House of Fraser is streamlining its womenswear own-brands offer in an attempt to stem declining sales of the ranges.
The department store group’s first-half results yesterday showed like-for-likes up 0.9% and total sales flat. But within that mix, ’house brand’ sales – such as Linea and Therapy – tumbled 3.9%.
Chief executive Nigel Oddy told Retail Week that the retailer intends to trim the number of womenswear own-brand labels it offers and reassert their value credentials.
He said that own-brand homewares had performed strongly and menswear and fashion accessories performed satisfactorily, but that there was “potential overlap” in womenswear between house product and third-party brands.
Oddy said: “When we looked at our house brand sales they were disappointing. They are a core part of our strategy and can be a key difference between us and our competitors.”
However, there has been insufficient differentiation. “This is where we’ve been caught out, in the past half, and the past year’s, trading,” said Oddy.
He declined to say how much of the assortment might be cut, but newly recruited Maria Hollins, the former Asos director who joined House of Fraser in May this year, was responsible for slimming down the offer and was in the process of doing so.
“When we looked at our house brand sales they were disappointing. They are a core part of our strategy and can be a key difference between us and our competitors”
Nigel Oddy, House of Fraser
“Maria is revisiting every one of our house brands,” he said. “She is looking at overlap and looking at the value, as it relates to branded merchandise. Our house brands cannot be more expensive than branded.”
Oddy said the retailer was also implementing a ‘first price, right price’ strategy.
House of Fraser chiefs have said they want to raise the proportion of sales from house brands from between 15% at present to 25% in the longer term, achieving a trading margin of at least 55%.
Retail Week Prospect analyst Rebecca Marks said a strong own-brand offer was vital to House of Fraser’s success and would require careful management.
She observed: “House of Fraser needs to be careful to ensure it protects its full-price sales across its own-brand range to prevent any damaging effects to margins.”
Setting itself apart
So it is crucial that department stores such as House of Fraser properly differentiate price architecture and ensure the delivery of value to shoppers when it comes to own-brand versus branded product.
“If consumers are willing to trade up to higher price points, it is more likely they’ll invest in the more premium brands which department stores sell,” she said. “They can be viewed as greater investment pieces [than own-brand items].”
Despite the own-brand setback, Oddy was upbeat about overall performance. He maintained that flat first-half sales and the slight rise in like-for-likes represented a fair results in a challenging marketplace.
“We have had a huge amount of volatility in the market,” he said. “We have had low consumer confidence, brought about by no one individual factor but many factors.
“We have had very strange weather patterns – and I do not want to blame the weather but it is a contributing factor – so in the context of that we are pretty happy.”
House of Fraser’s gross profit edged up but its EBITDA fell steeply from £9.2m to £1.1m.
£3.9m of that was owing to a reduction in its financial services income and chief financial officer Colin Elliot blamed the remainder of the shortfall on ecommerce operating costs.
“House of Fraser needs to be careful to ensure it protects its full-price sales across its own-brand range to prevent any damaging effects to margins”
Rebecca Marks, Retail Week Prospect
“Our ecommerce sales have grown by 18% but that has a catch to it – as ecommerce grows so does its cost base,” he said.
He pointed out that the difference between the margins delivered from stores and online are narrowing. “If you go back to the year ending January 2014 the contributing margin from properties was 14% and the ecomm margin was 6%,” he said. “The next year the contributing margin was 11% and the ecomm margin was 8%. It is closing all the time.”
New chief customer officer David Walmsley, who arrived from M&S to replace his high-profile predecessor Andy Harding in August, will seek to ensure the ecommerce margin overtakes the stores’ margin by the end of the 2017 financial year.
If he can do that, and Hollins can improve the performance of own-brand labels, House of Fraser will be better placed to succeed in the long term as the department store sector adjusts to changing consumer preferences.