Shopfitters are under the cosh and many have gone under. For those left, there is work, but it is harder to win, says John Ryan
At the time of writing - election day - there is more than a great deal of uncertainty about the outcome of the national poll. By the time you get to read this, the likelihood is that little will have changed regarding the prospects for retail, whatever the colour of the administration.
What is certain is that things will not get any easier for business in the short term: retailers will have to continue to pull out all the stops and look to get the best possible value from their suppliers. If you happen to be in the business of fitting out shops, this means there will be no let-up in the pain you have no doubt been experiencing.
The shopfitting fraternity has rarely been noted for being quick off the mark. Many firms have typically opted to service the same old retail clients until they drop, rather than chase new business. In part, this is an old-style manufacturing attitude, one that sets the machines running and then has a tendency to sit back.
It’s a model that might have worked during the economic boom, when there were sufficient retailers looking to fit-out new stores or upgrade existing ones but, when the going gets tough, it does tend to lead towards the office of the administrator.
No more comfort zone
Alan Davidson, managing director of Belfast-based shopfitter Portview, agrees that the sector’s reliance upon a small number of long-standing relationships has proved an Achilles heel in the sector.
“There are a few old names that have gone,” he says. “I suspect that the ones that went were those that tied themselves to particular retailers and, then when things turned, it kicked down the supply chain and hit them.”
That there has been a shake-out in the industry over the past couple of years is easily confirmed by talking to today’s shopfitters, all of whom recall large names downsizing radically, or disappearing altogether. Fortunately, most of those that remain are considerably more progressive and, in the current climate, considerably hungrier and leaner.
Davidson is fairly typical when he notes: “We have 20 to 25 well-known retailers that we’re working with regularly and we’re not too reliant on any of them.” He concedes that 2009 was a tough year, but says that the tide has shown signs of turning during the first few months of 2010. Among a number of jobs currently on its books, Portview is working on the refurbishment of two branches of Toys R Us, in Oldbury and Warrington, at £1.5m a piece, and is building a new store for Schuh in Livingston for about £600,000.
These are bigger jobs than Portview has traditionally carried out. Davidson says that a typical fit-out project for his firm would have been worth between £200,000 and £300,000 a couple of years ago. But is this scaling-up the norm across the sector?
For most it would seem not to be the case. Pete Richards, managing director of Saltash-based shopfitters The Richards Group, says the question being asked by many retailers looking to upgrade their store is simple: “How far can you make your money go?”
He adds: “It has been a case of smaller jobs and more of them. Clients are trying to spread their money over more stores.”
He adds that matters have improved somewhat over the past six weeks and there have been a few larger jobs coming into view, but that, by necessity, small has been beautiful in the shopfitting world for the past year or so.
It is a view borne out by Lee Walker, managing director of Sheffield-headquartered shopfitting contractor Barlows. “I think the customers we are dealing with want to make an impact without spending as much as they did previously. And that means that companies like us have had to change.
My strategy is to take smaller jobs. We have always seen ourselves as a company that concentrates on smaller-footprint jobs and then does repeat business,” he says.
However, the jobs Walker refers to increasingly consist of aesthetic or cosmetic work on an existing structure, rather than any kind of major overhaul. “It’s signage. It’s a lick of paint. It’s about making the product more accessible,” says Walker.
There is also the matter of the length of time it takes to win a new customer. Walker says: “When you look at work in the pipeline, you have to ask how long will it take to convert the potential customer. It requires real tenacity and could take up to two years.”
Even if the conversion is successfully carried out, there remains one unpleasant thought: there are probably rather more shopfitters than shops to be fitted at the moment.
For those prepared to take part, however, it is a matter of finding the jobs and then running with them… and quickly. Richards cites a job that his company has just completed for shoe retailer Dune, which now has a new brand, The Shoe Store, following its acquisition of Shoe Studio in March last year. The Richards Group has just finished putting the brand into 60 branches of Debenhams in six weeks -not bad going, and a sizeable job, even if it is a project of many parts.
The problem, as Richards points out, is that multiple small jobs have a habit of incurring greater costs than larger single pieces of work.
“You still need a health and safety check on every job that you do and that does hit profits,” he says.
So perhaps the answer is to work on small, but higher-value jobs. The Richards Group is about to complete work on the UK’s first Dior Man in Westfield London. This is a luxury proposition and one that involves a high degree of detail - with a corresponding uplift in the fee.
Many shopfitters have seized on the luxury sector as one of the few arenas that continues to expand and which holds out the possibility of yielding reasonable margins.
A quick look at The Village, the luxury area within Westfield London, shows how this might be the case. When it opened at the end of 2008 this part of the shopping centre was more or less empty, save for a boutique version of a Ted Baker store called Ted Baker Passion. Now the space is full, with names such as Prada, Dior, Louis Vuitton, Burberry and Miu Miu all having occupied units.
Here the fit-out is predictably high-end. In one instance, a store from leather brand Bill Amberg has come, been and gone. In this case, costs probably outweighed turnover and profit but, for the most part, the area testifies to the work of the shopfitter and the profits that are still available within luxury retailing, if the environment is suitably up-scale.
That said, in many cases luxury retailing is a sector in which shopfitters and project managers tend to get their work by word of mouth, rather than by direct tender, according to Stuart Weston, new business director at Leicester-based fit-out specialist Clements Retail.
Perhaps, therefore, National Association of Shopfitters director Robert Hudson is right when he says that retailers may have the upper hand in negotiations with those bidding to fit-out their stores, but that there is a point beyond which the pips cannot be squeezed any harder.
He says: “Sometimes there is a lack of understanding that some of the specialist machines that retailers expect shopfitters to have cost upwards of £250,000. If you are working on a margin of just 2.5%, investment of this kind is very difficult.”
All agree that last year was tough for shopfitters and, although 2010 has generally been reckoned to be better so far, there remains a feeling that the second half will be tough.
As Davidson puts it: “People are going to have less money in their pockets, particularly in the public sector, and that is going to have an effect on the market.”
He says that he has concentrated on improving his marketing in order to drum up new business. It is a message that many in the sector could do worse than heed, with the political and economic environment almost certain to remain unfavourable.
Shopfitting:The status quo
- There are fewer shopfitters than in 2009
- Retailers are looking to spread their money over more shops
- Aggressive marketing is central to success
- The luxury sector continues to provide fresh projects
- Margins will remain under pressure
- Reliance on too few retail clients leads to the risk of administration