Solomon Lew’s Smiggle UK posts first loss in five years as Brexit and Covid-19 hit earnings

Smiggle, the stationery retail juggernaut owned by Solomon Lew’s Premier Investments, has fallen to a loss in the UK.

In the latest Smiggle UK accounts it showed the Smiggle business fell to a loss of £9.165m for the 12 months to July 27, 2019, down from a profit of £5.73m in the previous year. Picture: AAP

Smiggle, the colourful stationery retailer that has for years fuelled superprofits for billionaire Solomon Lew’s Premier Investments, has swung to a £9.165m ($17.23m) loss in the UK for 2019 as Brexit hit earnings, and it took a costly one-off hit from accelerating the write-off of its British store leases.

It is the first time Smiggle has made a loss in the UK since 2014 when it first opened and began a rapid international expansion.

The Smiggle UK arm has also warned in its latest financial accounts lodged with the British corporate regulator that Covid-19 and lockdowns have had a significant impact on the business’s retail activities, presenting what it called in the accounts “an operational risk”.

The international offshoot of the highly successful Smiggle chain said that due to Covid-19 it had also instituted a “hard pause” on all capital and operating expenditure”, pivoting to online to help it maintain its earnings momentum while also making use of government subsidies such as the UK job retention scheme.

Up until 2019, Smiggle was a cornerstone of Mr Lew’s ambitious growth plans for his Premier Investments, with the stationery chain known for its colourful and glitzy pencil cases and folders set a sales target of $450m a year by 2020. At the latest 2020 full-year results for Premier Investments it showed strong growth in the Smiggle brand, especially online, with sales at $256.3m.

Smiggle quickly opened up stores across Asia and Britain, ramping up sales and profitability, but its business hit a brick wall in Britain after the Brexit vote, as well as the Covid-19 retail drop.

Premier Investments chairman Solomon Lew, centre, cuts the tape to open a new London Smiggle store. Smiggle’s business hit a brick wall in Britain after the Brexit vote, as well as the Covid-19 retail drop.

In the latest Smiggle UK accounts it showed the Smiggle business fell to a loss of £9.165m for the 12 months to July 27, 2019, down from a profit of £5.73m in the previous year. It is the second consecutive year of smaller earnings, with profit dropping from £8.508m in 2017 to £5.73m in 2018. In 2016, Smiggle UK posted a profit of £3.329. The 2019 accounts reveal that underlying earnings for Smiggle UK shrank dramatically to £318,000 from just over £7m in 2018.

A decision to take a tougher stance with its British landlords saw Smiggle UK trigger an accelerated depreciation of its leases for its local stores, which sank profitability by £10.66m and drove it to post a net loss in 2019. But the move also allowed Smiggle UK to negotiate from a position of strength with landlords refusing to lower rents in the face of a Brexit hit to the economy, including freedom to exit stores if it failed to ink a better rent deal.

The shockwaves caused by Brexit now seem a distant and harmless memory when compared with the pandemic.

The report contained in the Smiggle UK 2019 accounts warns the pandemic and subsequent response of governments has impacted activity levels across the community, the economy and the operations of the Smiggle business. “The scale and duration of this pandemic remains uncertain as at the date of this report however they have and will continue to have an impact on our earnings, cash flow and financial position,” the report said.

Due to Covid-19, Smiggle has permanently closed 24 of its 138 UK stores.

Meanwhile, following the departure of Premier Investments chief executive Mark McInnes from the company, he has also stepped down from the Smiggle UK board. He was replaced as a director by Mark Middeldorf. Mr Middeldorf is an executive of the Century Plaza group of companies which is Mr Lew’s private company and the biggest shareholder in Premier Investments.