When your sales are nosediving, you may not feel like reading about those lucky retailers that are thriving in the toughest trading conditions for decades. But don’t turn the page.
After all, they’re not magicians, they’re just good retailers. And a closer look at why these businesses are booming when others are faltering may well provide an insight into how those that are struggling might boost their performance.
Admittedly, part of their success is down to good fortune because some sectors, such as online or food retailing, are more resilient than others. And the likes of Asos and JD Sports benefit from the fact that their unmortgaged young consumers, immune from soaring bills and job fears, are less likely to curb their spending. Despite Arcadia reporting a 6.1 per cent fall in operating profits last week, its young fashion brands including Topshop enjoyed a record year.
Meanwhile the position of N Brown, Game Group and Mothercare as niche retailers has also benefited them hugely because consumers find it more difficult to switch from these brands. N Brown chief executive Alan White says that because its average customer is aged 57 and a size 20 or more, “we get a bigger share of people’s purses than other retailers – and we’re more likely to hold on to them”. Mothercare chief executive Ben Gordon agrees that being a niche retailer has contributed to its success. “We’re a life-stage speciality retailer and we aim to solve an enormous amount of problems that people at this life-stage come across,” he says.
However, Gordon adds: “If it’s not right, people don’t come in.” Mothercare was in the doldrums five years ago when the economy was booming, he points out, and now it’s thriving when the economy has fallen apart.
So just what is the secret formula for those retailers that are bucking the trend? Crucially, they all have strong business models; they know their customers and they are exceptionally well run. Morrisons chief executive Marc Bolland says: “What we have done is focus on our core activities and we’ve not been distracted by anything else.”
PricewaterhouseCoopers UK retail and consumer sector leader Mark Hudson says: “They’re all very different, but they all focus on what they’re good at – their core customer base and tailoring their offer effectively. That’s a characteristic of all of them.”
Product is crucial, and nearly all these retailers have exciting ranges. Bolland says: “You have to bring a strong offer to the customer. Promotional activity is stronger now than ever before and it’s about refreshing your ideas and surprising the customer.”
In addition to product, success in the present climate is about the basics of good, old-fashioned, shopkeeping. Strategy consultancy OC&C director Richard McKenzie says: “Their stores look good, they all get the product on the shelf and they have all responded to customer demand.” Gordon agrees. “Product is increasingly important, as is the way you deliver it. Sticking it in a shop is no longer enough,” he says.
Another common shared factor is that they all keep a keen eye on cost. Probably the most notable example of a cost-controlled business model is Kate Swann’s strategy at WHSmith. She has maintained consistently impressive profit increases since she joined the business in 2003 and is one of the best-regarded operators on the high street. However, that profit increase has not come from sales, which have been sluggish at best. And as Verdict Research director Neil Saunders says: “There does eventually come a point when you can’t keep cutting costs.”
The polarisation of businesses into the strong and the weak may be galling for those who fall into the latter category, but it does help to highlight just where the former are getting it right. There has never been a more important time to analyse the strategies of those who are winning the battle for consumers’ cash.
Equally, brands that are trading well need to beware: complacency or even the most temporary loss of concentration could mean that all their achievements start to unravel. If they have time to sit back and marvel at their success, the business has got time to fail.
The figures: At the beginning of October, the UK’s biggest home shopping company reported that revenue rose 11.8 per cent in the previous
five weeks, following an impressive six months of growth in which sales increased 12.6 per cent to£322.8 million in its first half. Pre-tax profit rose 20 per cent to£40.8 million for six months to August 30, with much of the growth coming from online sales, up 45 per cent to£106 million.
The retailer’s perspective: N Brown chief executive Alan White says that apart from its target consumer being loyal to the brand, customer acquisition has had a major impact. “Last year we had a very good year and invested£5 million more in customer recruitment, and we’ve kept our foot down while things have been going well. In retail terms, that’s the equivalent of opening up more square footage.”
The outsider’s perspective: Citigroup analyst James Targett says N Brown’s increase in online sales is a major factor. “It costs N Brown 76p to process an order from its call centre, compared with 4p online, so that has represented significant cost-savings,” he explains.
Will it continue? Double-digit growth may be unlikely, but strong single-digit growth is highly achievable.
The figures: The luxury fashion brand’s revenue increased 13 per cent for the six months to September 30. Like-for-likes rose 3.4 per cent, with total retail revenue climbing 14 per cent. The Americas remained the best-performing region, while Asia and Europe – with the exception of Spain – all showed growth in comparable store sales.
The retailer’s perspective: Burberry chief executive Angela Ahrendts attributes the success to the strength of its diversified business model. However, she warns that the outlook remains uncertain. “We expect trading conditions in the all-important third quarter to remain volatile,” she says.
The outsider’s perspective: PricewaterhouseCoopers UK retail and consumer sector leader Mark Hudson believes Burberry’s success is not just down to the luxury market being generally more resilient to a spending downturn, but specifically a result of Burberry’s strong brand. “By creating a brand that people want to wear, it has been able to differentiate itself and charge a premium,” he says.
Will it continue? At a time when others in the luxury market are displaying signs of weakness, Burberry has shown itself to be far more downturn-proof than others. No retailer is immune from the slump, but Burberry will come out in good shape.
The figures: Having enjoyed consistently meteoric sales rises since its launch in 2000, fashion e-tailer Asos celebrated its most profitable day to date on September 30, while sales leapt 104 per cent in the six months to September 30.
The retailer’s perspective: Asos chief executive Nick Robertson says the business’s success is down to a combination of factors: online sales continue to be strong across the board; its young target customer is less affected by the downturn; and bad summer weather meant that more people resorted to shopping online from the comfort of their own home.
The outsider’s perspective: PricewaterhouseCoopers UK retail and consumer sector leader Mark Hudson says: “There are plenty of other online clothing retailers who aren’t as successful. Asos has been smart about having a magazine, it has been smart about using a catwalk runway to film products on models and it has been smart about having a short supply chain that gets products online quicker than anyone else.”
Will it continue? The fact that online sales keep on climbing is far from the only reason for Asos’ success. The retailer has gone from strength to strength and should keep doing so.
The figures: The baby and maternity retailer’s UK sales weren’t meteoric for the 13 weeks to October 11, but it nevertheless posted a like-for-like uplift of 0.5 per cent. Its international sales, meanwhile, rose 7.6 per cent and its multichannel business Direct in Home recorded a rise of 25.1 per cent.
The retailer’s perspective: Mothercare chief executive Ben Gordon says: “We are managing the business tightly and despite the issues in the wider economy we enter the second half benefiting from the strength of our two international brands and our positive cash position.”
The outsider’s perspective: Verdict Research director Neil Saunders says: “Mothercare’s low-cost franchise model means it’s been able to roll out stores internationally very quickly, which has worked very well for it. That is key to future growth. Less than 1 per cent of global births come from the UK – it’s important to focus on UK markets, but that’s not necessarily where the growth is.”
Will it continue? Yes. Aside from being a speciality brand with strong customer loyalty, Mothercare has huge growth potential in its international markets.
The figures: Group pre-tax profits shot up from£44 million to£76 million in the year to August 31, with profits from the high street stores climbing 5 per cent to£44 million. Profits from WHSmith’s travel division were up 16 per cent to£36 million.
The retailer’s perspective: WHSmith chief executive Kate Swann says: “Our travel business grew strongly and our high street business made further progress in line with its plan. In an uncertain consumer environment, we expect the key Christmas season to be very competitive; however we have planned accordingly.”
The outsider’s perspective: Verdict Research director Neil Saunders says WHSmith owes its success to Swann’s tight focus on costs. “Swann is a brilliant operator and there is an opportunity within travel and on the international side. But within the UK business in the longer term there has be a question mark. It is treading water and that’s very dangerous.”
Will it continue? WHSmith is an incredibly consistent performer, with profits growing steadily despite flat high street sales. International and travel sales will remain strong, but where will the business growth on the UK high street come from?
The figures: At the end of September, video game retailer Game Group announced record pre-tax profits for the six months to July 31, up 33.4 per cent to£33.3 million. Its e-commerce sales soared 80 per cent year on year to£32 million during the same period.
The retailer’s perspective: Game Group chief executive Lisa Morgan says the company owes its success to its customer experience, its reward card and its pre-owned offer, which has helped lift profits: customers wanting to save money can trade second-hand items in stores. She adds that new product coming onto the market will continue to strengthen sales. “We feel very upbeat about this Christmas and next year too,” she says.
The outsider’s perspective: Verdict Research director Neil Saunders says: “Game Group is the only mainstream specialist in that gaming space. It’s no longer the domain of the spotty teenager; the market has broadened significantly. Sales volumes are much greater and they’re high-priced volumes.”
Will it continue? Providing that the growth in the games market continues, Game’s growth will remain impressive.
The figures: The sports retailer’s pre-tax profits rocketed 71 per cent to£9.1 million in the 26 weeks to August 2. Group like-for-likes increased 6 per cent, total group revenue increased 19 per cent to£299 million.
The retailer’s perspective: JD Sports Fashion executive chairman Peter Cowgill says: “The like-for-like sales performance in the balance of the year will be measured against very strong comparatives from last year and with the backdrop of challenging conditions for the consumer. Nevertheless, the board believes that the group is strongly positioned to deliver on market expectations.”
The outsider’s perspective: Stockbroker Numis Securities analyst Nick Coulter says Peter Cowgill has been instrumental in JD Sports’ success. “Cowgill has run a tight ship. It’s a well-run company from the top down. Also, it’s a full-price sports fashion group catering for a younger audience, so it’s slightly more recession-resilient.”
Will it continue? JD Sports’ focus on the younger consumer and distinctive product should hold it in good stead. Coulter says: “2009 and 2010 will be trickier, but you’d back it to still have flat like-for-likes.”
The figures: The grocer announced in September that it had generated a 12.8 per cent increase in first-half pre-tax profits to£309 million, on sales up 13.5 per cent to£7.1 billion. Its like-for-likes rose 7.6 per cent.
The retailer’s perspective: Morrisons chief executive Marc Bolland says: “We’ve been strong on value, which in the present economic climate is very important, and we’ve also been strong on fresh product. People want fresh food for a strong price.” He adds that Morrisons’ manufacturing business has also been invaluable in driving growth because it has been able to deliver significant volume increases at short notice.
The outsider’s perspective: Grocery research body IGD senior business analyst Stuart Samuel says: “It’s all about provenance and Morrisons has a real visibility of fresh food supply chains. That’s a key strength and it’s what makes the difference.”
Will it continue? TNS figures suggest that Morrisons keeps on gaining market share – and the fact that it was doing so before the downturn should further consolidate its position. Verdict Research director Neil Saunders says it has an opportunity to open up new space: “It’s far from being saturated, provided it can get planning permission and find the right sites.”
The figures: On October 2, the quirky fashion retailer posted a 5.4 per cent rise in pre-tax profits to£7.4 million for the first half to August 9. Retail sales increased 17.5 per cent to£53.4 million during the 28-week period.
The retailer’s perspective: Despite the positive figures, the company said that trade two weeks prior to its announcement had been affected both by turmoil in the banking world and unseasonably warm weather. Ted Baker founder and chief executive Ray Kelvin said the board “is mindful of the uncertain economic environment and we remain understandably cautious about trading in the second half of the year”.
The outsider’s perspective: Verdict Research director Neil Saunders says: “The way the brand is executed in store certainly attracts consumers, the product is well designed and it has a twist – and that’s why people pay a premium for it.”
Will it continue? Quirkiness isn’t always foolproof – FCUK was considered quirky and its popularity wore off – but providing that Ted Baker continues to focus on reinventing its products, it’s likely to keep attracting the customers. It will also benefit from those who trade up to fewer, more expensive items in the downturn.
The figures: In August, the retailer revealed that for the three months to June 30, underlying growth was 6 per cent, up from 5 per cent in the first quarter. Total sales excluding fuel increased in the “high single digits”.
The retailer’s perspective: Asda chief financial officer Judith McKenna says: “We’re seeing growth across all our ranges and what we are finding is that customers are choosing where to make compromises, allowing them to manage inflation their own way.” She adds that Asda’s customer base continues to broaden, with 25 per cent of all new customers in the quarter coming from the AB demographic group.
The outsider’s perspective: Grocery research body IGD senior business analyst Stuart Samuel says: “Increasingly we’ve seen Asda communicate more value messages across its non-food ranges. A one-stop-shop in the current climate is very important for people.”
Will it continue? The grocer is gaining more AB shoppers the deeper the UK slides into recession. Its investment in added value ranges will continue to appeal to a wider group of shoppers and the company looks likely to build on its continued strong results.