The Works is on a mission to change its legacy perception as a “pile it high, sell it cheap” discounter. As its “better, not just bigger” refocused strategy accelerates, the retailer topped Retail Week’s fastest-growing value ranking for 2021/22. We explore its five key drivers to profitability as consumer confidence lifts.
1. Leaning into its purpose and product development
Competition is stiff for crafts, toys and games, stationery, and books retailer, The Works. While variety discounters, including B&M and The Range, squeeze it from one side, specialists, such as Hobbycraft and The Entertainer, crowd in from the other.
Source: The Works
To stand out beyond its value credentials, The Works is more closely aligning its products with its family-focused purpose: “to inspire reading, learning, creativity and play, making lives more fulfilled”.
New product lines launch weekly, with 10,000 new products introduced in 2022/23. Own-brand development allows for exclusivity.
To compete with online giant Amazon, The Works is building credibility as a bookseller by stocking more “front-list titles” by well-known authors, and attracting younger shoppers through books popularised on BookTok – a community of literature-lovers on TikTok whose recommendations can make instant bestsellers.
Although this helps increase book market share, selling more lower-margin books contributed to a decline in product gross margin in 2022/23.
That being said, the strategic change in sales mix “generated incremental cash margin due to selling higher volumes of items which were higher priced”.
With value still key, The Works must protect its margins while developing its product offer. CEO Gavin Peck says: “There remains an opportunity to further increase market share in our other categories, and in the year ahead we will undertake an extensive refresh of our core art, craft, and stationery ranges, and launch new kids’ pocket money toys ranges.”
2. Improved business operating model
Covid-19 interrupted The Works’ upward sales trajectory. Sales started to bounce back when stores reopened, and amid challenging trading conditions and a disruptive cyber security incident, sales grew 5.8% to £280.1m in 2022/23.
Impacted by the end of Covid-19 relief, inflation and higher freight costs, pre-tax profits declined by almost two-thirds to £5.0m in 2022/23, but Peck is confident profitability can be improved.
“Sales densities in our stores remain relatively low and we believe there is a significant opportunity to drive increased sales, and in turn increase profits, through our store estate,” he says.
This will be led by improvements to customer experience, space management, merchandising planning and product availability, and from 2023/24, a new store labour structure.
Operational efficiency improvements are a clear focus with a business review promising structural changes. A new stock allocation system will improve product availability, as will cost-saving proposals from the restructured distribution centre management team on picking and deliveries.
Online fulfilment will be boosted by the introduction of new automated packing machinery and robotics in 2022/23.
3. Making the website profitable
Online sales had been growing strongly as The Works invested in multichannel development, while improved fulfilment capacity helped meet pandemic-elevated demand.
But, as shoppers returned to stores, online sales fell 15% in 2022/23, with management acknowledging the need for more consistency and cross-channel integration, “with the website acting as a shop window for our stores (and vice versa)”.
Peck says the website had been operating “too independently”, adding: “This, combined with the fact that strategic progress in this area was slower than planned, means that as online sales have declined and costs have risen, the website [hadn’t been] profitable.”
Following a review of the website and its online operations, it is now well positioned to improve profitability.
Peck says: “We are focused on improving the customer experience of the website. We are undertaking a series of useability studies to inform areas of opportunity to make improvements, introducing new tools to support performance analysis and provide insights into how best to enhance the customer experience.
“Later this year we will launch a trial on our new in-store EPOS solution to enable customers to order products from our website while in our stores, providing more convenient access to online range extensions.”
Increased delivery charges “more in line with peers” will also bolster profitability. Curtailing some online promotions and reducing space used at its third-party fulfilment centre have also helped cut fixed costs.
4. Ramping up customer acquisition and loyalty
Although high inflation saw consumers across the board “trade down”, shoppers cut back at value retailers too.
“There’s no doubt that if inflation continues falling and families start to feel less financial pressure, it will provide a boost for value retailers like The Works,” says Peck.
Sustained demand will be supported by the brand’s Together loyalty scheme, which relaunched in 2022/23 after roughly 13% of transactions were made through the scheme in 2021/22.
Peck explains: “We’re now focused on improving the insights we obtain from the loyalty scheme data with new software that supports more effective CRM and loyalty activity.
“Our loyalty customers typically spend 30% more than non-loyalty customers and shop more regularly, so this is a real area of focus and opportunity for the business as we emerge from the cost-of-living crisis.”
The scheme, which gives five points back for every £1 spent, welcomed over 700,000 new members in 2022/23, and has nearly two million members. Double-points promotions are driving membership and growing the number of transactions and average spend.
5. Investing in stores and developing the brand
Although The Works has scaled back store openings – after opening approximately 50 sites annually – stores remain its “lifeblood”, representing 88.8% of sales in 2022/23 with like-for-likes up 7.5%.
Furthermore, bricks-and-mortar shops critically blend channels through services such as click-and-collect.
While it sees scope for at least 600 UK stores, The Works’ focus has shifted to improving existing stores. Better space management and reduced fixtures and stock volumes are creating less clutter.
Peck says The Works is moving away from the Aladdin’s cave store experience.
“Although this sense of discovery might have been a draw for some shoppers, we felt that overall it made us too reliant on passing footfall and impulse purchases, instead of being a destination retailer with true customer loyalty.
“The previously cluttered store environment put off some customers, particularly those with buggies or wheelchairs - a big negative for a family-focused retailer. Something needed to change.”
Around £1.4m was invested in 34 refits in 2022/23, with a store refurbishment programme focused on its 130 most dated stores. By 2025, all stores will have been brought up to an “ideal” standard to better reflect a modern business.
The Works is much better poised to win customer spend as inflation eases, by challenging legacy perceptions and leaning into its wholesome purpose.
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