Regional retailers may not be able to compete with the national heavyweights on size, but they have plenty else going for them. Katie Kilgallen takes a look at some of the most successful
The dominance of the big national and global retailers on the high street at the expense of small, local independents is one of the most contentious topics in business today.
Some local retailers, however, have prospered and grown into well-established regional chains, with sizeable turnovers and a large local workforce.
While they might be unheard of in the rest of the country, they have become part of the fabric of their own region. So what is behind their success? Why have they so far shunned national expansion? And can they survive long-term?
The attributes that make a good regional operation are the same that make any retailer successful – a complete understanding of your customer and a passion for getting service right.
Verdict Consulting chairman Richard Hyman says: “I’m not sure there is any particular pattern [for success] one could identify – it’s all about understanding your customer.”
Edwin Booth, chairman of Booths – a regional supermarket chain operating in the North, adds: “It’s the same thing that makes a good global or national retailer – a hunger, a passion for getting it right.”
Crucially, locally based retailers are often better placed to appreciate and respond to both the tastes and demands of local customers.
Hyman says: “There are many variations in demand that have to be understood. The phrase ‘think global, act local’ is often used today. In retailing a lot of national businesses find it difficult to act local.”
He cites the examples of Sainsbury’s – originally from London – and Morrisons – from the North – as examples of large national retailers that have had to grapple with shaking off their regional focuses.
Robert Hughes, managing director of East Anglian electricals chain Hughes Electrical, says being close to staff and customers is a key point of difference for a regional retailer. “Staff are encouraged to know customers’ names and families,” he says. “It’s virtually impossible for national retailers to say that.”
Hughes says the number one threat to his business is the foray of the big four supermarkets into non-food. In order to compete, there is now an absolute focus on service and staff are expected to have a thorough knowledge of the retailer’s products.
Managing director of Scotland-based Pagazzi Lighting Alan Pagan says that although the company wants to expand, it is committed to maintaining the quality of service that defines it as a specialist independent.
Pagan says: “We are still offering the level of customer service and care and knowledge you would expect to get in a small independent but, as the company gets bigger, it becomes more of a challenge to maintain the attributes of a small independent company.”
Benefits of being small
As a smaller operation, a regional business also has the advantage of being closer to what is happening in the market and can respond quickly, whereas, with a larger company, the speed of awareness and response can be far slower.
While no one would deny that customer service and customer knowledge is fundamental, low prices and value are also key drivers for consumers. Ernst & Young director of retail Gavin George says: “How do they stay economic? Without scale they don’t have buying power. They have to trade off higher price points through offering local, customer service. The question is, can you get that premium back?”
However, Hughes says that in electricals the buying power of the big players is overstated. Because of regional collectives, smaller retailers’ clout with suppliers is not far behind that of the nationals. “Some manufacturers are more than happy to deal with smaller retailers because they don’t want the big ones to get any bigger,” he explains.
“Scale is very important,” Hyman says, “but if you don’t have what your customers want, it won’t get you anywhere. Getting good prices from suppliers is a very poor substitute for knowing what to buy from them.”
Booth believes it is misguided to spend too much time complaining about the power of larger competitors. “We, perhaps, have a different outlook from a number of other independents. Other people are inclined to bleat about the lack of a level playing field,” he says. Rather than spending all your time looking over your shoulder, he advises “looking forward and being innovative”. But, he adds: “Keep a weary eye on your competitors.”
Booths wants to expand, but in its 160-year history the retailer has only ever grown organically and Booth is adamant this will remain the case. Sensible, sustained growth is the focus. “We like to think of it as basic Northern common sense. Real money, not funny money – if you make money, you can spend it. We want a sustainable business in the long-term,” he says.
But as the retail industry braces itself for an economic slowdown, can regional chains such as these hold their own? Booth says that if you have grown organically and built a good asset base, it can provide security during difficult times. “We own the vast majority of the business. When the economy becomes stormy – as it is starting to now – we can survive,” he says.
Pagan points out that, while on the one hand, it is harder because smaller retailers don’t have the huge cash reserves of the nationals, they do have the ability to react faster to changes in customer demand. “They are much more fleet of foot and that works in their favour,” he says.
It could be argued that regional retailers, being closer to their customers, are actually better placed to survive any downturn. Hyman says: “Retail is becoming more and more about the customer – you are not going to survive in retailing if you don’t understand that.”
Many have forecast a future of homogenized replica high streets across much of Britain. But there are many businesses that would suggest regional retailing is a thriving business model that can and will survive.
Hughes says: “A regional retailer isn’t a national that is collapsing or a local that is growing – it’s a sustainable position in its own right.”
The first Hughes Electrical shop was opened in 1928 in Lowestoft, Suffolk, by electrical engineer Frank Hughes, and the business is still owned by the Hughes family. It was not until the 1960s that the company began to expand. Managing director Robert Hughes says: “It hasn’t been 80 years of steady expansion – the market for electricals didn’t exist.”
It now has 35 stores in East Anglia, as well as an online business, and makes an annual profit of about£2 million. Hughes says moving online has allowed the company to acquire a national customer base, while still only having a physical presence regionally. He believes the internet is the source of the majority of future growth. “It allows you to grow without great cost,” he explains.
Hughes doesn’t anticipate becoming a national retailer in terms of physical stores. He says there are two big national electricals retailers – Currys and Comet – and traditionally the third, such as Tempo and PowerHouse, which both collapsed, always fails. “The market just can’t sustain them,” he says.
Established in 1846 in Blackpool by Edwin Henry Booth, Booths originally sold tea to society’s elite, but has since grown to become a 26-store independent regional supermarket chain. It has never failed to make a profit. The business is still owned by the Booth family, bar a 4 per cent stake held by the employees. In the past decade turnover has grown from £97 million to £230 million.
Booth, who is chairman, says: “We’ve done more than survive, we’ve prospered.”
The business is compared with anything from a large farm shop to a Northern Waitrose.
He explains: “Our big raison d’etre is a preoccupation with quality and provenance of food – 26 per cent is sourced locally. We always say the brand comes alive at the dinner table.”
He says corporate responsibility is not only high on the agenda, but has been built into the fabric of the business.
“We’re a caring company. The sense of corporate responsibility is very strong. We don’t have a dedicated CSR department, it’s just something that is marbled throughout the business.”
Over the next two years three stores will open and there are four or five prospects for the next phase after that.
This Scotland-based specialist lighting retailer made it into the Sunday Times Fast Track 100 list last year – ranked 57th. It began as one shop in Glasgow city centre in 1980 but, in 2002, tried an out-of-town format and has not looked back.
“The change into retail parks has worked for us but, more importantly, it has worked for our customers and our suppliers,” says managing director Alan Pagan.
Pagazzi now has seven superstores, including six in Scotland and one in Chester. It prides itself on excellent customer service, expert knowledge and having 15,000 lines available to “take home today” in every store. Shops stock everything from£1,500 chandeliers to low-cost children’s lamps.
The retailer is still run by husband and wife founders Alan and Laura Pagan. In February 2006 it received a£500,000 investment from Ashley Bank Investments. Sales have grown 81 per cent a year to £5.6 million in 2006.
The next step will be the launch of an online business. The company also expects to open another store in either Scotland or the northwest of England in the next year.