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On the shop floor with......The Peacock Group's Richard Kirk
Archived article dated Monday June 16th 2008
Price has not been as interesting as it is now for quite some years.
by Glynn Davis
Yes, the supermarkets have talked about it incessantly and the likes of Primark have flogged millions of items of clothing at knockdown prices but in the midst of an economic downturn there is now a real reason for price to come under the microscope.For the likes of the low-priced supermarkets and the value clothing retailers this provides a great opportunity to grab sales as shoppers of all demographics look for better value and start trading down as they aim to stretch their strained budgets ever further.
Among this merry band of operators is Richard Kirk, chief executive of The Peacock Group, which comprises 500 Peacocks stores and 350 Bonmarchè outlets in the UK as well as over 60 franchised stores overseas, who says: “We see ourselves in the same position as Primark, Iceland, Lidl, Aldi and Netto. As people tighten their belts then they trade down and with our fashion credentials we'll capture this business.”
This comment says a lot about where The Peacocks Group and its £900 million of annual sales is today and how it is no longer sufficient to have an offer based only on cheap prices; you also must have a differentiated proposition and in the clothing world this means you need some fashion element.
For Kirk there was a realisation some three or so years ago that the company's two brands had to be re-positioned as they were increasingly getting it in the neck from the supermarkets and the value fashion retailers. “In order to survive we had to differentiate ourselves from the value retailers. We'd not have survived against Primark and the supermarkets otherwise,” he says.
The problem with this belief was that something so radical would have gone down like the proverbial lead balloon with the City. The answer involved taking the business private, which would also solve Kirk's growing frustration with getting bogged down at board meetings talking about nothing but corporate governance. “Fifty per cent of board meetings were taken up with health and safety,” he says.
On top of this he had also become disillusioned with the financial community's lack of appetite for smaller sub-£400 million market capitalisation companies, which meant, in his view, The Peacock Group was undervalued.
Enter Goldman Sachs and an innovative buy-back deal involving two US-based hedge funds Perry Capital and Och-Ziff Capital, who had both gained a name in the UK through their backing of the purchase of Manchester United by Malcolm Glazer.
The upside of such a unique arrangement was that Kirk and his management team was able to keep 50 per cent of the equity whereas if they had taken the more conventional private equity route he calculates they would have kept hold of no more than 15 per cent.
The downside was that the loans involved some high-interest bearing PIK notes, which would not have been too much of a problem had it not been for the credit crunch that has put a hold on Kirk re-financing the business and swapping some of this debt for a cheaper alternative.
On balance he is more than happy to have taken this route and to now be running a private company again. Most important of all is that since the £400 million deal was struck in late 2005 he has been able to deliver on his re-positioning plan to inject fashion into the mix at both Peacocks and Bonmarchè.
This involved a shift away from being a value clothing retailer towards a value fashion retailer. For the Peacocks chain this meant its core “mature” customer had to be replaced with a 25 to 45 year-old shopper base, which was attracted to the stores' high fashion (rather than edgy) merchandise.
A similar move was made with Bonmarchè, which was changed from what Kirk calls a “granny” shop, attracting shoppers aged between 75 and 90 years-old, to a chain focused on a core customer of 55-plus years in age typically of a size 18 to 20.
Justification of his strategy can be seen from the difficult time that many purely price-focused clothing retailers are now experiencing in recent with the likes of Select, Mk One and Ethel Austin all calling in the administrators. “There has been lots of fall-out but we're in good shape. Our business is now positioned nowhere near these others,” says Kirk.
While these other operators experience their problems Kirk is able to confidently outline his plans for growth - albeit tempered with a bit of caution. The aim for the Peacocks chain is to grow it from a present 500 outlets to as many as 1,000 in the UK at a rate of 30-plus per year.
If this sounds a serious number then bear in mind that the company is able to operate a number of outlets in a single town with its home base of Cardiff accommodating seven stores. Kirk says this is made possible by the limited distance that people typically travel to a Peacocks outlet and the “neighbourhood” feel that its stores enjoy.
Helping further with its expansion was the development of a city centre store of which there are now 20 outlets measuring 10,000 sq ft each (double the size of stores in suburban locations) and having a distinctive black and white colour scheme.
The future prospects for Bonmarchè are also deemed to be good by Kirk who is planning to grow the estate from the current 350 stores to 500 outlets through the opening of 15-plus new stores per year.
Another important growth channel is the company's international division, which has been worked on intensively over the past two years, with the portfolio growing to 67 stores. The expectation is that 20-plus new units will be added each year although this could be cranked-up as the company has adopted the franchised model for overseas markets.
Units are trading in Ukraine, Turkey and the Middle East as well Russia, with seven stores in the city of St. Petersburg, where Kirk says business is brisk. He adds: “It's a big opportunity and we feel we are uniquely placed, especially in Eastern Europe, where they are hungry for products.”
He says that whereas many other UK retailers such as Next and Marks & Spencer would find their prices in price-conscious Eastern European markets going into the “stratosphere” after the increased costs associated with trading overseas have been added in (it could add 30 per cent to the cost price) the low unit prices of Peacocks goods means its prices still remain below that of the middle-market operators.
To keep prices nailed to the floor it is necessary for Peacocks to continually re-configure its supply chain and Kirk says the current arrangement involves 35 per cent of its goods being sourced from China and much coming from Turkey where the shorter lead times enable it to participate in the 'fast fashion' market.
The trick for the company will be to continue with this price-conscious focus while also maintaining its credibility as a fashion operator. If it achieves this then who knows, the City might then come calling again, but it would have to pay a full price for the privilege - unlike Peacocks shoppers.
Tagged as: on shop floor | richard kirk | glynn davis
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