How to repair Britain’s crumbling high streets
High street sales may have hit their lowest point for 15 months, but Marketing Week’s five-step guide will ensure brands not only survive but thrive now the cracks are showing across Britain’s retail landscape.
The British retail sector has been defined recently by recession, riots and redundancies. Famous names such as Habitat and Jane Norman have fallen into administration, while HMV and Waterstones continue to struggle financially.
But despite the misery, a few brands are finding success. Sales at online retailer Asos were up 63% for the three months to the end of June, while luxury brand Burberry saw sales rise 34% in the same period. Meanwhile, supermarket Morrisons has grown faster than its rivals such as Tesco and Sainsbury’s.
So what techniques separate the retail winners from the losers? A review into the future of the high street is being led by TV retail consultant Mary “Queen of Shops” Portas, who was appointed by the government, and will be published in a matter of weeks. Marketing Week suggests its own five-point survival strategy that brands can adopt to ensure growth.
Open an outlet
Outlet stores have long existed as a way for retailers to sell out-of-season stock at a discount to a captive audience. But rather than being the poor relations to their parent brand, the new breed of outlets are being promoted as shopping destinations for savvy buyers.
Bicester Village, part of Value Retail - a business that owns nine shopping outlets across Western Europe - says 26 million people visited its outlet villages last year, which combine stores from luxury marques such as Matthew Williamson and Paul Smith with high street stalwarts like Clarks or Coast (see How Aurora Fashions is using Marketing Week’s advice to repair cracks in retail strategy, below). Each location also features restaurants and coffee shops to encourage people to stay for longer periods.
Sales at Bicester have gone up 15% year on year and a large proportion - 65% for some Value Retail outlets - of visitors come from outside the EU. Meanwhile, rival designer outlet operator McArthurGlen has 19 outlets and 75 million customers a year. It has just opened in Athens and has plans to do so in Hamburg.
One way that Value Retail measures its growth is by the value of tax refunds collected by overseas visitors. In the first six months of this year, sales that attracted a tax refund were up 59% compared with the same period last year for all its villages. The Chinese were the biggest spenders, with tax refunded sales going up 65% in the year to date.
Value Retail Group retail and marketing director Frank Blanchette says that it is the overall “day out” experience of Bicester Village that convinces shoppers to visit. Even though the stock is largely discounted goods, it is not presented like a cheap experience. The location even sells items designed exclusively for its customers, such as a range of Alice by Temperley bags for charity.
Blanchette claims: “Our village experience is the antidote to shopping online. Our guest visiting from Shanghai is not making purchases in her hotel room in London, she’s visiting one of our villages for a special day out.”
The outlet model is proving so attractive that even online retailers are taking units at Bicester Village, with the likes of BrandAlley offering out-of-season stock at the retail destination. Meanwhile, eBay is expanding the range it stocks in its online Fashion Outlet, where retailers can set up their own shops without using the traditional eBay auction method of selling.
Miriam Lahage, eBay’s vice-president for fashion, says retailers can have more control over the way their stock is presented if they sell it via the eBay outlet.
“Some retailers want to control the movement of excess stock, so rather than selling it to a retailer like TK Maxx they can move excess inventory while controlling the pricing,” she claims, adding that Fashion Outlet attracts 17 million shoppers each month with transaction volume growing 30% year on year throughout 2010.
So if retailers are struggling to make ends meet on the high street, a move into either online or physical outlet destinations might be a viable alternative. In some cases, it may even help boost the image of the full-priced brand by introducing a new range of people to its products.
Find a new territory
It may seem counter-productive to expand operations when margins are tight, but sometimes it can be good for brands to seek new shores. American businesses are leading this charge at the moment, piling onto British high streets as the US economy falters.
Fashion retailer Forever 21 made its debut in the UK this summer, while rival Aéropostale is said to be aiming to follow suit, along with American Eagle and lingerie brand Victoria’s Secret, which is rumoured to be opening a Covent Garden store this autumn. This activity follows UK launches from US-based Banana Republic, Armani Exchange and Best Buy over the past few years.
When Banana Republic launched in the UK in 2008, some of its items were priced 150% higher than their US equivalents to ensure the store held the right positioning on the British high street, boosting the brand’s bottom line.
Lahage at eBay suggests it can be difficult for companies to justify moving to entirely new regions and adds that her brand can offer retailers the chance to dip their toes into overseas markets without committing to a full-scale move.
“We have had many conversations recently with companies that are very successful in their home countries and want to use eBay to reach a larger number of people. The big win is to expand into other countries in a way that is not capital intensive and so allows them to test the water,” says Lahage.
Aurora Fashions, owner of Coast, Oasis, Warehouse and Karen Millen, is not only expanding internationally - its brands are already in 48 countries - but it wants to be the vehicle through which other fashion retailers break into overseas markets.
It is developing and testing websites that will have one of its brand names, such as Warehouseandotherbrands.com, and is in talks with other retailers to include their brands on pages within Aurora’s websites. This will offer non-Aurora brands the chance to sell to an international audience.
Meanwhile, department store Debenhams recently announced plans to follow Marks & Spencer into India. Debenhams currently has just one store in the territory, compared with M&S’s 21, but plans to open two more in the next year.
Closer to home, shoe repair chain Timpson is looking for additional retail space to add to its 900 UK outlets and wants to increase its presence within the big four supermarkets. Chairman John Timpson claims that his business is going strong through the recession. “A lot of what needs to be done on the high street is already happening. Rent is coming down and overall it is busy and still vibrant,” he says.
While times have been especially tough for the home furnishings industry, Carpetright has pushed ahead with new store openings in the Netherlands and Belgium, bringing its total number of European shops to 120. Two of the new stores are in a smaller format than usual, which the business expects to provide further growth despite European revenues being 7.7% down this year.
Become an educator
Brands can also gain a competitive advantage by investing in staff training, according to Claire Balmforth, group human resources director at Carpetright. She explains: “As we were entering recession, we significantly increased our training budgets as other companies were cutting theirs. The competitive edge is going
to be around sales and service in our market, but we won’t be able to achieve that if our staff haven’t got the best skills and knowledge.
“We measure the success of the training by looking at the hard financial measures as well as some of the softer ones. We have clear measures which enable us to continue with the programme, because we know it delivers results.”
Timpson chairman John Timpson agrees that understanding the customer needs to be a priority for retailers. He suggests that too many businesses go wrong by controlling service staff and not letting them use a more human approach.
“You can’t provide great service by a set of rules - it doesn’t work. You have to allow the colleagues to do what they think is right in any situation,” he says. Timpson takes an “upside down” approach to his management of the chain, where he says the most important thing is that staff look after customers and everyone else in the company focuses on helping them do that.
Timpson also recruits and trains ex-offenders to work in its shops. “The business advantage to this is simple - there are more than 80,000 people in prison and very few employers will give them a job when they are released. We can fish in quite a big pool where there are some very talented people. We have recruited some star people who no-one else was interested in,” he reports.
Supermarket chain Morrisons also says it pours money into educating staff. It has increased its market share more than competitors Sainsbury’s, Tesco and Asda (see Morrisons the Educator, below) and credits part of this to doing a good education job. “Having skilled people in store has given us a unique selling point,” claims head of media relations Julian Bailey.
“For us, staff training is more than just a survival strategy, it is how we make ourselves different from the rest.”
Management by walking around
“Management by walking around” - or MBWA - is a business mantra that has been around since the Sixties. But when retail environments expand, it is easy to lose focus and rely on what some marketers call “management by talking around” or simply staying in touch with locations by phone or email.
John Timpson says the importance of MBWA is as true today as ever. Until recently, he and chief executive son James visited each Timpson branch every year. The chain has now grown so big that it is no longer possible for the pair to cover every store in one year, but James still spends about four days a week visiting shops. One of them will also always visit potential new sites to approve them before opening up there.
Timpson says that other high street retailers need to follow his lead and reconnect the service staff with the management vision.
When asked how he would respond to the current government review of retail, out this autumn and led by TV retail guru Mary Portas, he says: “There are always some areas suffering but overall it is busy and still vibrant. We are up on last year. But times change and business needs to keep up to date. Mary Portas won’t be able to legislate for better service. That is for us retailers to give.”
Similarly, Mike Shearwood, chief executive at Aurora Fashions, says it is crucial he and his team spend time with the managers of its 1,300 stores. He encourages shop staff to challenge initiatives if they don’t understand them. “Everyone has the right to understand why we are doing something. If we ask them to do something and don’t give them an explanation, they’ve got to challenge us.
“If they challenge us and we can’t give a reasonable answer, then we shouldn’t be doing that activity because it’s a waste of our time. That is an ethos that runs throughout the business.”
Shearwood is blunt about how this technique weeds out poorer staff. He says: “If they don’t understand a reason for or how to do something, then we can teach them. But if they have the tools and we’ve explained and they don’t do it, it means they are bloody lazy so I can fire them and find someone who is better.”
Embrace the virtual high street
While internet-only stores cannot provide face-to-face customer contact, service remains at the heart of how brands find success online. And the most forward-thinking retailers are trying to move customers efficiently through both online and high street stores, often at the same time.
Debenhams, for example, is introducing new order points in stores that look similar to its iPhone app. These will allow people to choose their items from Debenhams’ entire stock while standing in a shop.
“For our biggest stores such as London’s Oxford Street, we can offer people one and a half times the choice there. For our smaller stores, we can increase the choice by five times,” says Simon Forster, director of Debenhams.com.
Foster won’t disclose the cost of the ordering kiosks, but says that he expects the payback to happen quickly. Some of the kiosk functions have already been set up, such as the video that appears on the iPhone app - which has generated more than £1m in sales since its introduction last year - so won’t incur an additional charge.
Debenhams reported a 77% rise in online, mobile and in-store orders in the 43 weeks to June and Forster says the brand will continue to integrate its presence on the virtual high street into the offline world.
“We have worked very hard to recognise that customers are shopping both in-store and online. Online is our biggest store by a long way,” he notes, as the website notches up to 3 million hits each week.
For Lahage at eBay, the online environment is key to helping retailers manage their stock. “There are so many creative ways to manage inventory,” she says.
“It is usually about smarter use of technology, such as looking at how to use what is offline in stores compared with what is on the website, so brands don’t have to ringfence their web inventory any more. They can also share stock between stores.
“Everything a retailer does like that allows it to deliver a better growth margin because you shift inventory and the costs associated with moving it around disappear.”
For John Timpson, the answer to the troubles of the retail environment will be unique to each brand. He says that brands need to consider all the different elements and how they can be applied individually, rather than worrying constantly about the state of the industry.
“Instead of looking outside, you have got to look within your business and see what you can do to improve it,” he says. “All rumours of the end of the high street are vastly exaggerated.”
How Aurora Fashions is using Marketing Week’s advice to repair cracks in retail strategy
Mike Shearwood, chief executive, Aurora Fashions, which owns Oasis, Warehouse, Coast and Karen Millen
Open an outlet
Mike Shearwood (MS): We have outlet stores in Bicester Village (Karen Millen and Coast), Las Rozas near Madrid (Karen Millen) and Maasmechelen near Brussels (Karen Millen). We also have outlets at McArthurGlen sites, which have been performing well. The consumer is going to those centres for great value for money, which enables us to move stock in season through a different channel.
We mainly sell a consolidation of fragmented best-selling stock from around the business. When you allocate the stores with stock, you may end up with one size of one dress left. It may be a best-seller but you can’t merchandise it because it detracts from the rest of the offer. As a result, we consolidate that product into the outlet stores so they have a full size range or colour range and give a credible offer at an advantageous price.
Find a new territory
MS: We have three growth strategies - invest in the portfolio and technology for building it; drive our multichannel business; and drive our international business.
We are now in 48 countries and are expanding quite aggressively. We will have four new stores in Latin America this year in addition to launching own-language websites abroad and tabulated sites, where, for example, someone going to the Warehouse brand site could also access the Oasis site. People can take a shopping basket across those different sites, so you can use one basket to make many purchases from multiple sites. We will be offering other British retailers the opportunity to be tabulated on our sites. They will be UK apparel retailers who would like to have an online international capability but don’t have the technology or the online platform to do it. It gives the consumer more choice and they will be able to buy through one basket.
Become an educator
MS: We have a strong training culture within the group. We have quite a large learning and development department and are one of the major supporters of the specialist retail educator Oxford Summer School. This gives people a personal boost to their development and their motivation levels are huge, so we see it as a worthwhile investment. We are sending 15 people on it this year at [a cost of £2,010 per person].
Last year’s group delivered a new intranet system, which we have rolled out to all the group’s stores.
Manage by walking about
MS: We spend at least one day a week in-store, although sometimes it’s a whole week. It is very easy for the senior leaders of a company to come up with great ideas and push them down into the business. But they have a responsibility to make sure things are delivered the right way at the sharp end.
Something could have been poorly explained by me or members of my senior team, executed badly or maybe it could have been a stupid idea and we didn’t check it first. So we always go and talk to the teams in stores. We try and create an atmosphere where people can speak their mind and the management expects challenges from store managers.
Embrace the virtual high street
MS: In the next few of weeks, people will be able to order online for delivery to any store, to a home or order in-store for picking up in the same shop. We will be making 100% of our inventory available at any one time. If someone is ordering online and that product isn’t in the distribution centre but is in an overseas store, we will be making that product available. We will be able to put a note in the package saying: “We searched hard for this item and it’s come from our New York store”.
Morrisons as an educator
Morrisons announced last month that it is to fund university places for up to 1,000 students a year, with the idea that they will become company managers.
The supermarket’s HR director for retail, Kim Roberts, explains: “We have a long history of people development and this programme came about as a result of the economic climate and the increase in university tuition fees coming up. The Futures Programme is an opportunity for people to enter at shopfloor level and get the business under their fingernails.”
Running this type of training scheme aims to improve the perception of retailing as a career, she adds. “Sometimes we’ve not done a great job at communicating the opportunities to people, so retail is probably still seen as not a great career compared with others,” she says. “Retail is a hard business and is very different to finance, for example, so people need to get used to it and feel comfortable with it.”
Students will spend six months on the shopfloor and then have the opportunity to do a foundation degree in conjunction with Bradford University. Roberts is keen to promote the idea that people can go “from shopfloor to top floor”, mirroring her own career, which started with a store role in 1986.
The Futures scheme aims to get people quickly to store manager level, as Morrisons needs more of these than ever as it expands. It is currently piloting convenience stores and is reported to be considering a bid for frozen food retail chain Iceland, although it refuses to confirm this.
Julian Bailey, head of media relations, says of the smaller shops: “We have a fair amount of confidence in the convenience stores and the initial signs are strong. It is difficult to say how much this will feed into recruitment and leadership needs, but could clearly be an area where we do need to grow our talent.”
Morrisons works with Leeds Metropolitan University on development programmes for senior leaders and is planning to extend this to department managers in a bid to “create the right environment for people to excel”, according to Roberts.
The supermarket also runs apprenticeships for about 250 butchers and bakers a year, something which it started more than 10 years ago, where students can gain an NVQ, now known as a QCF. It also offers all 100,000 staff the chance to do a vocational qualification and says 84,000 have signed up so far.
While training people “is an investment in the tens of millions of pounds” each year, Roberts says the scheme is worth it. “We are known as a fresh-food retailer, which is our unique selling point. We make more food in store than any of our competitors, but also have product knowledge and can advise on how to cook,” she explains. “A lot of companies are having to reduce their spend in training, whereas we are in the fortunate position where we don’t have to.”
Morrisons will continue to invest in future, she claims, as it feels that training provides a competitive edge that can ensure not only the brand’s survival but expand its reach.
Roberts says: “It is good, sensible economics in terms of investing in our people now and for the longer term. We see it as an investment, not a cost.”