Online trade at The Works boomed during the Covid crisis but now it faces new challenges, from higher costs to supply chain issues
Last modified on Fri 3 Sep 2021 10.59 EDT
If you were trying to invent a retailer aimed at people stuck at home you might come up with the formula for The Works, with its cheap jigsaws and books, craft kits and school supplies.
The discounter emerged as a Covid winner as the privations of lockdown made its website and its stores, when allowed to reopen, the go-to place for people who took up hobbies such as drawing, card-making and puzzling.
“If you were going to create a shop appropriate for people being locked in their houses, you wouldn’t be far off creating The Works,” says Gavin Peck, the chief executive, who was only two months into the job when the first lockdown shuttered its 520 stores.
“We closed in March and I was thinking will we ever reopen our doors again?” he recalls. Yet the company made it to its 40th anniversary this week financially stronger, with a product range Peck claims has “never been more relevant” to consumers.
On a weekday lunchtime its store in Walthamstow, north-east London, is doing a brisk trade, with shoppers browsing racks of craft materials such as paper, stencils and glue guns. Small children covet a towering display of rainbow-coloured fidget toys.
The number of shoppers visiting the high street is still down by about a quarter on pre-Covid levels, but Peck says The Works is doing better than that statistic would suggest because when consumers do visit its stores they are spending more than they used to.
The retailer’s web business doubled in size to reach 20% of total sales during the hiatus caused by Covid, but its stores, which are a stationer, book, art and toy shop in one, are “unashamedly the lifeblood of the business”.
Footfall is weakest in big city centres and in Scotland where more people have been reluctant to return to physical stores, but Peck says physical retail is in better shape than many expected.
“We have definitely benefited from staycations,” he says. “In August, people were in caravans and Airbnbs just looking for things to keep them entertained.”
Like other companies, The Works has been affected by soaring shipping costs, which are 10 times higher than a year ago at $15,000 (£10,800) a container, as well as shipping delays. Also, it is considering increasing pay at its distribution centre on the outskirts of Birmingham as it battles with rival chains for staff.
Peck says strong trading means higher costs are not being passed on to shoppers. Sales at established stores were 13% higher than in 2019 over the 11 weeks to 18 July. The year to 2 May finished on a small full-year loss on sales down 20% at £181m, reflecting a period when the shops were closed for nearly six months.
The business, founded by Mike and Jane Crossley in 1981, started as the discount bookstore Remainders. It became The Works in 2003 when the Crossleys sold to the first of several private equity owners.
However, while shoppers love its jigsaws – the chain is still selling three times more than pre-Covid – it has some work to do in the City. The share price is up more than 160% in the past year at 57p, having dropped below 20p when Covid struck, but is well below its 160p stock market debut in 2018.
To pull in punters The Works used to rely on signs that screamed “everything must go”. Once inside, shoppers found a jumble of cheap books and toys as well as random one-offs, such as garden seats and suitcases, as buyers filled stores with end-of-line stock.
The retailer has been tidying up its stores, providing a better experience even for shoppers more interested in a bargain. Peck, who has also just turned 40, is going further in an effort to pull in the middle-classes after deciding that “giving customers the impression you are going bust doesn’t build long-term brand value”.
“We’ve done consumer research and listening groups, and some people just don’t know we exist,” he says. “Some have seen us from five or 10 years ago and discounted us when they saw a slightly grubby shopfit and thought that shopping environment is not for me.”
Peck’s plan is for 100 stores to receive modest refurbishments, while the rest have been tidied up during lockdown so that shoppers encounter less clutter. Its ranges are also changing, with more branded toys and new book releases, such as this month’s Jamie Oliver Together.
The path to mainstream acceptance has been well trodden by discounters over the past decade, with austerity making no-frills chains such as Aldi, Lidl, Poundland and B&M respectable places for posher shoppers to be seen in.
The GlobalData analyst Patrick O’Brien said Waterstones’ decision to concentrate on the “book lover experience” means The Works may be able to poach some of its physical-store shoppers with keenly priced new titles.
“As with the appeal of the discounters across other sectors, if you can do enough to entice the middle-classes in, the price/quality balance often gives them pause for thought as to why they should pay more, especially in stationery, where The Works competes with WH Smith,” O’Brien says.
As social lives get back to normal, it remains to be seen whether The Works will maintain its appeal for shoppers. Peck is confident it will: “My fear coming out of lockdown was that people would have done enough jigsaws and arts and crafts … but we are still seeing really strong demand.”
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