Fashion retailing at a crossroads
Although this could lead to more merchandise variety in the high street, the variety will be supplied through fewer and fewer mega-big retail conglomerates and major groups striving to operate worldwide. The evidence is that we are entering a "buy or be bought" retail era. Malcolm Newbery reports.
UK Fashion Retailers In Turmoil
Although there always has been change in fashion retailing, the pace of that change has undoubtedly been accelerating. The established and secure major players are no longer that. Marks and Spencer has undergone an "annus horribilis" in 1999, and staff are still bailing out. The women's wear brands of Sears fell into the hands of Philip Green, who promptly sold them on to Arcadia. Arcadia, having just managed to avoid insolvency by doing a new financing deal with its banks, has now announced the disposal of 350 stores and the axing of three brands, SU214, Principles for Men, and Wade Smith Jnr. The last was only bought in 1998 for £17.3 million. And BhS has been bought by the same asset-stripper Philip Green, who says he intends to keep and run the retail fascia, but will either drive it upmarket or down!
To add to the confusion in the high street, the middle ground (variety stores, multiple chains, and mass market brands) is being attacked from above and below. Label conscious consumers are deserting St Michael for designer names with "street cred" such as Calvin Klein. "Value for money" shoppers are heading the opposite way to buy George at Asda. As a recent trade press article put it: "cheap and nasty has become cheap and clever".
The reason this has happened now is because of the confluence of three factors:
1: the increasing sophistication of the consumer;
2: the self created problems of retail space and profitability;
3: the globalization of retailers and their suppliers.
Retailers used to sell on a good gross margin at full price for 46 weeks of the year and discount to move old stock twice a year. Now there are sales and offers in store at least six times a year: January and July, mid-season and special events. The consumer has learnt to wait for these, and has become adept at buying at discounted prices.
Moreover, the growth of factory outlets and off-price shopping centers has sharpened consumers' desire for a bargain. Many brands now deliberately make products obsolete in order to make them available to outlet stores.
Space And Profitability
Across the same period, in almost all developed countries, "organized retail" (the chains) built square meters of space faster than they grew sales. The combination of this and the squeeze on gross margins as a result of consumer opportunism has cut profits to the bone.
The third factor impacting on the retail scene in all developed countries is globalization. Retail was presumed in the past to be national, with national preferences restricting cross border activities. That is no longer the case. In food, electricals and fashion, multi-national retailers are growing at the expense of those with a purely domestic franchise. Very recent examples from the fashion sector are: Zara with more than 900 stores in over 30 countries; Hennes & Mauritz, whose stock is currently valued at £12 billion, and is stepping up its store expansion plans in Europe and the USA; and Gap, which will roll out the Old Navy format in the UK later this year, with Banana Republic to follow. J Crew, the USA mid-market chain with 120 stores, has announced a start-up in the UK next year.
Brands are also becoming international, whether they are part of a massive luxury stable such as LVMH (Louis Vuitton Moet Henessey), or a quick-on- their-toes minnow like Ted Baker. The perceived wisdom is that a brand cannot survive in one market, not even in one as big as the USA.
And to complete the story, although it is primarily in food, the takeover by Walmart of Asda looks likely to lead to the sale of value for money George clothing in the States. These global retailers and brands will sell globally and source globally.
Where Will It End?
The shopping mall is looking more and more like a shopping "maul", with the global retail giants struggling for domination of the high streets around the world. As events prove that there is no effective domestic defence against the aspirations of the multi-nationals, lessons can and should be learned from other industries such as chemicals and automobiles.
In the chemicals business, the major players bought and sold (in some cases swapped) their investments in different types of chemical, in order to become the market leader worldwide in a particular sector. In cars, the famous Boston Consulting theory of the sixties has been proved right over the last three decades. You use your investment muscle to become the biggest. You use that to drive down costs and kill the competitors. You then either buy the weakened competitor or leave it to die, and then, like a vulture, pick over its corpse (collect its market share). This inevitably has meant fewer and fewer car manufacturers. In the UK in the month of April alone, we have seen BMW retreating from Rover, and Ford announcing the end of car assembly at Dagenham.
Buy Or Be Bought
If the analogy with automobiles is sound, and it would appear to be so, then the reaction of food and fashion companies with genuinely global aspirations is clear. It's "buy or be bought!" Certainly Kingfisher thought that way, when in April 1999, it tried to merge with Asda. But the party was spoilt by the speed with which Walmart moved to secure Asda and provide itself with a launchpad for Europe.
More recently, the French merger of Promodes and Carrefour has created a genuine European food and fashion giant, capable of playing in the same league as Walmart.
Such is the confusion amongst food and fashion retailers in the UK at the moment that absolutely anyone, including blue chips like M&S, is deemed to be "in play". One thing is certain; in today's edgy environment, there will be some more surprising mergers and acquisitions in retail before long.
About the author
Malcolm Newbery heads up The Malcolm Newbery Consulting company which specialises in fashion retailing and the clothing industry. He can be contacted via e-mail at: email@example.com
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