Shoe Zone blames tax rises in budget for decision to close some stores

Shoe Zone, the budget-friendly shoe retailer, has attributed its decision to shut down stores to rising expenses from wage increases and national insurance contributions introduced in the October budget, as well as a decline in consumer confidence.

Shoe Zone reported facing "extremely difficult market conditions" from early October to mid-December due to reduced consumer confidence and unusual weather patterns. These factors contributed to a decline in sales and profits.

The company, which operates 297 stores and employs approximately 2,250 people in the UK, noted that consumer confidence has declined even more following the budget announcement on October 30. This decline has rendered several of its locations "unfeasible."

The company hasn’t revealed how many stores will shut down. As of the end of March, the retailer had a total of 309 locations. The Guardian has contacted Shoe Zone to get more details on the number of closures expected.

It was mentioned that the proposed rises in employers' National Insurance contributions and the national living wage would lead to "considerable extra expenses."

In her budget announcement, Chancellor Rachel Reeves revealed plans to raise the employer national insurance rate from 13.8% to 15%, starting in April next year. Furthermore, she mentioned that the income level at which employers begin to pay this tax for their employees will be reduced from £9,100 to £5,000.

The proposed measures, which aim to generate £25 billion annually, have faced backlash from numerous major companies, especially in the retail and hospitality sectors. They argue that these changes could lead to job losses and higher prices for consumers.

Andrew Bailey, the governor of the Bank of England, has called the response of businesses to the rise in National Insurance Contributions the most significant challenge for the UK economy following the budget announcement. This comes during a period of increasing economic uncertainty both in the UK and around the world.

Shoe Zone, which sells nearly 14 million pairs of shoes annually with an average price of £13.30, indicated that rising expenses and declining sales would greatly affect their overall annual results.

As a result, the company announced its second profit warning for the year, significantly reducing its profit forecast for the current year by 50%.

Shoe Zone now anticipates an adjusted pre-tax profit of around £5 million for the year ending September 27, a decrease from earlier projections of £10 million. Additionally, the company will be pausing its dividend for the financial year that concluded in late September.

As a result, the company's stock fell sharply, dropping up to 44% to a price of 75p. This decline means that the shares are currently valued at 66% less than they were at the beginning of the year.

Russ Mould, the investment director at broker AJ Bell, stated that Shoe Zone's choice to attribute its profit warning and store shutdowns to the budget was a "misalignment." He acknowledged that while the rising costs affecting the company and the broader retail industry are "indisputable," the reasoning behind their decision was flawed.

Mould stated, "Nonetheless, blaming poor trading on a drop in consumer confidence following the budget contradicts overall UK data, which shows that confidence has actually increased since then."

It seems that Shoe Zone's products may not be appealing to customers as they once did. Ideally, we would want the management team to investigate the underlying issues instead of simply blaming outside influences for the decline.