BRC Annual Retail Conference 2010
Speaking at the BRC Annual Retail Conference 2010 in London this week Derek Lovelock, chairman of Aurora Fashions – whose brands include Coast, Oasis and Karen Millen, told delegates that there were fewer retailers around and that the only way for them to grow in an economically viable manner in today’s saturated market was through “bigger and bigger spaces” where the cost per square foot is typically lower than for smaller units.
He believed the reduction in the number of merchants was leading to reduced choice for consumers and that this was being exacerbated by the need for these large players to stock only goods with the broadest appeal as they have to drive high volumes from their big units.
Opportunities for smaller independents
The upside to this situation, according to Lovelock, is that it presents an opportunity for smaller brands and independent retailers like Karen Millen that sell an edited, more exclusive, range for special occasions. “This is our USP and it is the same with other smaller independent brands. That’s how we compete [against the bigger operators],” he says.
Another favourable factor for such brands is the shift by a growing number of consumers away from disposable fashion towards more considered, choicer, purchases. Lovelock suggests this is down to price pressures on retailers and the reduced level of disposable income of shoppers.
Shift to more selective purchases
The cost of buying abroad, the increase in raw material costs, and the pressure on labour (especially in China where salaries have increased 10-15 per cent) have all impacted on the sale price of goods in the UK.
“If prices are going up and there is less disposable income then there is more pressure on consumers to buy less, which means they want more exclusive goods as they will be worn more often. Which means there is also a need for better quality,” explains Lovelock.
Research undertaken by Tesco also highlighted this move to more selective purchases, especially among its more affluent shopper base that accounts for 26 per cent of its customer base.
Richard Brasher, commercial and marketing director at Tesco, told delegates that since the recession these people “are still prepared to spend but they are now more thoughtful and the level of conspicuous consumption has been reduced”.
Tesco research also showed that 48 per cent of people admitted to making do with things they already have rather than buying more things, and 61 per cent stated they would only buy things that they really needed.
Rein in promiscuous shoppers
This reduced spending and search for value has resulted in more customers shopping around – the number of retailers ‘shopped’ by consumers over an average four-week period has increased from 3.61 in 2007 to 3.72 in 2009. To encourage shoppers to remain loyal Brasher says the Double Clubcard points initiative was introduced by Tesco.
Proof of its success is that one million new cardholders have been added, redemptions have increased by 18 per cent, and 80 per cent of Tesco sales are attributed to Clubcard holders, revealed Brasher. “It hit the spot with customers. They appreciated it and felt it was giving them something back,” he says.
Adding value for customers
Richard Kirk, chief executive of Peacocks, also recognises this need to give the customer something more. For Peacocks this has involved shifting its business away from the lowest price points and is instead offering its customers collections exclusive to the retailer.
“We’re introducing more brands and are doing collections. We’ve had Pearl Lowe do a range for us and we’ll continue to develop this in the same way Philip [Green] is doing with Kate Moss [at Topshop],” says Kirk.
Such collections are regarded as one of the key components behind the success of Debenhams, according to John Lovering, former chairman at Debenhams, who told delegates the ‘Designers at Debenhams’ collections grew to £450 million of annual sales between 2003 and 2009.
“It totally changed the economics of Debenhams. Normally own brand is at discount prices...but this was at a premium and it added value to the brand of Debenhams. It was also the key to our international strategy,” he explains.
Expansion still in evidence
This move by Peacocks away from the lowest prices has been undertaken in tandem with continued growth overseas where Kirk says the business trades as ‘Peacocks of London’ and the brand is very strong with prices in Eastern Europe 40 per cent higher than in the UK.
Such has been the success in Russia that there are now 40 stores in that country and seven of Peacocks’ 20 best performing outlets are in Russia. “There is an interest in a value fashion brand that can be fitted in 600 sq m,” he says.
Peacocks is also growing fast in the UK with Kirk revealing that 40 sites are scheduled to open each year to take the company from its current 585 units to its target of 1,000 stores. The company is also just about to open a 7,000 sq ft concession in a Morrisons store in Bradford, with more to follow if successful.
Richard Pennycook, group finance director at Morrisons, looked forward to it opening at the end of the month and says “we’ll see how it goes”. The group is also on an expansion drive with plans for 600 stores in the UK. New units are clearly integral to the company achieving its broad aims of growth through volume increases and customer acquisition.
Kirk suggested his store opening programme had been helped over the past 18 months by larger landlords offering him “big incentives” and the smaller players giving him rent-free periods.
High streets remain under pressure
Any willingness by landlords to offer favourable deals with retailers was not universally felt and delegates heard how this was continuing to have a negative impact on the high street.
Justin Stead, chief executive of Aurum Holdings – that operates Watches of Switzerland, Mappin & Webb and Goldsmiths, says: “Landlords have come late to the party. There needs to be a sustained reaction by landlords for retailers to come back to the high street.”
Although James Timpson, managing director of Timpson, admitted to having picked up some freeholds because of the pressure on landlords he was of the view that “some towns are finished” and pointed to Margate and Billingham as both having a hard time as retailers continued to flee to other nearby towns.
Ken McMeikan, chief executive of Greggs, admits to also pulling out of some towns where there is a lack of other retailers to make it sufficiently attractive to stay. He believes landlords have been slow to respond to this problem, with a softening of their negotiating stance only evident over the past six to nine months, and worryingly he expressed concern that might only be “temporary” phenomenon.
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