Zolfo Cooper’s report on the UK’s 10 fastest growing retailers reveals lessons for the rest of the industry.

The UK’s 10 fastest growing retailers are a varied group - from discount retailing to high-end jewellery via quirky British brands, the list is testament to the fact growth can be achieved in almost any category for those clever enough about it.

Aldi, Poundworld, Arum and Office are among those leading the way.

The Zolfo Cooper Growth Retailer report, produced in partnership with Retail Week, shows these retailers are chalking up to 30% year-on-year sales growth.

So how have they done it? In each case, the ingredients of success have been different. Zolfo Cooper senior associate Anthony Donges says: “There isn’t a single route. Historically, private equity firms have bought retailers and just assumed you can follow a store roll-out strategy, and that an extra 20 stores per year would be sufficientto grow sales. There’s now much more to it.”

Routes to success

That is clear in the stories behind these retailers’ success. Aldi, the UK’s fastest growing retailer and winner of the award of the same name at the Oracle Retail Week Awards 2013, has done what few would have forecast it could -muscled in on the big four grocers’ patch and taken market share in one of the industry’s most competitive categories. It now holds 3.4% of the UK grocery market, according to Kantar.

Meanwhile, Cath Kidston’s group sales increased nearly 30% to £89m in the year to April 1, 2012, as the retailer exported its quirky, British products that have resonated so well with the middle class here to a network of Asian markets, including Japan.

Its success is echoed in some ways by American Golf, which, despite the name, is based in Cheshire. It has also tapped into a niche market where spending has been strong. Group sales rose 25% to £108.2m for its year to January 2012, and the retailer has a long-term target of 140 stores, up from 91 at present.

Despite the variety of companies and markets, there is plenty to learn from this group of fast-growth retailers. They are managing to forge a path through a changing environment, adapting to shifting consumer expectations and shopping trends, and dodging the pitfalls tough trading conditions can bring. Below are some key lessons to take from their success.

Get the customer proposition right

One common element the top 10 retailers share is that each has got its proposition exactly right for their particular consumer group. “These retailers offer exactly what their customers need, when they need it,” says Donges. “You need to understand your customer’s mindset, and put yourself in the mindset of your target customer through mystery shopping and the like, so you can understand what they’re expecting from you.”

That includes everything from getting the tone of email marketing right to making sure customer service is exactly what’s needed. “This doesn’t mean trying to be like John Lewis, but matching your service to what the customer expects from you,” adds Donges. Whether it’s fast delivery, the right pricing or an easy returns process, it’s crucial to work out what customers want and provide it.

Focus on distribution channels

Routes to market are changing as omnichannel strategies shift the industry, and the retailers achieving growth have frequently thought carefully about how they need to adapt.

Donges points to Ideal Shopping Direct, which has evolved cleverly as television has gone digital. Previously the company’s TV channel, which is its main sales route, was only available on Sky on or cable TV, but with the advent of Freeview digital TV it is now available in many more homes. “They changed their strategy to reflect that,” says Donges.

Charles Tyrwhitt is another of the top 10 with a business model that suits today’s environment. The retailer is opening stores but in a slow and steady way - the emphasis is on only choosing the right locations and 70% of turnover is generated online.

“It had a big revamp of its website in 2010, and it doesn’t need a massive store roll-out,” says Donges. “It appreciates that growing your store footprint isn’t the priority it once was.” The retailer is proof that full UK coverage can be achieved without a huge store network.

Supplier relationship

Shoe retailer Office is particularly strong on its supply chain - it works with a large number of external brands that all recognise the retailer is a great route to market for them.

Donges emphasises the importance of managing a network of suppliers carefully, being sure to collaborate and co-operate.

“Retailers that put too much pressure on their suppliers could have a detrimental effect on the supply chain - they should be careful to protect their relationships,” he says.

Brand profile and marketing

Every retailer on the list is a well-known brand that has built its profile effectively, making it clear what they stand for and what they represent to consumers.

Aldi, for instance, has worked hard on its image. While its offer is clearly well suited to hard-pressed shoppers, it also runs offers on finer foods and has been careful to keep its appeal broad. Its efforts have worked - the retailer has succeeded in boosting its proportion of wealthier consumers.

Donges adds that Aldi’s marketing has also been powerful - the focus is on price but it’s done in a humorous way.

American Golf is another brand with a clear profile and effective marketing, he says. “It has done a fantastic job of selling high-value items during the recession, because it has good marketing.” It appreciates the people it is targeting still have money to spend, despite the uncertain environment.

Foresight and accountability

Moulding an offer to suit a changing consumer mindset is not easy. Donges says retailers need to stay on top of changing trends and ideas by keeping in contact with everyone from landlords and property agents to analysts.

It helps the business stay one step ahead and keep an eye on what competitors are up to.

“You don’t want to go into one of your competitors’ stores and see them doing something, and have to react to it there and then. It’s preferable to find out earlier on rather than being one step behind,” he says.

While delivering growth in a competitive market isn’t easy, these retailers prove it’s possible.

They give an idea of how polarised retail could become in the coming years, with both value and higher-end retailers represented and, perhaps most importantly, they provide some useful guides for achieving growth.

Perhaps most importantly, they show those retailers that are struggling that high growth is still possible.

Download a copy of the Zolfo Cooper Growth Retailer report

To learn more about these retailers, their strategies and how they’ve achieved growth, download the full report.

The report indexes the top 30 companies with the fastest-growing profits in UK retail. Profit is defined as EBITDA before exceptional items with directors’ remuneration added back in. To qualify, retailers must have had a minimum level of turnover in the past three years and a minimum level of profit. Companies must be registered in the UK and be independent, unquoted and privately owned. They must also have had two consecutive years of growth and have been profitable in all three years. The index includes UK subsidiaries of European businesses, but only their UK performance has been considered. Retailers that have grown through acquisition are also included.

The UK’s top 10 fastest growing retailers

One

Aldi

The German grocery group has muscled in on the big four, taking market share and attracting wealthier shoppers with its value offer. It has now launched a convenience format and no doubt expects more impressive figures after its 30% sales surge in the 12 weeks to December 23, 2012, to £859.1m, which was the period the report looked at. This stellar growth has continued since then - sales surged 30.8% in the 12 weeks to March 17 this year.

 

Two

Cath Kidston

Homewares retailer Cath Kidston was bought in 2010 by private equity group TA Associates, and has continued on a successful trajectory since then. Store numbers have tripled in the last five years, and there are now 51 international shops. During the year to April 2012, retail represented 79% of overall sales, with the rest coming from wholesale or licensing.

 

Three

American Golf

Despite its name, American Golf is based in Cheshire, and in 2011 it was acquired by private equity business Sun European Partners. Group sales rose 25% to £108.2m in the year to January 2012, and the retailer now operates 91 specialist golf superstores at retail parks, golf courses and other out-of-town locations.

 

Four

Poundworld

One of the high street’s winners at present, Poundworld is number three in the single-price-point retail charts - Poundland and 99p Stores generate more revenue. But Poundworld is hot on their heels - turnover increased 55% to £206.5m in the year to March 31, 2012.

 

Five

Ideal Shopping Direct

One of the UK’s leading home shopping retailers, Ideal Shopping has taken advantage of the transition to digital TV. As the channel starts to infiltrate more homes, the retailer is expected to continue its growth.

 

Six

PerfectHome

Established in 2006, PerfectHome sells a range of household goods and delivered turnover growth of 41.9% in the last financial year. It allows customers to spread the cost of products over a set period, and has big plans for store expansion.

 

Seven

Office

Footwear retailer Office has used its large store footprint to create relationships with brands, and its own-brand offer has also chimed well with customers. Like-for-like sales growth in 2012 was an impressive 16%.

 

Eight

Aurum Holdings

Aurum’s fascias include high street chain Goldsmiths, upmarket jewellers Mappin & Webb and luxury watch retailer Watches of Switzerland. Its broad offer appeals to a wide range of customers and the retailer has worked hard on improving customer experience.

 

Nine

99p Stores

Having only opened its first store in 2001, 99p Stores’ success has been fast and furious - it had 193 stores by mid 2012. The single-price-point retailer’s wide product offer has struck a chord with value-obsessed consumers.

 

Ten

Charles Tyrwhitt

This shirt maker and formalwear specialist only has 20 stores but generates 70% of its revenue online. The plan is to steadily open shops in key locations and things are going well - revenues are growing at about 30% year on year.