Topshop owner Arcadia has pledged to invest significantly in its online operations following its CVA, but it needs to spend wisely to compete with its pureplay rivals.
The Topshop business has fallen on hard times in recent years and lost its position as the poster child of UK fashion retail to insurgent online rivals such as Boohoo and Asos.
In a 300-page document sent to landlords ahead of its June CVA, Arcadia blamed its recent woes on the “increasing switch from in-store to online shopping”.
Arcadia’s earnings have plunged from £215m to £30m in the last five years and like-for-like sales fell 9% last year as the company failed to keep pace with the competition.
As part of its turnaround programme, Arcadia has earmarked £60m to improve all of its digital platforms, including Topshop – a little less than the £75m that will go to refurbishing rundown stores.
The fashion group is also understood to be planning a same-day VIP delivery service and will begin selling Topshop product on Asos, while Topman has just launched on the site.
A key pillar to Topshop’s turnaround strategy is “digital external business opportunities”, such as the decision to sell on Asos.
Attune Consulting head of European retail Richard Emmett believes the Asos tie-up could be a savvy one.
“As long as you are promoting the Topshop brand successfully and collaborating carefully with Asos then I see no reason why you should not use it as a decent channel to market,” says Emmett.
An Arcadia spokesman said work has been underway for some time on digital transformation.
He said: “We have already made a multimillion-pound investment to enhance our digital platform over the last few years, improving the look, navigation and speed of our Topshop and Topman websites.
“This culminated in the launch of our new platform in April this year, which led to improved customer experience.”
Arcadia has also invested in its supply chain by building a “state-of-the-art” fulfilment centre in Daventry. Operations there will be “ramped up over the course of this year” and it will handle Topshop and Topman orders from the end of this year.
“If all you do is move the consumers from stores to online that is not good for you”
Michael Ross, DynamicAction
Emmett believes same-day delivery is a key consideration if Topshop is to compete with the fulfilment options of rivals such as Amazon Fashion.
However, Emmett warns Topshop needs to “be sensitive to the commercials of it” and ensure it is priced correctly to allow it to remain profitable.
The additional £60m digital investment following the CVA could be a game-changer for Topshop.
Emmett says this money is “more than enough money” to transform digital operations.
However, he believes Marks & Spencer is a cautionary tale about how major ecommerce investment does not automatically mean success when executed poorly.
“Laura Wade-Gery [former M&S multichannel director] spent £150m on M&S’ new ecommerce operation and they got it wrong on several counts,” says Emmett. “These investments have to give value and you have to test and make sure it is all ready to go before you launch them. M&S looked at it more from an ecommerce operation than an omnichannel operation, I don’t think they really closed the loop around how the store operation should change.”
Emmett advises Topshop not to view its digital transformation solely in terms of ecommerce but instead to think of it as an “omnichannel” investment.
“You need to be offering top customer engagement across any touchpoint where they choose to interact with you,” he maintains.
The whole picture
DynamicAction co-founder and chief scientist Michael Ross also believes the key is not to fixate on digital at the expense of the overall business.
“A lot of retailers drive the digital channel and move consumers who were happily shopping in stores to buy online, which makes the business less money overall,” he says. “Typically, the online channel has a higher cost to service when you take into account picking, packing, dispatch and returns. If all you do is move the consumers from stores to online that is not good for you.”
Topshop does appear to be thinking of the whole omnichannel experience.
“They were once one of the best brands to look for inspiration as little as five years ago”
Richard Emmett, Attune Consulting
The Arcadia spokesman said: “We can now invest at least £135m over the next three years in our stores and across all our digital platforms.
“This is aimed at providing our customers with the very best multichannel experience, delivering the fashion trends they demand and ultimately inspiring a renewed loyalty to our brands that will support the long-term growth of our business.”
Ross believes that where Topshop has fallen in the past is viewing online as a separate channel.
“They have run online almost as a separate business. They have had a store business and an online business with a separate inventory and a separate P&L that does not reflect the reality of how consumers shop,” says Ross. “You need to make the right decisions for the customer overall otherwise you end up with the channels competing with each other.”
Emmett warns against overcomplicating things through too many software platforms. He recommends “headless architecture” that will provide Topshop with the flexibility to use APIs (application programming interfaces) to provide customers with “something new and fresh quickly”.
In a headless architecture approach, the customer-facing end of a retailer’s ecommerce shop and the back end of it are “decoupled”, which means they are effectively independent of one another. This allows rapid and frequent changes to the customer-facing side of the website.
Another key to success for Topshop in today’s omnichannel world is a keen understanding of the customer through data, according to Ross.
“Your starting point has to be understanding who is making you money and how they are making you money,” says Ross.
Once that is known, Ross believes customers can be nudged towards behaviour that will make them more profitable for Topshop. That might be driving loyal in-store shoppers to make incremental purchases online or targeting promotions at customers who have browsed the website but never bought anything.
When it unveiled its three-year turnaround plan in May, Arcadia said it would seek to enhance its customer experience and conversion rates.
Ross argues the “endgame” for a multichannel retailer is what he terms “customer SKU store pricing”. That would mean if a retailer is overstocked in a dress of a specific size in a particular store, it could target local customers who are the same dress size with an online promotion to shift the stock.
Emmett and Ross are both optimistic the strength of the Topshop brand could still help it win out if the digital transformation is executed well.
“They need to really push the product and go back to their innovation and move away from the [Sir Philip] Green story,” says Emmett. “They were once one of the best brands to look for inspiration as little as five years ago.”
Ross concludes: “Current troubles aside, Topshop is still a great brand and a big business from a revenue perspective; it is a brand loved by consumers.
“Can they compete with Boohoo? Absolutely. It is not that the brand is no longer interesting, they just have got to trade the business in a different way.”