Superdry PLC

LSE:SDRY

Earnings Call Transcript 2019-Q4

[Peter Wodehouse Williams, Chairman of the Board]

Right. A very warm welcome to, well, 1 or 2 old friends. I'm the old one, but you're the friends. So thank you for coming on this morning. So warm welcome to all of you from Julian, Nick, Phil and Sophie and myself to what is the Superdry results presentation for the year ending 27th of April 2019. As you can tell, last year was clearly a very difficult year for the company, which had 3 profit warnings and obviously very disappointing financial results. Now whilst it's fair to say that the macro environment for fashion retail wasn't easy, clearly, the financial performance was both unsustainable and unacceptable and the previous strategy clearly was not working. But the key really for this meeting is what actually happens next. The brand remains robust. We are financially sound with cash on the balance sheet, and we know the direction that we want to follow to get back to where we should be. Julian is working really hard to stabilizing the business and resetting the strategy for the future. Now whilst the initial steps to stabilize the business have been taken, the revitalization of Superdry will take some time to come through. And later in the presentation, Julian will take you through what is happening with these initial early steps across the fundamental elements of the business in terms of brand, product, retail stores, online and marketing. So with Julian very much focused on the business, I'm obviously focused on -- as Chairman, on the strategic oversight, the corporate governance and replenishing the Board and making sure that we have the right team in place to deliver on our promise to revitalize Superdry and return the business performance to where it should be. So to that end, last Thursday, we announced the appointment of 2 new high caliber non-execs, Helen Weir and Alastair Miller, both of whom will already be known to many of you. And we also hired Nick Gresham, the CFO, who'll now take us through the financials. Over to you, Nick. Thank you.

[Nicholas John Gresham, CFO & Director]

Thank you. Thank you, Peter, and good morning, everyone. I'm delighted to be able to take you through the full year results for the 52 weeks ending 27th of April 2019, including some increased transparency across our financial KPIs and to provide clarity on some very large moving parts. There's some further detail in the appendix I don't intend presenting today. So in a difficult retail climate, group revenue was flat year-on-year with promotional activity diluting margin and increased costs further impacting profitability. Therefore, underlying profit before tax was GBP 41.9 million, significantly below last year's results of GBP 97 million and after including GBP 11.1 million of credit from the onerous lease and impairment charges. Despite the reduced profitability, the Board remains sufficiently confident of the future prospects of the business, including future cash generation, to maintain its dividend policy and to propose a final dividend of 2.2p. Although group revenue was flat year-on-year, there was a contrasting performance by channel, by half and by territory. Owned store performance across 248 stores declined by 3.7% year-on-year, with half 2 showing a worsening trend over half 1 as the impact of space growth diminishes. New space added 5.8% to Retail revenue in the year, resulting in a full year '19 like-for-like decline of 9.6%, now being 7 consecutive quarters of like-for-like decline. E-commerce sales in full year '19 were up 1.6% after growth of circa 30% per annum in each of full year '17 and full year '18. Half 2 '19 was particularly impacted by the slowdown in both owned sites and third-party site performance. Wholesale also experienced the fall in historic strong growth rates to a small full year negative driven by Q4 performance, down 9% year-on-year, predominantly as a result of increased levels of returns. Gross margin declined 250 basis points in the year with Retail experiencing the greatest decline after substantial promotional activity, particularly in the second half of the year. We also experienced a small negative impact from mix as Retail revenues with the margin of 64 percentage points declined and Wholesale with a margin of 43 percentage points increased. FX benefit was driven by the timing of purchases for our Spring/Summer '18 at a U.S. dollar rate circa 10% lower than the previous year. Total central costs of GBP 74.6 million grew year-on-year by GBP 2.6 million or 3.6%, although this total benefited from GBP 5.5 million of lower bonus-related costs. Previously announced organizational restructuring is substantially complete and has been adapted to support the new strategy by investing in areas such as design and marketing, which Phil and Sophie will expand on later. The analysis of the year-on-year profits highlight the impact of margin dilution and cost increases. Adding all of the spend categories below gross margin, we have in the region of GBP 450 million of costs. And whilst we are not recommitting to the previously announced GBP 50 million gross savings target, we are committing to a new thorough review of all costs to support investments to deliver the new strategy and to contribute a net saving within the next 24 months. Whilst the company continues to have significant cash resources, closing cash at GBP 36 million was reduced by GBP 40 million after investments in working capital, interest and tax, CapEx and GBP 46 million of dividends in the year. In addition to the cash and bank balance, the company has an agreed RCF facility of GBP 70 million to support the intra-year cash cycle, and that is secured through to January 2022. The total exceptional costs in the period were GBP 127.3 million, GBP 5 million of which is cash and GBP 122 million noncash. The credit from financial derivatives of GBP 23.9 million was driven primarily by: the devaluation of sterling against the euro and U.S. dollar impacting forward currency contracts; GBP 8.1 million of charges related to restructuring, cost of change and other one-off costs relating to the store portfolio review; GBP 2.6 million plus GBP 8.5 million related to the write-down of our investment in China in full. Also included in exceptionals is the IFRS 2 charge of GBP 2.6 million in respect of the Founder Share Plan. As previously announced, the company commenced a store portfolio review in December 2018. Following peak trading, the company concluded the trigger point for an impairment review would be the end of January 2019. The result of this review was that a significant number of the owned store estate was either unprofitable or would become unprofitable in the current trading environment. And as a result, we have booked a noncash charge of GBP 129.5 million across a total of 114 stores. The charge is weighted towards the worst 10 performing stores in each category, representing 40% of the impairment and 50% of the onerous lease charges. However, over 75% of the impacted stores have a charge of less than GBP 0.5 million each, and therefore, we are not anticipating a significant number of store closures. The store estate remains flexible with over 40% of the estate having a renewal or exit opportunity within 2 years, which will provide a catalyst for potential rent savings. I've included some direction for future financial guidance, which reflects the revenue and margin impact of a return to a full price stance and the optimization of our cost base, along with tight control of cash. I'd like to conclude by thanking the Superdry finance team and the Deloitte audit team for their considerable effort in navigating through a very difficult year-end to get us to today's announcement. I'll now hand over to Julian and the team to take you through the strategic imperatives.

[Julian Dunkerton, Interim CEO & Director]

Hi, everyone. Great to see you all again. So we're going to -- we've got the 3 sort of strategic imperatives that I'll just talk to a tiny bit, and then we're going to move slightly onto product and moving to Phil and then back to me with the sort of the channels. So what do we have to do? We have to bring back design excellence and a clear customer segmentation with the product and brand, or product and design, and I will show you with the product what that actually means. We have to reset store profitability, support Wholesale and have a growth plan for e-commerce, which is fairly obvious stuff, but we will go through that in great detail. And we have to reignite the brand DNA, which has been lost. So we have to do that through product and really through consumer engagement and social media, which again Sophie will be particularly talking about. So I'm just going to stand up and show you the difference between where we were or where we would have been had we continued down the path and where we have quickly moved in and brought in for Christmas what we need to deliver what 2 years ago was delivering 58% of the Autumn sales. So winter jackets for women in November and December delivers 58%. So that's why I rushed into saving the jackets sort of situation straightaway. That was my first imperative. If we look at this product, so this rail here, through no fault of the design team but through the fault of the process, the ask of the team and the thought process about what Superdry is. So we've -- in 2 years, how quickly did they forget how we made our money. So I don't know about you, but I wouldn't want to see -- I wouldn't expect to see too many people wandering down the High Street in a garment like this. The fabric's wrong, the shape's wrong, the branding is nondescript. There is nothing to tell you that this is Superdry. This is where we would have been, okay? So if you come over later on and just come and touch the fabrics, is that right? Have they got the 3 elements of design that are so key in the process, which are fit, fabric and branding as part of the process, the design process that creates the product in the first place? It's very key, and it's fundamental to who and what we are. We are not some High Street fashion brand that isn't even fashion. We are core classic products. So when you look at this, you see there's 0.5 million people in the U.K. alone that could probably wear this product. The fabric's amazing. It's soft touch. You feel it and go, "Wow! That feels great." The fit is amazing, and the branding suits the product. So it's not an event that you put on after the design process. It's part of the design process. It has to make sense to the consumer that you're aiming for. Now with hundreds and hundreds and hundreds of design abilities or branding abilities to bring into the design process to work and what Phil will talk to you about is how we now move into targeting consumers in a much more sophisticated way than we ever have before. And that's why Phil and I are working so well together. But what you're looking at here is -- actually, Phil and I created that one together in the middle, the parka, classic parka. But you've got some James' product here. So the Super Design Lab has created quite a lot of these products, particularly the premium products over there. So if you look at that as a down-fill product, nearest competitor at that level of quality will be 650, it'll be a woolrich, it'll be a Canada Goose. Those products start with a 2. The rest of the products around the room are predominantly between 90 and 140. So they're very affordable, accessible products. So that's what we are. We're a brand that is affordable, accessible, that has a position in the market that nobody else has. So we mustn't forget that. We have a position in the market that nobody else has. There's nobody competing in our arena, and that's what gives me great faith in our future. Right. I'm going to pass over to Phil, who will talk about the design process and the customer segmentation. So thank you, Phil.

[Phil Dickinson, Creative Director]

Yes. Thank you very much, Julian. Yes, is -- okay. Can everybody hear me? Speaking to this now. Excellent. So what's great for me is I've worked with a couple of -- well, quite a lot of brands, but a couple of very successful brands where the CEO has had a real passion for product, and I think it really shows in the success of those brands. And what's really refreshing for me is to see Julian talking with so much passion about products and that he understands what this brand is about and also what the consumer's about in terms of where aspirations lie. So when he articulated the point about the jacket there, which is our closest competitors in terms of product quality would be Canada Goose and woolrich, we're talking into consumers that have a premium aspiration, and we're able to deliver against that. So I think that's a really, really -- it's a great fillet for the business and what we're intending to do. No pun intended there. Following on from what Julian spoke about, I know for a fact, again from being around the block a few times with some serious brands, if we're going to strengthen the brand and grow our business, we're going to do that with a relentless focus on our product craftsmanship and also our brand engagement. And to that end, what I've been able to do in my role as the Creative Director at Superdry is to pull together 3 critical functions within that business. And those functions are: the product management team, so how we approach the constructs of the collections we're building; the product design team, so all the beautiful craftmanship we're able to imbue into products; and also the marketing team. And what that gives is really a fully integrated end-to-end process whereby we're creating products with a target consumer. We're delivering craftsmanship that they aspire to have in their wardrobes to make them feel very, very special. I mean that's the business we're in. We're in the business of making people feel very special about what they're consuming. Also, engaging them with compelling marketing narratives and communication. So having that end-to-end integrated concept from start to finish is really, really successful. I've run that in a couple of other businesses. And in one of them, we achieved 7x consumer uptake in terms of products. So it's quite interesting when you start to really play a strategic game with the creative function within the business. So like I say, I'm really -- I know I don't sound it because of my dour Yorkshire accent. But believe you me, I'm really inspired about having a CEO who's got passion for products and fully understands how we need to engage consumers. So that's a really great thing. I'm just going to talk to you now about the products and design part of that, that integrated creative center. So when Julian talks about bringing back the notion of design excellence into the business, I think it's really, really interesting because when I walked through the door, the teams were focused on designing specific product types. So I might have been very well educated within the European or British design system, and I'd been challenged with thinking about consumers and the full collection of products and the things I'm going to be designing. Within the design team, when I walked through the door, it's very operational, and people were actually focusing on a specific product type. So I have done an amazing education at St. Martin's School of Arts, been a master of womenswear and I walk into a role within this design team and I'd be designing hoodies. And so my engagement and understanding of consumer culture was almost nullified. And what I've done with the design team is actually spoken to every one of them, figured out who the people within that design team who have got leadership qualities. And instead of just focusing on menswear and womenswear now, we're focusing on a matrix system, which is built around the idea of apparel craftmanship and footwear craftsmanship. And then we have a play on the market, which is through style choices. And we've conducted upwards of 30,000 consumer insights. And from that consumer insights, we realized there was -- across the U.K., Europe and the U.S. marketplaces, there was, for men, 10 style choices that people were talking to and what they aspired to have in their wardrobe and for women, 13. And when you start to aggregate those into bigger, I suppose, like chunks of style, we ended up with 4 different style choices that we could legitimately play out in the marketplace. So I now have collection leads running collections that will be speaking into the notion of vintage and casual, which we know there's a big play in the market there for us. That's pretty much the core of the brand. We also know that some of our consumers that really appreciate the quality of the product are looking for more sophisticated and minimal product. So we have a collection based around that. We have a collection that's based around the energy of street and street sports style products, and we also have a pure sport and ski and snow collection as well. So we have 4 style choices to go out there, have now put in place design collections leads for those things. They're cross-referenced with experts in terms of the apparel craftsmanship and footwear craftsmanship and start to really play the market. So the design team internally is full of amazing talent. They're now aligned against real opportunities, which a great thing. We're also in a fortunate position that people want to collaborate with us as a brand. And I think one of the strongest collaborations we've got is with the fellow founder of the brand in James Holder who obviously fully understands the DNA of the brand, and we're able to use James' skill sets to inject energy into our core mainline product offer because he obviously -- he lives and breathes it. He has amazing understanding of what quality means to this consumer. And at the same time, we have been approached by various influencers who want to collaborate with us. One of those guys is quite interesting. Actually, it's a guy called Edison Chen, who runs a brand called CLOT. I don't know if you guys will be familiar with that, but it's the biggest and most influential streetwear brand in China. And the interesting thing about the influence of Chinese design is that he actually shows at New York Fashion Week. And so we are just in a collaboration with him, which is -- I guess it's recognized. Quite a nice challenging take on what our brands about, and it's very playful. And we can launch that to the next New York Fashion Week around -- so we'll be doing activity around that particular event. So it's interesting when you think about Superdry and some of the press you read that you could imagine the brand has no legs. But when you find people who are some of the most influential streetwear designers in the world coming to us and wanting to collaborate with us, I think that's a feather in our cap and [indiscernible] for a strong and energized future in terms of creativity. The good thing about having the design team revitalized is that we can really, really major on the stability, if you like, within our mainline collection and growing that and, as I said, using James' expertise to energize that particular area. We're able to also bring visually exciting new ranges into that collection as, again, through different collaborations. But with having the design team focused on style shows, we're also able to set ourselves up for 4 new streams of growth within the marketplace. And I think that the focus and the diligence they'll spend on that and embedding themselves in those cultures will allow us to set the growth target back where it should be. In terms of the second point of exciting the consumer with newness, I've spoken about the research we did with over 30,000 consumer insights. What we found with that was that when we just imagine a general consumer, we have a lot of product going towards that general consumer. And I -- what I really enjoy doing is romancing cash out of people's pockets. And in order to do that, I need to know who I'm talking to. And what we found with the research is that we actually have a 9 grid box of consumers who are interested and potential prospects for this brand. And the first cut on that is through an age play. And a lot of people aren't really into doing that, but it's the truth, right. So I'm sure we've all nuanced our style choice as we've got older or more experienced, let's say. I know I certainly have. And I think that we have 3 clear groups of consumers: and they are from 16 to 24 years old, they're from 25 to 34 years old and from 35, 35 plus. And so we know the 3 key boxes of consumers. So that's across men's and women's collections. And then the insight work we did showed us that they have 3 behavior patterns. And those behavior patterns aren't set in stone, and that's how they always lived their lives. We know that we have different moments and different sentiments as consumers. We know that consumers can behave as trendsetters, they can behave as fashion followers and they can behave in a mainstream manner. And so when we break down our opportunity within the market to a 9 box grid of consumers, we can specifically target where we want to place our products and can design into the expectations, aspirations through a premium lens for each of those consumers. And we have started to do, with the product management team, a breakdown of comparison of where the market is and where we're attracting as a brand, and there's lots of opportunity within that in terms of our percentages aligned to those 9 box grid and where the growth can come from. And so that's going to really change our strategic play in terms of creativity, all pretty dry. But it means that when we have some guardrails to creativity, we can be exceptional within those. And I think you're going to start to see that coming through in the coming seasons where we started to retrofit some of the product that's being created into those style choices and clearly articulate those to consumers. But in terms of new product creation, that's how we're going to be moving forward as a brand. It allows us obviously to have a constant flow of product into our channels, but it means that we know why we're making that product for specific channels. And that means that if different marketplaces aren't as advanced as other ones, we know the specific play we can make within that marketplace. And the brand can remain relevant and grow and obviously be hot.So far, Julian alluded to this, working together and leveraging the resources from the Design Lab, we've put into work and we've placed orders for 300 new products, ready for the Autumn and Christmas period. And the internal design team have been charged. And I think another great challenge that Julian brings to the table is he's fearless, and he said he wanted to have 200 new men's and 200 new women's graphics put into the marketplace. We've responded to that. And the team, we've set up a graphic center of excellence. We've got another 300 products that are currently in work ready to be delivered within that time frame as well. So everything from a product perspective is now on fire, let's say, right, in a good way.

[Julian Dunkerton, Interim CEO & Director]

Yes. I know.

[Phil Dickinson, Creative Director]

And I think the -- it's...

[Peter Wodehouse Williams, Chairman of the Board]

But not in an ASOS way.

[Phil Dickinson, Creative Director]

No. No. No. Hey, listen, I've done this a lot of times with a lot of success. And when we start to be strategic about the application of creativity, a lot of good things start to happen. And there's no doubt in the product quality and the integrity of the product, and we now need to build stronger relationship with consumers. And I think Julian is going to talk about how they're going to come to life through our channel play, and then Sophie is going to talk about it from a communication perspective. Thank you very much.

[Julian Dunkerton, Interim CEO & Director]

I'm going to say thank you, but I'm going to ask you one question, say, the opportunity with sports footwear for us as a brand.

[Phil Dickinson, Creative Director]

Yes. Yes. So I've worked with the biggest apparel and footwear brand in the world that also happens to be a sports brand at a pretty senior level. And I know that it's very -- it's a very difficult game to gain to. It's a very difficult game to sustain growth, but I do think that there's definitely a play for us in that market. And we have a very, very strong position in terms of sport because unlike the major players in that game, we are on the mountain. And when you're on the mountain, you're dealing with extreme conditions. When you're dealing with extreme conditions, you better have some serious performance solutions. We can leverage that position down into footwear. We can be in business there. And what I've done to that end is I brought in somebody who I've worked with in the past who is a real craftsman of footwear. He can probably show the lot of you guys in here. He's -- he has his own small boutique brand, which makes beautiful handcrafted footwear at Northampton. But he also has worked with me at Nike in the past, and he worked with Puma, working with Alexander McQueen on their collaboration. He knows the game inside and out. He's got great connections with amazing factories. He's got great connections in Northampton crafting beautiful lasts, which we're starting to do. So the craftsmanship we see in apparel is also going to be there in footwear. And obviously I have a lot of knowledge in terms of the sports market and the place we can make within that and be legitimate within that. So we're not trying to make some false promises or to wipe anybody else. But there's definitely a legitimate play we can make in that market, and I think that's got lots and lots of upside. Thank you.

[Julian Dunkerton, Interim CEO & Director]

Thank you. Brilliant. So I now want to talk about the various channels. I'll start with retail stores and what I've been finding as I wandered around and the things that -- the sort of pre-thoughts that everyone I'm sure is aware that I've got all the stuff I've been talking about for a long time. So really, it's about enhancing the store experience and what has actually happened in the last couple of years and what we're doing to rectify it. So I talked about Regent Street to you all, I think, at some point, and I talked about the 2,800 options that were in Regent Street when I arrived. Now patently, we haven't had enough time to design or create new product to fill that space in an effective way. But what I did have was access to old product that was -- sat in warehouses. So basically, what we did is we added fixtures, as I said we would, and we've added options. Now we've moved to just over 4,000 options from 2,800. Guess what happened? A 17% increase in sales in Regent Street. Now let's think about that. What does that actually mean? That means the simple let's get the fixtures, the densities and the options right in this business, and we will move to a positive place again. It's a really exciting test role. So we're now looking for fixtures and working out what that's going to look like on a global basis. But I mean it's really exciting. So there's still more to go actually. The first floor has not been completed. We're just in that process now. So I'm expecting that to go further. We expect to add about 30%. So am -- I don't know whether I'm looking at the right one here. I'm on the wrong one. That's why. So we expect to add about 30% more options to most stores. So start to do the numbers and work out what that means. And I'll go back to the top line, which I've missed because I was looking at the wrong slide. So if we look at the BDO tracker, so against the BDO in the last 2 years, we've lost 10% against the BDO. We didn't need to lose 10%. There's -- that's a self-inflicted 10%. So really, this is just a journey about recapturing that money that we've thrown away. So it's an easy if long-term fix. I mean it's going to take a little time, but we will get that. So I went on a regional tour. I did Reading, Oxford, Bicester. I've done a lot. I'm going to America in about 10 days' time. But let's take Reading, 25 fixtures minimum that can go in, 500 extra options. My estimate, it's a minimum of 20% like-for-like in that store. Oxford, very interesting. What did that expose? It exposed an arbitrary -- what do I even call it? So we had a category grade A to each category by store, store category sort of journey. So but it was based on size, and then you would populate by size. We've now made that into 60 different categories or grades -- so this is the word I'm looking for, grades within those stores. What that means is you have a level of complexity that makes absolutely no sense. So Cheltenham is a grade A store for hoods. Why? On some arbitrary decision, it has the same amount of hood options as an 18,000 square foot store. It's only 5,000 square feet. So what we've got to do is simplify. And then when it comes to the big wins -- the big wins are actually about hot and cold. So we have an unsophisticated process when it comes to Mediterranean versus Northern Europe, but we have a very sophisticated -- complicated, I should say, system when it comes to the stores, so -- or the general stores. We've also got a system where we're not taking advantage of the basic retail concept of going, "It's cold today. Let's put our jackets forward." Or "Our shorts, our cargo shorts are our best-selling products this week. Let's move them forward and put our lesser-selling products to the back." So simple retail skills just coming back into the business are really going to deliver some huge returns. Outlets. So what happened in the first couple of weeks of me coming back? Well, within a week, we were testing pulling down the promotions that were on top of promotions. That never made any real sense to me. Patently, it didn't make any real sense to the consumer either because what we did was we took them down. We've taken out products that shouldn't be in outlets. We put core product in outlets as they should always be and historically we have been. What's happened? We've -- and price points. We've had price points that have made no sense and didn't actually even correlate to the signs on display, so very strange lack of attention to detail within the retail environment. What's happened? We've seen a 6% increase in gross margin in outlets within, I think, a 7-week process. I mean that's extraordinary, to have that low-hanging fruit so visible and easy to pluck, and we haven't taken advantage of it. So by bringing back simple retail skills into the business, we have got some clearly defined huge wins. Rent negotiation. So we've talked about impairment and what -- you're probably going to ask how many stores are we going to close. We don't intend to close many stores at all. This is about getting to the right negotiated rents. We got 40% of our leases within 2 years coming up for renegotiation, and I think it's 70% within 4 years, so clear path. I think Simon Walton put it very succinctly when he said about -- this isn't about we've got too many stores. This is about getting the right rental deals and the right financials behind each and every store. And this is about a symbiotic relationship with landlords. They need us, we need them, come together and come to the right conclusions. So you've heard about me talking about treating the stock as if it's fashion when, patently, a huge amount of it is not fashion. So we deliver core, classic products. So in Wholesale, where we've had a more continued approach that was rather more like my historic approach, that continued. We had a Never Out of Stock program for Wholesale but failed to maintain that in Retail. So a core classic white T-shirt would be in stock 1 minute and out of stock the next. So just by leveling that off throughout the season and throughout the year, what you do is actually keep that consumer contented where they're coming in for something specific and they know they can get it. It's a very key fundamental to retailing. We have a huge amount of overbuys because the other thing about trying to turn us into a fast fashion company, even though the lead times don't allow you to do that, what that means is we've got a huge amount of stock wastage. So we've got 3 million to 5 million garments that we can come out of. We can reduce our warehousing, which I'll talk to you later. But in terms of working capital, that will be huge. This is not a dumping but a sensible approach to moving through this product and reducing the general stock holding without hurting the brand. So we're not talking about dumping product. What we're talking about is intelligently coming out of them, so not buying for outlet, for instance. So while we've been creating wastage in full price, we've equally been making for outlet, the same product. So it -- there was a nonsensical approach to how we run this business. So we're moving from an estimated 50% -- I mean I'm talking physical space here, physical stores, 50% of the range probably being core and 50% being fashion, so a much more core thought process. So when I say core, I mean this sort of product, the way we design product and the way we approach a sort of classic product if you look around you, this is just a female jacket version of that thought process rather than having a sort of fashion element that does have a huge amount more risk to it. So that doesn't mean we're not going to have short lead time products. So we'll come on to that later. So short lead time products as opposed to fashion, so we will be focusing on short lead time products. So if you imagine 40% of our sales come from graphics-based products, we were making -- we will be making that into short lead time product, i.e., being responsive to the market. They've been making -- we have, last couple of years, been making graphics product 8 months before we actually need it. So there's a huge working capital problem, and there's a lack of responsiveness to the market, which we have to have as a brand. You can't be a brand and not be -- have a responsiveness to some level. So very exciting opportunity and it will reinvigorate the whole retail experience. Logistics. So as a result of identifying a huge amount of product that was -- sat in warehouses doing nothing, we have identified 3 warehouses that -- in just the U.S., that we can close. So I'm sure you've all noticed our costs have been going up and up and up. And that is because they've been building these stock levels with no place to actually sell them, and the model itself was creating a wastage that was completely unnecessary. So by rethinking about how we create product and making sure that we always have a journey for that product and bringing those lead times closer on a huge chunk of it, we will be able to save millions of pounds in logistics costs. 5 million garments were airfreighted last year. So imagine that, so you've extended your lead times, your design process has gone out, is now longer, but we still are shipping in 5 million garments by air. Now we've put in GBP 5 million to GBP 10 million worth of savings. So look, we can't do this in 1 season. But within 12 to 24 months, we intend to have no airfreight at all. So that 5 million garments that are saving a huge amount of money, let alone the environment. RFID. What does that mean? Well, RFID, I've been a massive proponent of -- pusher of that for a long time, and it creates a huge opportunity. So, a, your store stocks are accurate. So your replenishment, so your in-store experience gets better. That's an obvious win. It means that your wastage comes down. But the big win, of course, is the fulfillment of online sales through your store stocks as well, so suddenly allowing that stock to have another way of moving out of it. Now as a line gets broken, that becomes more relevant. So if you think about the 80% of your sales that come from probably 20% of your stock, those are the lines that are going to be broken. But they will have stocks. So that online customer that's being frustrated can somehow be -- can now be fulfilled from your store stocks. It's a big, big win. Anecdotally, our Australian partner said it was 30% of their online sales were being fulfilled from store. So it's a big win. International markets. So clearly, what's been happening is a strategy has been set in the U.K., and it has not been fulfilled or it has not been adapted to the local model or the regional model. Now we're talking about 2 huge territories here between North America and China. They both have different opportunities to make them a successful part of our business. We haven't negotiated a sustainable rent model in the U.S. So what does that mean? It means coming up with a symbiotic relationship with a landlord who will need you to open in malls across the U.S. Patently, they're struggling to fill their malls. That gives you huge opportunity. So have we, a, got a model that makes sense for them? Well, they -- could that be. And what we've historically done in the U.K. or Europe is a CapEx-paid turnover-only deal. Now one has to assume that, that is something that's possible. We've done it elsewhere. We've done it many times, and the U.S. is there to be had. So what we've got to do is get a product that these landlords really want in -- to invest in. Close excess warehouse space, so consolidate 4 into 1, saving GBP 3 million. We've talked about that. We've had a West Coast -- as much of a West Coast focus as an East Coast focus. Now I'm sure you remember that statistic about the product in this room. So 58% of the womenswear sales in the Autumn period come from jackets, and we've been opening stores on the West Coast. Are we really ready to be opening fully huge stores? I mean one of our biggest openings in the last couple of years has been near Los Angeles. It doesn't make practical sense to me. We should have an East Coast bias while we are particularly strong in those categories until we get to a point, and we will get to a point where our lightweight product is good enough, to assume a strong stance in the West Coast. We got to explore franchise opportunities because that, again, has proved to be a fantastic model in Europe and the rest of the world. And yes, we are going to clear excess stock, but we will be protecting brand and margin while we're doing it while moving into that warehouse saving. China. What does China look like? Well, we met the Chinese partners, Peter and I, last week. Frustrated is the word I would say, but committed. So we haven't been making product that is suitable for the Chinese body shape. We haven't been mating -- making product that is the correct weight and length for the Chinese market. We haven't allowed them into short lead time product to make product that suits and give them the ability to respond to the market needs. We haven't had a plan that's changed from the initial strategy, which was a physical retail rollout. Meanwhile, online is making money, contributing, but we haven't actually invested or put forward a proposition to advance that as the channel of choice. So we've got 1,200 options on offer in the Chinese eTail market. Why isn't that 4,000? Why isn't that going to be 8,000? Well, it will be. So what we've got to do now is focus on the clear channels that are going to work in each individual market and tailor our product and our strategy to each. So I think there's very much been a sort of certain [indiscernible] attitude, this is how we're going to conquer the world. It isn't. You've got to adapt and change, right, to each and every market. And then it's there for us. We're creating great product that the public love in every territory.Ecommerce. So we've got to create a different shopping experience versus the stores. And what does that really mean? Well, we have to create stability in the physical space and we've got to keep delivering newness on a daily basis in our eTail space, e-comm space. We can deliver product every single day. That's what we need to do. And what this short lead time move does is allow us to do exactly that. And then when you consider where we can go as a brand and the 9 box grid and the consumers that we can design into, that really delivers something very exciting for this brand and the future of this brand.Since I came in, we came in, we found very quickly a huge amount of stock that has been sat in warehouses with no channel to move through. So that is why you can see that we're going to save money logistically because we are now offering these products up for sale. So this has delivered I think something close to GBP 300,000 a week in extra sales or selling those products that had no home before. There's more to go at. We are working through a photography process to upload those products. But it shows clear, low-hanging fruit, as I keep saying, around the business. They're just obvious stuff that hasn't been done. We're going to be doubling currencies and new options from 4,000 to 8,000 within 24 months. That is a process that could be accelerated. We will go as fast as the e-comm team and the consumer. So we've got to make sure it's not just about options, it's about creating products that people want, and that's key. So as long as we are happy with where we are creating products, that could be accelerated.We got increasing payment options, improving authorization and conversion rates, so Klarna, giving that sort of -- giving credit and allowing people to pay later, which has been so successful internationally; PayPal express; Apple; Google Pay. Okay. So bringing social media to the forefront of our Ecommerce strategy. And obviously, Sophie is going to talk in great detail about that. But we had to build -- we've got to build an internal team, which we are now doing. We are accelerating our 2-year roadmap of how we push forward with all the changes that we're bringing. We need to be and are going to become a more mobile-focused, fresher looking, making the customer journey easier, the product segmentation and alignment within the brand marketing team to deliver a best-in-class experience. So what that means is we haven't been embedded all the way through the processes. So there has been a disconnect in everything that we do. How we've been looking or how we've been stagnant in the last couple of years, how we've been sort of internally looking at this as a channel rather than externally. So I'm a great believer in that there is somebody better than you out there. Somebody is doing an aspect of this business better than you. So we should be constantly looking. So I'm not talking about product. I'm just talking about how we go about choosing models, how we go about making the consumer experience throughout -- through the whole journey better while we can be learning on a constant basis. There is a best-in-class, and we have to be chasing to be best-in-class in every part of that journey. Personalization. So delivering enriched shopping experience. External sources suggest this is 5% to 15% uplift. Third-party channel opportunity. So I don't know if you guys remember the Anatwine situation where we have these partners sites that look at our stockholding and treat it as their own. So we've now done that with Next. That's been hugely successful. So we started with Zalando, now the Next. We are now moving into Amazon US and Macy's. We've talked about fulfillment from store, but that will be delivered by December. So really, really, really exciting changes all around in every channel. Last but not least, in the channels is Wholesale. So I mean at the bottom of this slide, you see some comments from a couple of people who -- since our return and since our focus on thinking of this as a brand. So what we've been doing is thinking about this thing as a siloed entity. So Wholesale is not thinking about Retail, Retail is not thinking about Wholesale, Retail is not thinking about Ecomm or physical Retail is not thinking about Ecomm. So we've all got to work on this holistically like a brand. So reducing promotional activity. What does that actually do? That enhances your ability to do in-season sales from a Wholesale perspective. So it's obviously a huge, huge benefit. If you think you can go around the world delivering 1 week and then going on sale in physical retail the next week, you're wrong. You've got to think about this as a partnership between us all. We're all in this together. We've got huge amount of franchisees who've invested into this brand. We have to look after them, we have to nurture them, we have to protect them. So we've got 70 more franchise openings opening in this year. So still a hugely successful model. And don't forget, this means physical retail. So that's what this actually boils down to. So physical retail, still expanding on a global basis. There will be a 40% increase in the core ranges and a layering on of the constant flow of product for Wholesale. So you're doing 2 things: You're allowing the range to grow to allow Italy to have a lighter-weight product than a German heavier-weight product; but equally, you're allowing them access to the constant flow of short lead time product as well. So they are going to have a much more exciting journey from a product perspective as well. And then I suppose last of all, the continued digitalization of customer interactions. So what that means is we're allowing our Wholesale customers to access to our warehouses so they can look at our stock and buy our stock from a B2B platform. Right. So that's my sort of boring channel bit, if you like. But, I mean, I think you'll see key clear easy wins throughout the business and we're putting every single channel back into its rightful place of positivity and growth. I'm now going to move to Sophie, who's going to talk about brand and marketing and brilliant addition to the company, so.

[Sophie Williams, Head of Global Marketing]

Hi, everyone. So I'm Sophie, Head of Marketing at Superdry. I joined the business last November. And as Phil was saying earlier, I think both of us has really recognized the potential of the brand. It's a really exciting time, loads of opportunity. I also recognize that there were some kind of fundamental marketing practices that we just hadn't been optimizing. And since then, we've been striving to implement those changes within the marketing function. In the last 12 weeks, it's been both refreshing and empowering to be working alongside a leadership team who are fiercely passionate about product and brand and equally that fully endorse and back the investment that we really need within the global marketing department to be able to push the Superdry brand forward. So this morning, I'm just going to run through some immediate actions that I've been implementing that will form part of a longer-term marketing strategy that we're working on as a function. The most important overarching immediate focus is we absolutely need to reignite the brand DNA through increased consumer engagement and social media. So we have a commitment now that we are significantly increasing the marketing department headcount and skill set. The marketing department structure will be focused on 3 strategic pillars: The first pillar is going to be around collection. So as Phil was saying earlier with the creative center, we're going to be aligning with that structure so that we'll have brand managers heading up their own brand units that will really be driving the strategy behind each collection, for example, Mainline, for example, Sport and Snow. Previously in the marketing department, we haven't actually had any Sport or Snow experts, and that's something that we're looking to change. So actually, we have Sport and Snow brand manager that's joining us in August. So it's really important that we serve each sector with credibility and experience. The second thing that we're focusing on with the new structure is channels. So we need to re-energize our communications channels. We don't have channel experts at the moment. So that's something that we're looking to also recruit for our social media, for example, advertising, for example, both areas that we're looking to recruit for. And then finally, we're a global brand. We absolutely need to be thinking globally, but we also need to remember we need to act locally. That kind of echoes what Julian was saying earlier as well. At the moment, to put that in context, we have one marketing representative out in Germany, the rest of us are based in Cheltenham. So obviously, that's not ideal for a global brand. So we're committed to investing into in-country marketing teams, so they will be responsible for building their local marketing strategies, ensuring that they have the best expression of our brand globally. Extra resource will help us maximize global opportunities across all of our routes to market, for example, enabling us to align with our franchise partners. There's some really, really fantastic opportunities that we've got as a business. We've got some really strong wholesale partners, franchise partners. And at the moment, we're just not tapping into that -- all of the opportunity and the upside that we could definitely maximize on. So that's the structure of the marketing function and what we're going to be focusing on. We're also going to be re-carving our current brand and production marketing budget. So we're rephasing the existing budget that we have to make sure that we're including brand spend. Previously, we've been very focused on performance marketing, and we've not invested enough, if at all, in brand marketing and media. And that especially goes to -- goes for social media spend for brand. But this is about to change. We've -- whilst we've been successful in our performance marketing strategy, we really need to focus in generating brand heat and creating an aspirational brand for consumers to walk towards. I've reallocated budget to support this objective. So from Autumn/Winter 2019, you'll see the largest brand spend on social media that we've had. To put that into context, Autumn/Winter '17, we spent 0 money on social media brand spend. For Autumn/Winter '18, we spent GBP 20,000. But for Autumn/Winter 2019, we're uplifting our brand's social media spend significantly. But to make sure we're doing that in the right way, we're working really closely with performance marketing to make sure we're maximizing the brand investment and we're balancing out because it's a 60-40 split. So there's no point in us investing way more money in brand media if performance marketing can't swoop in at the lower funnel and actually get them to convert. And so we're looking at that balance between performance marketing and social media brand spend to deliver the most optimum results that we can.We're also walking -- working towards balancing the ratio and production costs of amplification. So it sounds really obvious that we don't want to be spending loads and loads of money on making content and production if we don't have the money to be able to tell anyone about it. And again, to put this into context, for example, last year, there was a commitment to GBP 900,000 production for a campaign shoot, but we actually had no money to be able to tell anyone about it. It sounds really obvious, but that's kind of where we are...

[Julian Dunkerton, Interim CEO & Director]

[indiscernible].

[Sophie Williams, Head of Global Marketing]

So that's what we're working on now. So making sure that we understand how much money we have to be able to talk about these great assets first before we decide how much money we're going to spend in production and actually creating the content. We're also going to be reducing our agency usage. We're going to be bringing that in-house, which is going to save us money and will help us ensure that we can really keep control of the brand narrative and the creative. Last year, again, to put it into context, we spent GBP 4.1 million in agency resource in total, and we just don't need to do that. We're really confident that we've got a new marketing strategy and expertise that we're recruiting going back to that 3-point approach, collections, channels and territories. If we can make sure that we're really strong in all those 3 areas, there's no need for us to be spending GBP 4.1 million outside of the business, and we can reinvest that in other places. And then as Julian has mentioned as well, social media is the primary channel for us that we're going to be focusing on, both for brand awareness and also as a conversion tool. So we want to make social a really valuable revenue stream for the business. Performance marketing has already proved that we can do that, and that's why, if we can reinvest in the brand media side for that upper funnel, hopefully we'll see that lift with performance marketing as well. So our intention, again to echo the agency point is to bring that team in-house. It will reduce costs and we can reinvest that money that we'd already previously committed to outsourcing. And it goes without saying, we'll be working closely with key partners at Google and Facebook to prove they incrementally impact brand investment. And we're going to be utilizing the right influencers on the right platforms, and we're going to be casting campaign talent who have strong social following, again depending on the budget that we have for media, will depend on the budget that we spend on these people because they could be pretty pricey. So another thing that we kind of haven't been doing that I've noticed since I've been here is that we haven't been contracting talent in a 360-approach. So we may have been booking talent to appear in a campaign, but we haven't necessarily been utilizing the fact that they do have a social reach or they do know certain people or they will be seen at a certain event. All kind of easy-to-fix stuff, I guess. So from Autumn/Winter '19, we will show that any campaign talent that we work with is contractually obliged to support the campaign and key milestones on the most effective channels relevant to that audience. Talent doesn't necessarily mean to be just who we talk about in Ecomm -- in campaign, sorry. It could be the models we use in Ecomm, it could be celebrities that we're gifting. And that's where those brand managers will really step in because they'll understand exactly the type of talent we need to be talking for Sport and Snow versus the type of talent we need to be talking to for Mainline, and having those experts in the business will make sure that we're really, really clear on that targeted strategy. So making sure that we build out these contractual obligations from talents really maximize our spend with them. It's a basic rule of working with influencers that's now going to be mandatory whenever we're booking any type of talent. And that's going to be really important into reigniting the brand and engaging with consumers. That's what influencers are there for, that's what talents are there for, that's going to help us have that walk towards us as a brand and change brand perception as well, which I think is definitely something we need to be working on.So to summarize kind of what I've just said, we've already aligned the marketing department structure with the creative center, which is going to help us from that end-to-end consumer journey. We're reallocating budget to support and reignite our brand. And we've spent the last 8 weeks creating and engaging content to support the reinvestment in brand social media for Autumn/Winter '19 season. We're really excited to stay focused and then just start to deliver from Autumn/Winter '19.

[Julian Dunkerton, Interim CEO & Director]

Very good. Thank you, yes. So I'll just finish up and say, look, these are the key operational milestones that you can -- no, I won't talk you through them, but they're there for you to look at. We've got Shaun from Sourcing and Gordon from Logistics here as well if you've got any specific questions. So they've now joined the exec team. And I just want to say how we now feel the exec is really, really in a very good place, very positive. We've really got us to a position where we can all see the future positivity of this -- of the turnaround and where we're going as a brand. We're working brilliantly together. And it is very clear, the mistakes that were made, but what that means is it's very clear what we have to do going forward. So it's a very exciting place for us all, I think. So thank you, everyone.

[Peter Wodehouse Williams, Chairman of the Board]

Thank you. I appreciate that's probably a lot longer than you're used at these presentations, but I think it's really important when you have a turnaround situation like this that you hear, but not just about the kind of obvious bits, dare I say it, that Julian is so good at in terms of the products and design, but you also hear about what we're doing with the brand and what we're doing with e-commerce, which is certainly is an area that the business has been very weak at for too long, quite frankly. Right, so now over to you guys for Q&A.

[Julian Dunkerton, Interim CEO & Director]

Hello, there. We've got a microphone.

[John Stevenson, Analyst]

John Stevenson, Peel Hunt. A couple of questions to kick us off. First, obviously in terms of the stock, in terms of what you've got, I guess how well provisioned it is and how happy you are with sort of what you've inherited and what the plan is to get rid of said stock. Second question, just on Autumn/Winter, I guess, sort of related. How much of this will be yours? And of the stuff that you inherited, what are you happy with? And maybe just talk us through coming into Spring/Summer the sort of the level of grip you're going to get on the range before we get into Autumn/Winter next year. And finally, just on operational management, you talked about the sort of cohesive team. The press have talked about a few changes, people -- I think Nick Tatum and a couple others have gone. Can you sort of talk about what change you brought in and where we are?

[Julian Dunkerton, Interim CEO & Director]

Of course. So we'll start with the legacy stock. So obviously, there were stock lurking around warehouses around the globe that we are going to exit. We're exiting it in various ways. So Black Friday is going to be a key component to that. And we will not be doing anything that is brand-damaging. So we won't be going out and dumping stock here, there and there. Obviously, there will be some third-party sales but through -- intelligently done and with something historically we've always done. So we will be working our way through it. To give you a precise time line of how long it's going to take us to get -- to reduce our -- down by 3 million, 5 million units, I wouldn't like to say exactly. It's a process that is starting.

[Nicholas John Gresham, CFO & Director]

To put that into some numbers as well. So FY '18, we were at GBP 160 million worth of stock. FY '19, at the end of that year, we're at GBP 190 million worth of stock. So the 3 million to 5 million units that Julian is referring to, the quantum and value from a balance sheet perspective is probably that circa GBP 30 million that we would like to unwind over the medium term.

[John Stevenson, Analyst]

And is that -- and it'll be your -- that's where you get the money down? Or is it...

[Nicholas John Gresham, CFO & Director]

Yes, yes. And then because of the strong margins that we trade at, actually you've got to significantly discount before you're worried about selling below cost. So from a provisioning perspective, we're very happy that the year-end FY '19, there are provisions for anything that is damaged or anything that is not sellable. Everything else, we believe, is sellable going forward.

[John Stevenson, Analyst]

And that's going to sort of eBay, Costco, you'll say?

[Julian Dunkerton, Interim CEO & Director]

Not Costco. No. Trying to work out how that's coming about. So that's a brand protection issue, so.

[Peter Wodehouse Williams, Chairman of the Board]

In an elegant way, it will be dealt with.

[Julian Dunkerton, Interim CEO & Director]

Yes, absolutely.

[John Stevenson, Analyst]

Autumn/Winter was the second element.

[Julian Dunkerton, Interim CEO & Director]

So the second -- okay, so basically we, as a team, are working on 3 seasons currently. So we are working on, obviously, protecting Christmas in the best way that we can, making sure that the spring product is right and getting the design structures and range plans right for autumn. So there's a lot going on. So that's why it's going to take a reasonable amount of time to come out of this and get to a perfect place. So look, the reality is that this is a bit of a juggernaut that we have to shift. We are actively working on it all. So obviously, the autumn buy, for a large percentage of it, was done before I got into the business. What you're seeing here, and the hundreds of products that we are adding, and the design lab has contacted me today and said I've got another 200 coming that we haven't seen, so there's a lot that we're getting access to. But it's getting those budgets right and making sure that we do this in a sensible way.

[Phil Dickinson, Creative Director]

And what's interesting on that one is that, obviously, there is a strength in the brand and in the product collection anyway, right, inherently. And so there are opportunities to fix that to stabilize where we're at, but actually the stability of that will be increasing growth. You're allergic to [indiscernible]? And then in Spring/Summer '20, obviously, we've been able to capture some of that and see where things didn't feel right for the brand and the brand DNA that was all credited, again, like prior to me entering the building as well. I think the heart of the business, there is a strong collection, right, so there's things which really do resonate with the consumer we're targeting at the moment. And we're going to add things, too, that would say if it definitely makes sense out, add things to it. And the good thing about that, because there is a strong design team in there, we're able to put together what would normally be called a strategic retail team, which works on short lead time projects, we're going to call it a SWAT team because we're going to get out some serious action. We're able to then instigate changes. And because of our relationship, the manufacturers can put some new products into the collection to stabilize that and energize it. When we get into Autumn/Winter '20, this kicks that season off. The teams, as I said, are all aligned to those opportunities. We're going to start to be building that from a blank piece of paper, which should be really, really exciting. We just came out of the Spring/Summer '20 GSM without a lot of our franchise and wholesale partners, and they had it coming, so what they were missing from the collection, and we're able to enact their desires within that short time frame. So we're in a pretty strong position in terms of that spring and summer season.

[John Stevenson, Analyst]

And the third element, operational management?

[Julian Dunkerton, Interim CEO & Director]

So yes. No, so from a management team, we feel pretty, pretty good now, we feel -- with the elevation of Shaun and Gordon. We are looking for a global retail director. But in essence, we feel very positive and strong.

[Peter Wodehouse Williams, Chairman of the Board]

Right. Next question? Wayne?

[Wayne Mervyn Brown, Research Analyst]

Wayne Brown, Liberum. Just a question on people. Clearly, turning their strategy around clearly involves buying from all aspects of the stuff. So can you just give us a view as to how easy or challenging that is and how you're necessarily getting people all aligned on the same page? And then I suppose just referring to your comment earlier, Peter, on getting Ecommerce driving and improving that, what kind of an infrastructure investment is probably required behind that? And would you also look at necessarily hiring more heads of departments and particularly where would that be within the organization?

[Julian Dunkerton, Interim CEO & Director]

So why don't you talk about the positivity -- no, in terms of the teams.

[Phil Dickinson, Creative Director]

Yes. No, in terms of the teams and the buy-in. I joined the business back in January and it was fascinating for me. I love situations like this, and there's always like lots and lots of strategic thinking, credit thinking to be done around that. And without picking myself up, but I kind of...

[Julian Dunkerton, Interim CEO & Director]

You're from Yorkshire, why would you do that?

[Phil Dickinson, Creative Director]

I don't know. I'll do this for me. But the fact of the matter is, with these situations, when you have people who feel like they're being, I suppose, like pushed around and told what to do and they don't actually believe in leadership, it's -- okay, it's not necessarily easy, but there is a way to get those people back in focus. And I've got experience of running massive teams and big brands and getting the best out of people. And what I've spent in the first 6 months of my tenure at Superdry doing is getting a strategic plan in place that's focused around creativity. So when Julian walks through the door, and as I said before, he's got passion for products, this -- it could have been like a lot of agro. I'm -- I say what I think, I'm pretty straightforward from that perspective, and so is Julian. But the good thing about is I've got a passion for products. And so is the consumer. And so I've set people up with a new strategy. When we first met, it was really interesting because Julian was obsessing on cloth and telling me it was all about cloth and stuff. And I've been doing this for a long time and so is Julian. And I just said to Julian, "Listen, Julian, I get a lot, I just started a lot earlier than you and I'll start with your consumer." And I've got the teams that report into me, which were -- I initially came into the business to do design and creativity. I now have the product management team reporting into me. I have the design team reporting into me. I did have the quality and technical reporting into me, but we've kind of felt it was pretty bad for sure because it's more sensible to me to handle that. And I have the marketing team reporting into me. So I've instilled within that a culture that says we're going to be good enough to the consumer, it's going to be very exciting, there's loads of opportunity -- of great opportunity with people. You get Julian coming in, he's like a turbocharger on that, he believes in it and backs it we're in a good place. Now the interesting thing is the dynamic around any sort of change in a business like this can be really, really upsetting for people, yes. And so there's a lot of uncertainty around the moment, what actually I call like the Nokia renaissance moment when Julian [indiscernible]. But the good thing about it is he hasn't come in and said, "What you've been thinking about doing, Phil, is a lot of rubbish." He said I fully understand what you're doing. What we're going to focus on in the short term is getting products excellence back to where he believes it should be and where the consumer expects it to be for this brand, which is great, so then have the longevity with the brand that he has, but he also understands what the future looks like as well. And so the teams are engaged with that. We've been through, I mean, multiple product reviews where the teams have rigged up the collections that we're going to be putting in market. We walked through the collections with Julian, he scrubbed it down, as he should do, takes responsibility for what the product looks and feels like. And the teams that work with me have to get used to the idea that we're going to run a filter, which I call -- I call it the [indiscernible] filter. Because I believe consumers have been working really hard all week to earn their cash, and they walk into an environment we've created for our products and they either buy it or they don't buy it. And so when you're able to run that filter internally, it allows them to use -- got the expertise of Julian to comment on products, and nobody in the creative department is going on crying about it because they know they're in a business. It's not their life's work. It's not their -- the novel they've always wanted to write. This is business. And so we can be very, very creative within that business world, but the team have got a lot of energy, a lot of traction against the vision, and I think we're going to do some serious [indiscernible] some serious damage in the market is what I think we're going to do. So I've got -- everyone is walking towards the vision and then we get turbocharged, [ I hope so ].

[Nicholas John Gresham, CFO & Director]

Right. Just to come back to the Ecommerce point. So again, what we're doing is rebalancing a lot of the spend internally to allow us to enable to afford to increase that spend on Ecommerce. So you've heard about some of the investments and the changes earlier. In CapEx, if you take that as an example, we spent GBP 25 million of CapEx in 2019. We will spend about the same amount in 2020. But we'll be taking that out of some of the new store growth and some of the investment we saw there, some of the head office and putting that into Ecommerce and digital. In marketing, again, where we're saving in some of the OpEx, we'll be reinvesting in design and in marketing and in the Ecommerce team. So again, another granular example, we've got UX and UI design that's being increased at the moment to help us focus on that front-end web platform design.

[Julian Dunkerton, Interim CEO & Director]

So well, really, I mean look, we've got these guys here. We've got safety. Just stay positive. I mean...

[Gordon Knox, Logistics Director]

Yes. I mean, obviously, we're going to do a lot of changes. Gordon Knox, Director of Logistics. Obviously, there's been a huge amount of change in the business over the last 4, 5 months. That's now settling down and the message is coming through. So I think the teams are really regenerated by the process.

[Shaun Packe;Sourcing Director]

Shaun Packe from the sourcing side. I think it's great. And hopefully, it's really resonating, what's being said today is with Phil, we've drilled back in the business over the helm. And Phil coming in, it puts product firmly at the front of everything we do, and I think we'd lost a little bit of that up in here over 7 years. So it's really energized the teams because we're talking about product again. We're filling the room with product again rather than just always talking about numbers. So it's great to have that passion back with the brand.

[Peter Wodehouse Williams, Chairman of the Board]

Thanks. Okay. We'll need to go, Kate, sorry.

[Kate Calvert, Retail Analyst]

A couple of questions for me. Kate Calvert from Investec. The first is about James Holder. What sort of contract do you have with him? How long is he tied in for?

[Julian Dunkerton, Interim CEO & Director]

He is -- I think he's on a rolling 1 year, is it?

[Peter Wodehouse Williams, Chairman of the Board]

Yes. Design fee is in that, yes.

[Julian Dunkerton, Interim CEO & Director]

Yes. He's on a design fee, and he's on, I think it's a rolling 1 year contract.

[Peter Wodehouse Williams, Chairman of the Board]

It is.

[Julian Dunkerton, Interim CEO & Director]

But he is fully committed. I mean, he can see half is product and probably 2/3, about half is James' product. So in fact, I'd really like you to go and look at the premium product because that's very much his DNA. And what you will see is the nearest competitor to that sort of quality is a 650, 750 kind of price point. That's full on -- full down. It's a beautiful product and he's created within weeks. So fully engaged. Very exciting.

[Kate Calvert, Retail Analyst]

Right. Second question is on your 10 worst performing stores. Can you split them between the U.K., U.S. and Germany as to the location of those 10?

[Julian Dunkerton, Interim CEO & Director]

Yes, but not here and now.

[Kate Calvert, Retail Analyst]

Right.

[Nicholas John Gresham, CFO & Director]

I think there's quite a few in the U.S.

[Kate Calvert, Retail Analyst]

A few in the U.S.?

[Nicholas John Gresham, CFO & Director]

Relatively. Look, it's the more recent openings because they've been some bold...

[Peter Wodehouse Williams, Chairman of the Board]

Are you going to be able to provide that a bit later?

[Nicholas John Gresham, CFO & Director]

Yes. Yes. I'm not going to get into the detail of the individual 10 stores in that worst category. What -- the reason for highlighting that is to say that, that gives us an opportunity, and we've already started talking internally and with landlords about how to turn those 10 around.

[Julian Dunkerton, Interim CEO & Director]

So one of them, already, we're talking about halving the rent, for instance. So we are working actively to...

[Kate Calvert, Retail Analyst]

And the final question is on the U.S. I mean given the GBP 12 million loss, I mean, why don't you just sort of stick it on the back burner, for one, because you've a lot going on in the business at the moment?

[Julian Dunkerton, Interim CEO & Director]

There's -- well, not really cost of exiting it. It would be hard to start again. But you have to go -- there is a positive journey to be had here, but the consumer likes our product. The numbers are growing, albeit through Wholesale and Ecomm. There is a huge retail opportunity. What -- I mean most of the problems that exist in our -- in this business are self-inflicted wounds. So why have we got 3 extra warehouses in Wholesale in America? Well, I'll tell you why. It's because they gambled on a load of product without having an actual endgame for that product. So they bought hoping that they we're going to sell a lot of stuff. So really, most of the stuff is self-inflicted. So what we've got to do is say, "Look, we are a global brand. How do we turn it around into a positive?" And actually, there are clear paths to doing that.

[Peter Wodehouse Williams, Chairman of the Board]

Next question. Gentleman over here.

[Simon Bowler, Analyst]

It's Simon Bowler from Numis. Just 2 for myself, if that's okay. Firstly, perhaps just one for Nick just on the CapEx side of things. It was kind of mentioned GBP 25 million for the year ahead. How should we think about that going forward? Is that kind of run rate CapEx demands for the business beyond the current year? And secondly, I mean you spoke around on Wholesale, obviously, it has been less damaged part of the business, I think you alluded to. In terms of the trajectory for that part of the business from here, to what extent is that bringing in new partners or more growth coming out of kind of existing partners that you work with?

[Nicholas John Gresham, CFO & Director]

So simply, the first one, yes. I think the medium term would be about that same level, GBP 25 million. And it's really a store opening program that would spike that. And at the moment, we're saying very clearly, it's about the current estate, fixing that current estate and not closing stores. So I think for the medium term, we would stay at about that level. Wholesale trajectory?

[Julian Dunkerton, Interim CEO & Director]

So of course, we will -- I mean the problems with Retail reflect in Wholesale in the end because a franchise is a Retail store. So actually, all the opportunities that we see for the entirety of the Retail sort of channels also will reflect into Wholesale. So they will be taking advantage of the short lead time products and that we've got 17 new franchises opening this year. So we've got clearly a very positive growth channel still. And it will be new partners and existing partners. But what we got to do is protect those partners. So I think that's the element. If you think of this business and you -- like I said before, if you think you can go on sale in Retail and not affect your Wholesale sales and your ability to open new accounts, maybe it's going to -- think it's a great business model if you're immediately going on sale in product. So by protecting Retail, you protect that Wholesale growth and the brand health.

[Peter Wodehouse Williams, Chairman of the Board]

Okay. I'm conscious of everybody's time, so we need to move quickly. Tony?

[Tony Shiret, UK General Retail Analyst]

Yes, Tony Shiret from Whitman Howard. Just a few questions. Just following on from that Wholesale question. What is the Wholesale order book year-on-year at the moment?

[Julian Dunkerton, Interim CEO & Director]

I don't think -- we don't talk about the forward order books. I don't think we ever have or haven't for years.

[Nicholas John Gresham, CFO & Director]

Haven't for a while and wouldn't want to give the constant detail of where the order book is.

[Julian Dunkerton, Interim CEO & Director]

So what you're going to do, though, is think in terms of most of the Wholesale order book is franchise-led. So it's a very stable business. So I think if you look at what are the opportunities for layering on all these new products and what can that deliver, that's the way to look at the business.

[Tony Shiret, UK General Retail Analyst]

So if it's stable, it's not down then?

[Julian Dunkerton, Interim CEO & Director]

Well, I'm not suggesting that. I mean we don't...

[Tony Shiret, UK General Retail Analyst]

[ But we're ] stable.

[Julian Dunkerton, Interim CEO & Director]

Yes.

[Tony Shiret, UK General Retail Analyst]

Okay. In terms of the things you're talking about, speed to market, that type of stuff, is there going to be something fundamental change about these -- where you buy the extent of your commitment, the way you -- how much you have been open to buy at any particular time?

[Julian Dunkerton, Interim CEO & Director]

Yes. So if you break the products down, there are long lead time products and short lead time product groups. So patently, if you're making a jacket in the Far East, it has a much longer lead time than a T-shirt from Turkey. So yes, ultimately, it's going to be about a 60-40 split, one would imagine, in terms of long lead time and short lead time product. And that gives you a huge working capital opportunity and your ability to grab extra sales from Wholesale and be responsive to the consumer. So your brand health goes up by being responsive.

[Tony Shiret, UK General Retail Analyst]

But at the moment, you're catching up with fashion products you don't like and you're trying to put a few more parkas on a short lead time if people like green instead of gray?

[Julian Dunkerton, Interim CEO & Director]

No, no, no. There's a huge amount of short lead time product that's in -- that haven't been bought today because we couldn't fit it in the space. There are hundreds of pieces. And the fashion that -- I mean so look to your -- straight ahead, this is a sort of product that's not going to be bought and being replaced with much more sensible, classics-based product.

[Tony Shiret, UK General Retail Analyst]

But the 60-40 now is, what, 50-50 or something like that? Is it the 60-40 between long lead time fashion is sort of short lead time?

[Julian Dunkerton, Interim CEO & Director]

Everything that has historically been bought has been bought on a long lead time.

[Tony Shiret, UK General Retail Analyst]

So it's there...

[Julian Dunkerton, Interim CEO & Director]

So that we are moving...

[Tony Shiret, UK General Retail Analyst]

So you're 100% at the moment.

[Julian Dunkerton, Interim CEO & Director]

From a pure long lead time process to -- so there's only upside to this.

[Tony Shiret, UK General Retail Analyst]

I've heard that a few times. And the last question is...

[Julian Dunkerton, Interim CEO & Director]

Well, I mean which clothing business in the world wouldn't be looking to reduce its lead times? So we are -- we must have been the only company to extend lead times in the last couple of years.

[Tony Shiret, UK General Retail Analyst]

Yes. So just the last thing, following on from that and following on from the closure of the 3 warehouse in the U.S. A big presentation about the new distribution infrastructure about 2 years ago. Is that going to need a more substantial restructure than just closing these 3 warehouses?

[Julian Dunkerton, Interim CEO & Director]

Well, I will say, well, I think -- but Gordon's here, who's the specialist. So I think you will find that the warehouses that were opened were reactionary and weren't planned. So the plan is still intact. Is that fair?

[Phil Dickinson, Creative Director]

Yes. No, I mean, absolutely. The plan that was presented is still completely on the roadmap. So it was always to have 3 distribution -- well, a distribution center in the U.S. to service also Retail and Ecommerce. That's still the plan. And for the U.K. and Europe, the same. So all of the strategic plans we had, they still stand firm. It was really the U.S. where the stock position ran away from us and we needed more capacity.

[Peter Wodehouse Williams, Chairman of the Board]

Okay. I'm going to move us along. Sorry, Tony, was that the end of your...

[Tony Shiret, UK General Retail Analyst]

Yes.

[Peter Wodehouse Williams, Chairman of the Board]

Any other questions? Good gentleman here.

[Andrew James Hollingworth]

Andrew Hollingworth of Holland Advisors. Just one point of clarity and one question. You talked to the statement about the fact that you would expect to sort of benefit from the new stock to come through in Wholesale before it came in Retail. But I would have thought it would be the other way around in terms of the sort of benefit. Just in terms of, generally, you get the Retail proposition right and then Wholesale piggybacks on the back that is my understanding from our discussions in the past. But the statement seems to suggest that there's a benefit that could come through in Retail -- sorry, in Wholesale earlier.

[Julian Dunkerton, Interim CEO & Director]

I'm not sure which bit of the statement that is.

[Andrew James Hollingworth]

We can -- shall I -- we can follow up after this if you like.

[Julian Dunkerton, Interim CEO & Director]

Yes, yes, yes.

[Andrew James Hollingworth]

Okay. And just the other question was just in terms of the Interim Chief Executive position for Peter. I mean the statement obviously reads like it's still something you're looking forward to find a permanent replacement for the Chief Executive role. It just -- the chemistry feels really good. It doesn't feel like you need that position right now. So I appreciate you might not want to talk to that question, but I think it's just an observation I would make and it'd be good to get your view.

[Peter Wodehouse Williams, Chairman of the Board]

Yes. I mean there's lots to do. Julian has come in. He's passionate about the business. He's got a lot, as you saw today, a large number of very excellent sound points about how to improve it and we need to crack on and do that. What's vital for the long term is that whoever eventually does replace him, and one day somebody will replace him, works well with him because he has this inherent -- obviously, he founded it from absolutely nothing. He has an inherent understanding of the -- this brand and the product. So it will take some time, but we're not in a desperate hurry.All right. I think we're going to call it a day there. I'm really sorry because we've run out of time. Thank you very much, everybody. We really appreciate it.

[Julian Dunkerton, Interim CEO & Director]

Thank you, everyone.