel chief executive Roger Siddle.

Chadderton-based Kitbag once again managed to achieve sales growth during the year – up 4.6% to £60.7m – but it slipped to an operating loss of £4.2m (2011: £1.9m operating profit).

Mr Siddle said that although the firm had frequently managed to grow its top line, the agreements it had with the major football clubs were weighted too heavily in favour of the clubs, making profitability difficult.

The company runs online stores for several major clubs and has agreements in place to sell merchandise for the likes of Real Madrid, Barcelona, Manchester United, Manchester City, Celtic, Rangers, Chelsea and Everton.

The agreements typically consist of a minimum payment and a royalty fees based on the level of sales generated on merchandise, but Siddle said in several cases the company had not sold enough merchandise to justify the base fee. He also said that sales of football kits and merchandise had a limited lifespan, and if sales are not made quickly enough stock often has to be significantly discounted.

Findel replaced Kitbag’s co-founder Ray Evans last year, recruiting former Umbro and Manchester United commercial director Andy Anson. He has subsequently begun redrawing its agreements.

“We’ve sat down and pointed out why we need to renegotiate, and I’m pleased that our partners have been willing to do that.”

He also argued that the site needed to diversify, and said it had just agreed a deal with both the National Basketball Association (NBA) and National Football League (NFL) to sell replica kits and merchandise in Europe, the Middle East and North Africa.

Mr Siddle argued that all of Findel’s business divisions are now “showing strong signs or at least green shoots of recovery” following a tough period in its history where it has endured several years of decline.

Despite the fact that the company reported a widening pre-tax loss of £12.1m in the year to March 31 (2011: £1.4m loss) on turnover of £537.8m (£540.7m), he said that its performance during the second half of its financial year had been considerably stronger than its first half following a refinancing in March 2011.

Sales were up by 1.6% in the final six months. “Given that the business was in decline, we feel quite good about that.”

He added that this trend had continued since its year end, with group sales up by 6.5% in the first eight weeks.

Mr Siddle said that its biggest business unit, Accrington-based Express Gifts, had shown growth of 8.2% during the year and by 20% since the year end due to it sourcing “better value products”.

He said that although the retail market generally remains unpredictable “one of the central retail trends is that customers will buy if they see value”.

Its Kleeneze division – also in Accrington – has recorded its first period of growth in years since its year end, which Siddle attributes to changing the recruitment policy for catalogue distributors. Findel used to insist that distributors committed to purchasing around £60-£80 worth of catalogues as a way of showing commitment to becoming an agent for its products.

“Instead, we decided to make it free and see what happens.

“We saw a significant surge in the number of people signing up in 2011,” he said. Although initial drop-off rates were high, he said the agents recruited a year ago who have continued to distribute catalogues achieve similar returns to those who had signed under the old regime, and added that its pool of distributors was now much higher.

The company’s shares dropped by almost 5% yesterday at 3.56p, giving it a market cap of £63.9m. Stuart Forshaw, an analyst at WH Ireland upgraded his recommendation on the shares to a Buy, though.

“Management is to be commended for the successes achieved thus far against a less-than-benign trading background,” he said. “Although the group is still in choppy waters we anticipate newsflow will be increasingly positive from here.”