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Current trends and future opportunities for the UK Clothing Industry THE POWER TO HELP YOU SUCCEED This report has been produced by Verdict Consulting for Barclays Corporate. All content has been researched, developed and produced by Verdict Consulting at the request of Barclays Corporate for the purpose of this report. March 2011 Verdict Consulting 119 Farringdon Road London EC1R 3DA T. 020 7551 9419 F. 020 7551 9090 E.

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Please note, the Fair Dealing provisions of the CDPA do not allow copying of any part of printed publications for commercial usage of any kind. While information is compiled with due care, the publisher will not be liable for the consequences of anyone acting or refraining from acting in reliance on any information. © Verdict Research Ltd 2010 The views expressed in this report are the views of the author alone, and do not necessarily reflect the views of the Barclays Bank PLC Group nor should they be taken as statements of policy or intent of the Barclays Bank PLC Group.The Barclays Bank PLC Group takes no responsibility for the veracity of information contained in the third party narrative and no warranties or undertakings of any kind, whether express or implied, regarding the accuracy or completeness of the information given. The Barclays Bank PLC Group takes no liability for the impact of any decisions made based on information contained and views expressed in any third party guides or articles. Contents Introduction by Richard Lowe Demand changes Social class The supply side The future Success strategies Conclusion 2-3 4-7 8 9-13 14-19 20-30 31 Introduction Fashion is growing up, and as the average British shopper becomes more mature, fiscal belt-tightening and regal trends steer the shopper to the premium end of the clothing market.

This report provides an analysis of the ever-changing clothing sector. It reviews the shift in mindset towards premium end retailers and sets it alongside the apparently contradictory rise in the value market, providing ten key trends that all clothing retailers can use to help with strategic planning. consumers shopping with value players has more than doubled during the past decade.Today 57 % of consumers regularly use value retailers, with almost half of these coming from the affluent ABC1 demographic*. The research estimates that this segment of the market will grow from ? 9. 9bn to ? 12bn (around 21%) during the next three years The premium market can expect to enjoy the strongest growth rate over the next three years.

By 2014 the premium segment is expected to be worth an estimated ? 8. 6 billion, an increase of ? 1. 9 billion (29 %) from today’s estimated value of ? 6.

7 billion*. Consumers want quality as well as value, and are happy to trade up to buy statement pieces, mixing and matching with edgier value items.The sector will be further compounded by Chinese wage The trend of mixing and matching will also help the value end of the market to remain buoyant. The number of inflation, the rising cost of commodities, the impact of the recent VAT and fuel price rises and the Spending Review. Overall, I remain cautiously optimistic about the sector’s prospects for 2011 and, from a banking perspective, – albeit at a slower rate than before the recession, when it was growing at 10 % per annum*. All this will mean the clothing market will, undoubtedly, become more competitive, with the middle market feeling the squeeze.I would expect to see a shift in price structure with key players focusing on premium in order to maintain growth and bolster margins.

However, the industry will enjoy a boost from one of the most influential trends to emerge in recent years. Kate Middleton’s arrival as a fashion icon is set to overshadow all other consumer trends this year and for many years to come. Grown-up elegance is making a comeback after Kate Middleton’s refined style catapulted her to fashion icon status from the moment the official engagement photos appeared – and the good news for retailers was that the bride-to-be wore High Street.

As the latter begins to bite shoppers will start to rein in their spending as concerns over jobs and their own personal finances increase. 2 have consistently said that this is a good time to lend to the sector, in circumstances where the commercial and risk terms make sense. I hope you find the report insightful and that it aids your strategic thinking going forward. Richard Lowe Managing Director Head of Retail & Wholesale Barclays Corporate 07775 540802 (mobile) richard. [email protected]

com *Source: Verdict Consulting, 2010Today 57% of consumers regularly use value retailers, with almost half of these coming from the affluent ABC1 demographic. 3 Demand changes By any standards, the growth of the value market in clothing has been impressive. Players like Primark have, from a standing start, become an entrenched part of our retail landscape. Equally, the grocery players have become an established part of the market; it is now commonplace to see clothing while food shopping. This impressive growth can be seen most clearly by looking at the medium-term trend.

Back in 2000, only around 27% of clothing shoppers regularly used value players; today, over 57% of the population regularly use value clothing retailers*. Over recent years that perception has changed. The offers at value players have become more fashion focused, store environments have improved and areas like marketing have become more mainstream. This has all helped to stimulate consumer interest and shift perceptions. There is now much less snobbery over where clothing is purchased and, indeed, it is often seen as savvy to have purchased fashionable pieces at low prices.

It is particularly telling that almost half There are many drivers of this growth. However, one of the major factors is a change in the perception of value players, supported by very real changes in their market position. It is worth remembering that even as recently as 2000, value was a still a byword for relatively cheap unfashionable clothes and it was, therefore, unsurprising that the majority of shoppers came from lower socioeconomic groups whose primary focus was on saving money. Despite the significant growth in underlying demand, the recession has helped to boost the reach of the value segment still further.Since the onset of recession in 2008, the sector has added 2. 5 million more regular shoppers*.

Some, being squeezed hard by the recession, came out of necessity. Others came out of curiosity, driven by the more frugal consumer mindset. of all value clothing shoppers come from the most affluent AB and C1 social segments. In many ways, it is easy to miss the high street premium segment as it is composed of a large number of relatively small-to-medium-sized players like Hobbs, Joules, Crew Clothing, Pretty Green and Phase Eight.

Nevertheless, since the onset of the recession the proportion of regular shoppers While the success of the value players is not in question, the story does sometimes overshadow other dynamics operating in the clothing sector. Indeed, over the course of the recession, there was another part of the market that, in demand terms, grew far faster: the high street premium segment. There is now much less snobbery over where clothing is purchased and, indeed, it is often seen as savvy to have purchased fashionable pieces at low prices. *Source: Verdict Consulting, 2010 4 uying clothing from this premium set has grown by 6. 2 percentage points or, in real terms, 3. 4 million adults*.

It may seem contradictory for retailers offering more expensive clothing to see strong growth during one of the worst recessions in living memory, but it largely comes down to a subtle shift in consumer mindset. While tough economic times have driven an increased focus on price, consumers have also became more concerned with things like the quality of goods (in particular how long they will last) and getting good service. In a sense, many shoppers want value for money rather than just cheap prices. Demand changes More people are shopping at value clothing retailers… Percentage of clothing shoppers using value players (Diagram 1) Profile of value shoppers by social class (Diagram 2) Diagram 1 • Back in 2000, just 27. 9% of all clothing consumers regularly shopped at the value players. By 2008, just before the recession hit, that figure stood at well over half of consumers • One of the most notable changes in the value clothing sector is the broadening of the customer base.

Back in 2000, well over half of regular value consumers were from social classes C2 and DE 53. % 57. 3% • Despite this explosive growth, over the course of the recession the number of shoppers using the value players has increased by almost 4 percentage points. In real terms, this equates to an extra 2.

5 million adults buying value clothing on a regular basis • Although still a big component of the shopper base, both of these groups have become relatively less important, and most growth has come from the addition of more affluent AB and C1 consumers. In 2010, AB and C1 shoppers were almost as important in numerical terms as C2 and DE shoppers 27. 3 Start of 2008End of 2010 Diagram 2 30. 2 31. 7 27. 9 23.

6 17. 4 13. 8 16.

8 22. 1 31. 0 29.

4 • While part of this will certainly be down to the physical expansion of players like Primark and the grocers, much is also attributable to a more value-driven mindset, due to the recession 28. 8 AB 2000 C1 2008 C2 2010 DE Source: Verdict Consulting, How Britain Shops series, 2010 6 …but it’s not the only game in town Percentage of clothing shoppers using high street premium players (Diagram 1) Percentage point change in drivers of store selection (2008-2010) (Diagram 2) Diagram 1 While a smaller segment of the market in terms of actual shopper numbers, high street premium players have seen stronger growth than the value segment. Since the onset of recession the number of shoppers regularly buying clothing at premium stores has increased by 6. 2 percentage points.

In real terms, this equates to an extra 3. 4 million adults • While the recession has made many consumers more conscious of price, there has also been a growth in other factors too. More people are now interested in the service and the reliability of products 16.

2 22. 4 •This, in part, helps to explain the seemingly contradictory trend of growth at the value and premium ends of the market. Especially so when taken in the context of just AB consumers, among whom competitive prices have grown by 3. 3 percentage points and reliable products by 2. 6 points Diagram 2 Start of 2008 End of 2010 • Again, the physical growth of high street premium players, such as Crew Clothing and White Stuff, has boosted shopper numbers. However, once again, mindset plays a part – with many shoppers now being prepared to trade up Competitive prices Service Reliable products +5.

5 +1. 2 +1. 1Source: Verdict Consulting, How Britain Shops series, 2010 7 Social class Social Grade A B C1 C2 D E Source: NRS, Verdict Consulting, 2010 Social Status Upper middle class Middle class Lower middle class Skilled working class Working class Those at lowest level of subsistence Occupation Higher managerial, administrative or professional Intermediate managerial, administrative or professional Supervisory or clerical, and junior managerial, administrative or professional Skilled manual workers Semi- and unskilled manual workers State pensioners or widows (no other earner), casual or lowest grade workers The supply side On the supply side, the rise of the value sector has had a profound impact on the clothing market. Two things stand out: the impact on prices and volumes, and the effect on the middle market and middle-market players.

In terms of prices, the growth and increased significance of the value players forced many clothing retailers to reassess their price positions. Many of the old price points became unsustainable: in the early 1990s, a basic T-shirt selling for ? 25 would have been quite acceptable; by 2000, with Primark selling T-shirts for as low as ? , such a price point was viewed as unreasonable. Such a dramatic shift was not without victims; many large clothing players who occupied the middle ground of retail suffered. Their model of selling high volumes of relatively basic, undifferentiated clothing at moderate to high prices to large numbers of people became unsustainable. The undoing of such middle-market players was their offer, which was bland, undifferentiated and not particularly fashionable.

This made it directly comparable with the value However, this shift was more fundamental than just changing price points.Traditionally, the strategy of clothing retailers was to seek growth from a combination of moderate volume increases, combined with an element of price inflation. The value players turned that model on its head. Their focus on low prices meant that consumers, especially those driven by fashion, were able to buy significantly more volume. As more volume was sold, so prices could come down further because of economies of scale and improved sourcing arrangements. This trend of strong deflation with strong volume growth predominated in the clothing sector for at least ten years.The result of this dynamic was the fallout of key players like C&A (which exited the UK) and Littlewoods (which closed its high street stores). M&S and Bhs, both typical middle-market clothing stores, survived – but not without much pain and by reinventing their respective propositions.

players and meant there was no choice but to reduce prices. At the same time the lack of difference or excitement made it challenging to increase volumes, especially given the increased amount of competition in the market.The second impact, towards the end of the recession and into the recovery period, is the return of inflation. This has largely been driven by a strong cost push from higher commodity prices across raw materials such as cotton, slightly higher wage inflation in China (which in some provinces is running in double digits), higher shipping and transportation costs, and, more recently, the increase in VAT to 20%. All of these things have forced clothing retailers to ease up price points. Seismic though they were, some of these trends have been brought to an end by the recession.

The first impact of the downturn was a dramatic reduction in volume growth as consumers cut back on the amount of clothing they were buying, a relatively easy adjustment as most were saturated after years of purchasing. 9 The supply side While significant, these changes do not mean the end of the love affair with the value market. Indeed, it will remain one of the fastest growing parts of the clothing sector.

However, it does mean there will be more pressure on players within that segment and that the best prospects will be confined to those with scale. There is evidence that smaller value clothing players likeTK Maxx and Matalan are finding the going much tougher. At the other end of the spectrum, a switch away from the volume model of the past reflects a resurgence of higher end, more premium players.

Consumers are now more willing to spend more on statement pieces or items of high quality that can be worn over and over again. Despite the recessionary shift, the middle market remains squeezed and under pressure. Perhaps more so now than before, as it falls between two stools: the price-focused value players on the one hand and the fashionable, high quality premium players on the other.Consumers are now more willing to spend more on statement pieces or items of high quality that can be worn over and over again. 10 Market position changes Fashionable Fashionable 1990 2010 Premium Sears Next Arcadia 7. 3 1.

6 10. 9 Cheap M&S 3. 5 Primark 7. 1 Next Burton Group 5. 2 Expensive Cheap Grocers M&S 7. 4 Debs Expensive 3.

6 14. 8 Bhs 9. 3 Other value 10.

6 4. 2 7. 9 C&A Grocers 4. 0 LW 3. 5 1. 6 Basic Basic Figures show % market shares for each retailer Source: Verdict Consulting, 2010 11 The supply sideMarket position changes 10 Value players are expanding rapidly Competition keeps inflation low Volumes fall at onset of recession Cost increases, mean prices increase Post-recession, volume growth returns Inflation remains low, but in positive territory Pre-recession • • Strong growth in clothing expenditure is maintained even though inflation is low High volume increases, driven by acquisitive consumers, underpin growth 8 6 4 2 0 -2 Recession • At the onset of the recession, volumes start to fall back and enter negative territory.More frugal consumers opt to save money by buying less • Inflation initially remains low but ramps up rapidly as retailers’ input costs increase Post-recession -4 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 • Gradual recovery but inflation remains elevated and volumes depressed Volume growth (%) Inflation growth (%) Source: Verdict Consulting, 2010 12 Comparative growth rates Value market • Up to 2014, the value segment of the clothing market will grow from ? 9.

9bn to ? 12. 0bn, or by just over 21%.This growth is comparatively slow compared to pre-recession (when the segment was growing at 10% per annum) and is slower growth than the premium segment Middle market Share 2008 Share 2010 Share 2014 Growth from 2010-14 26.

1% 26. 8% 27. 8% +21. 2% • In share terms, the middle market has been in decline for a long period of time; this shrink will continue until 2014. That said, the middle market will see some growth, if only from higher inflation. Even so, by 2014, the middle market will still be the largest component of clothing, worth ? 52.

4bn Premium market Share 2008 Share 2010 Share 2014 Growth from 2010-14 6. 5% 55. 2% 52. 4% +11. 0% • In share terms, the premium market grew over the course of the recession, and the period to 2014 will see an acceleration of this trend. The premium segment is worth an estimated ? 6. 7bn today and will grow to ? 8.

6bn by 2014 Share 2008 Share 2010 Share 2014 Growth from 2010-14 17. 4% 18. 0% 19. 8% +28.

6% Source: Verdict Consulting, 2010 13 The future The changes in both demand and supply will bring about some fundamental shifts in the clothing market over the next few years. Ten of the most important changes are summarised over the page.The first and most important thing that is likely to happen is a shift in the price structure of the market. This will come about because all parts of the clothing sector will find it increasingly difficult to deliver growth. This trend will drive inflation in the market, which will remain persistent but moderate over the next few years. Comparatively, volume growth will remain relatively slim. Against these challenging conditions, new growth avenues like diversification into other categories and a focus on high growth segments, like the older consumer, will become more important and prevalent.However, this may not be enough.

As it stands today the clothing sector has too much capacity – too many players, too much space and too many stores. Something has to give. The players that will do best are ones that have sufficient volume to offer very These two things in and of themselves would make the market a challenging place for clothing specialists. However, taken with the fact that non-specialists like grocers and department stores will gain market share and that the online channel will absorb some growth, physical specialists will begin to feel increasingly squeezed – particularly in the middle market. ompetitive pricing or those who are niche enough to offer something different, unique or compelling and thus charge higher prices. As it stands today the clothing sector has too much capacity – too many players, too much space and too many stores.

Something has to give. 14 The top ten trends 1. Market prices shift upwards 5.

Multi-channel comes of age 8. Retailers diversify into other categories Players will focus on premium in order to maintain growth and bolster margins; the whole market will move upwards.A seamless multi-channel proposition will be critical to satisfy convenience, service and inspiration requirements. In response to the more intense competition, strong clothing players will diversify into areas such as beauty. 2. Inflation remains but is low 6. The market becomes more competitive 9.

A focus on the older consumer The days of steady and continuous deflation have gone; the next few years will see moderate price increases. As a result of lower growth and the invasion of non-specialists, competition will intensify; not all can survive.The 65+ segment will be lucrative over the next ten years and many more retailers will try and tap into this.

3. Volume growth moderates 7. The middle market gets more squeezed 10. Be big and drive volume or be niche There will be a polarisation of success with small, innovative players doing well alongside the big volume operators.

People will buy less clothing than they did over the past ten years, so volume growth will moderate. The middle market, which includes Bhs and M&S, will feel most pressure; this segment will lose share out to 2014. 4.Non-specialists gain ground The grocers and department stores will do well in clothing: the former at the value end, the latter in premium. 15 The future Market forecast 6 5 4 3. 6 3 2. 0 2 1.

8 1 0. 2 0 -1 -1. 6 -2 2008 2009 2010 2011 2012 2013 2014 Overall, the clothing market will grow by 16% over the 2010-14 period. While on the surface this seems like 4. 8 4. 8 3. 9 4. 0 3.

8 2. 0 1. 0 3.

0 4. 2 3. 7 positive news, a large chunk of the growth will be taken up by inflation. In real terms the growth rate will be nearer to 9%.

3. 8 0. 0 -0. 5 0. 1 0. 5 -0.

7Inflation Volume Total Source: Verdict Consulting, 2010 16 Shift in the market Current Market Low price High price The value segment will find it more difficult to achieve growth through volume increases, so players will need Value retail Middle-market retail Premium retail to find new ways to drive sales and profit. This means many are likely to push their price architecture up by segmenting their offers into more premium lines (as New Look is doing with Gold by Giles Deacon) which means they will be Low price Future Market High price moving into middle-market territory.Inflation will drive up the price architecture of the value retailers Value retail Middle-market retail Premium retail Premium moves into higher price points and luxury becomes more high profile The middle market, rather than fighting value retailers on price, will move upmarket too and challenge the premium sector by offering affordable luxury – something they are already doing to a certain extent with luxury fibres such as Value sector stretches price architecture to more premium ranges taking lower middle market Middle market moves into premium price points, offering ‘affordable luxury’ ashmere. However, for mass market retailers, they will have to produce credible sub-brands and enhance the premium experience with good customer service. Source: Verdict Consulting, 2010 The premium end of the market will be pushed even higher – especially at the top end of the market – in the need to define and defend their premium status. 17 The future Be big and drive volume or be niche Sales densities and operating margins in the value segment 2009 ? 450 Next Retail Primark ? 300 TK Maxx Bonmarche Peacocks ? 150 TJ Hughes Matalan New LookHaving low prices, operating margins and sales densities is acceptable if a retailer has scale, but a cutback in consumer spending and reduction in volume sales, even if prices rise, can put this model under pressure. New Look and Primark, both with high footfall locations on the high street, have operating profits and margins much closer to Next’s retail business, which has one of the higher margins in the sector.

? per sq ft The vulnerability of smaller operators with high costs not set off by high volumes was revealed during the recession. ?0 -2. 0 Those which have survived, or which have been re-invented, 0. 2. 0 4. 0 6. 0 8. 0 10.

0 12. 0 14. 0 16. 0 will find life equally hard over the next couple of years. Operating margin % Lower volume players Higher volume players Next included as a benchmark Source: Verdict Consulting and company reports and financials, 2010 18 The older consumer UK clothing market value by age group 2009 (? bn) The most valuable customer segment in clothing is the ? 5. 55 ? 4. 97 ? 5. 05 ? 4.

92 ? 4. 36 ? 5. 64 65+ market, but this is because of its size. In 2009 over 10 million UK consumers were 65+ and by 2015 this will have increased by another 1. 6 million. However, spend per head, at ? 58 per annum, is the lowest of all the age groups.

The highest spend per head is among 25-34 year olds at ? 630 per annum. ?4. 82 These consumers are pre-family stage, and more likely to be working than the younger 16-24 year olds. They have more disposable income and can afford higher prices than the younger age group, who may be buying large volumes of clothing, but at much lower price points, which dilutes the value of the segment’s spending. 0-14 15-24 25-34 35-44 45-54 55-64 65+ Source: Verdict Consulting, 2010 The highest spend per head is among 25-34 year olds at ? 630 per annum. 19 Success strategiesPicking up on the themes developed in the previous section, there are a number of things that will drive success in clothing. These fall into two categories: broadening the target market and improving fashion credentials.

The former allows greater share and volume gains in a low growth market while the latter allows for margin improvement through higher prices. In this section the various strategies are explored and illustrated with examples from across European retailing. Range and format diversification Fashion multiples are increasingly diversifying their offer as they attempt to attract a wider audience and keep customers interested.Childrenswear proves to be an important category for many. While Gap has had its dedicated Baby Gap and Gap Kids stores for years, other Broadening the target market Being multi-channel Consumers no longer shop from one channel. Increasingly they expect to be able to shop how they want, when they want.

It is important that clothing retailers respond by implementing an effective multi-channel strategy – for example, allowing customers to order online and pick up in store. clothing specialists are beginning to introduce dedicated store concepts for their childrenswear offer, such as Zara Kids and OVS Kids.Other categories that clothing retailers continue to develop are perfumery, beauty products and homewares. While Zara Home has established a significant footprint across Europe, H&M is following in its rival’s footsteps with the rollout of its Home offer both in dedicated stores and space in existing H&M outlets. Introducing multiple formats A multiple format approach gives retailers the opportunity to tap into new markets and customer bases. German discount fashion chain Takko has successfully implemented this strategy by introducing new formats and adapting them to attract younger, trend-conscious consumers. 0 Improving fashion credentials Focusing on fashion Designer collaborations can help boost a retailer’s brand awareness and fashion credibility. Over the last five years, many of the major multiples have tied up with well known high-end designers to create a number of exclusive one-off lines, the most recent examples being H&M and Lanvin and Gap and Valentino.

Stretching the price architecture through sub-brands Clothing retailers can stretch their price architecture and boost fashion credentials through the introduction of premium lines that sit above their traditional offer.It is important that these ranges are segmented and merchandised separately from the standard offer to help customers distinguish between the different lines and justify the higher price points. C&A has done this well by incorporating a number of shop-in-shop concepts for its Yessica Pure collection, positioned as a better quality line above its standard Yessica label. Improving merchandising and shop fit Despite the growth of the online channel, stores will not become obsolete for the foreseeable future and, for many people, shopping for clothes will continue to be a cherished pastime as much as an essential shopping trip.In this sense, retailers must continue to invest in improving the look of their clothing offer in stores. This is particularly the case for grocers and value retailers. Good use of visual merchandising, dedicated signage and stylish fixtures can help distinguish the clothing from other non-food areas in the store and gives it more of a fashion boutique feel. Despite the growth of the online channel, stores will not become obsolete for the foreseeable future and, for many people, shopping for clothes will continue to be a cherished pastime as much as an essential shopping trip.

21Success strategies Developing a multi-format approach – the Takko story German discount clothing retailer Takko operates a three format strategy. While the retailer’s core turnover contribution comes from its tried and tested Takko fascia, which trades from over 1,400 stores in 14 countries, selling a broad range of low-priced, quite functional clothing, it has introduced an additional two concepts: Page One and, most recently, 1982, to attract younger more fashionconscious consumers. Takko first converted some of its stores in high footfall downtown locations to the Page One format in 2008.The aim of the new fascia was to attract younger, trendconscious consumers with its modernised shop fit and more fashionable ranges, whilst still maintaining discount prices. Meanwhile, after a two year trial of the 1982 concept in Kiel, the company decided to roll out the discount fast fashion brand in 2010 in Germany and the Benelux region, opening around 12 stores by year end and with long term plans to reach 200 stores for the chain. The Page One and 1982 formats provided Takko with the opportunity to exploit untapped potential, and cater for customers who are out of reach for the Takko stores.

While Takko continues to retail from out-of-town retail parks and other secondary and tertiary locations with low footfall levels, Page One and 1982 retail from space that generates higher sales, which of course cost more to operate. While each concept differs slightly in its target market and store environment, all three formats maintain Takko’s core philosophy of a strong low price architecture and solid value credentials. The Page One and 1982 formats provided Takko with the opportunity to exploit untapped potential, and cater for customers who are out of reach for the Takko stores. 22Store brand: Takko Established: 1982 Proposition: Basic, functional, family offer Target customer: 35-50 year olds, families Location: Out-of-town, retail parks Key competitors: Kik, Ernsting’s family Store brand: Page One Established: 2008 Proposition: Fashionable Target customer: 25-45 year old women Location: High street Key competitors: C&A, H&M Store brand: 1982 Established: 2009/10 Proposition: Trendier, young fashion Target customer: Fashion-conscious under 35s Location: High street, shopping centres Key competitors: Primark, H&M Source: Verdict Consulting and company reports and information, 2010 3 Success strategies If a new fascia fails, try sub-brand segmentation – the C&A story C&A’s imitation of Primark’s format fails to get off the ground The multi-format strategy doesn’t work for everyone, as exemplified by C&A’s unsuccessful attempt to replicate the Primark model. many cases forced to trade down due to declining incomes and rising unemployment, customers failed to embrace the new brand, which lacked Primark’s appeal to a young demographic and awareness of current fashion trends, aspects of clothing retail which are exactly what European consumers want.

In March 2008 C&A launched a totally new concept in Germany using a brand that it had shelved since the late 1990s, Avanti. This was C&A’s version of the Primark concept – amazing fashion at irresistible prices, as it described it, in large (2,800 sq m) city centre stores – and it was no doubt as much a defensive strategy against Primark’s European expansion as one hoping to emulate Primark’s success.Following a review of the trial, in mid 2009 the company decided to scrap the Avanti concept and instead focus on bulking up and improving the image of its flagship C&A brand. The 10 Avanti branches in Germany, four in Belgium and one in Poland were all closed down, though most were integrated back into the C&A portfolio. These moves have helped stretch C&A’s pricing architecture into higher regions and target ranges at specific customers.While the conditions for launching a new clothing concept firmly based on a value proposition could not have been more favourable, with consumers unsure about the future and in Sub-brand segmentation to target specific audiences Where C&A has had some success is in the development of sub-brands and ranges to help segment its offer and target specific groups in its broad customer base. C&A has introduced a number of shop-in-shop concepts to segment its clothing offer. In 2009 it launched the successful Yessica Pure collection.

Positioned as a more premium line to its Yessica label, it targeted style-conscious women between 25 and 45 years old.The new line went on sale in Autumn 2009 together with a store-in-store concept in 85 outlets, of which 28 were in Germany. C&A implemented a similar strategy with another of its sub-brands launching Canda Premium in Spring 2010, with this range specifically targeting women over 45 years old. 24 Strategies to broaden target customer market and improve fashion credibility Catering for a wider customer base through different fascias Takko example Stretching the price architecture through sub-brands C&A example Modernised shop fit, visual merchandising Practical and simple store layout Functional and basic Fashionable and better quality 982 Takko Yessica Yessica Pure Younger fashionconscious consumers Older functional consumers Lower price Higher price Source: Verdict Consulting and company reports and information, 2010 25 Success strategies Strategies to boost fashion credentials The increasing presence of cheap and chic fashion chains such as Primark and H&M is heightening consumer expectations for visually attractive and modern store concepts, prompting traditionally price-focused retailers to update their complete image, from modernising their brand logo to completely refurbishing their store formats in order to lure shoppers inside.

The new format and rebranding have proved highly successful, with an accelerated rollout of the concept Italy’s Oviesse reinvented as a young fast fashion chain Faced with weak consumer spending in Italy and an ailing performance from its tired and outdated chain of over 300 Oviesse stores, parent company and Italy’s leading clothing retailer, Gruppo Coin, implemented a rebranding and renovation programme, converting stores to a new formatbranded OVS industry. This involved a complete overhaul of the existing store layout to a more modern and young fashion-orientated concept.The new concept continues to be expanded further with recent Gruppo Coin acquisitions Melablu, which has 60 stores in Italy, and the Upim department store chain (150 outlets), contributing to the format’s growth (around 100 stores from the two brands have been converted). While Gruppo Coin’s acquisitions disrupted the pace of old store conversions in 2010, refurbishment of Oviesse stores Through the rebranding process the company has repositioned itself in H&M and Zara’s territory, mimicking *Source: Verdict Consulting, 2010Rebrand and renovate the store layout and fast fashion offer of these international giants. The new format makes good use of visual merchandising and retail theatre, turning a formerly quite bland and bleak store environment into a refreshed modern boutique. to around 150 stores in 2008/09 and converted stores reporting a 15% uplift in average sales density to €3,450*. is expected to continue from 2011 at a rate of 20-30 a year. 26 Bridging the gap between grocer and department storeTesco’s MY department store concept in the Czech Republic is a prime example of grocers moving their non-food offer more upmarket.

The MY concept stores that are being rolled out in Central Europe have a Tesco food department, but also sell a broad range of non-food products, including clothing, electricals, homewares and furniture. The non-food products are merchandised in a department store format rather than a traditional big box hypermarket and the clothing offer features a mix of fashion brands, including Miss Sixty, Calvin Klein, D&G and Guess, alongside Tesco’s own-label clothing.The non-food offer in Carrefour’s new hypermarket concept, Carrefour Planet, has been similarly departmentalised and segmented into separate ‘zones’ or ‘universes’. There is good use of visual merchandising to make the clothing offer look similar to a fashion store. Increasingly the Continent’s leading hypermarket players are implementing similar concepts in their larger footprint stores, in an attempt to reposition their clothing offer as less functional and more aspirational.

Introducing well-known brands such as Levi’s and fcuk can help boost fashion credentials.Others are tying up with designers to create exclusive lines for their private labels, as Tesco has done with Ultimo founder, Michelle Mone, to create its premium Diamond Boutique lingerie range. While grocers are more inclined to push their value credentials in their clothing offer, many are beginning to focus on improving the credibility and authority of ranges. 27 Investing in ranges and sub-brand broadens customer base – the New Look story UK value and middle-market clothing retailer New Look operates over 1,000 stores worldwide and has historically used space expansion to grow revenues.However, with increased competition from the value market and with slow growth forecast for its core UK market, the focus has switched away from space expansion to developing and broadening the product range. As well as sub-brands, New Look has also been developing its ranges in menswear and childrenswear. Although it first While New Look’s core turnover comes from its value-priced products, it has turned its attention to its better and best mix of ranges by developing and broadening its sub-brands. ntered menswear in 2003, the sector has been a tough nut to crack for a retailer that is still seen as a womenswear specialist.

2010 was the year this started to change as New Look developed its menswear collection, adding creditability Its Limited Edition and Idol ranges have added fashion credibility and enabled the retailer to extend its price architecture upwards, accommodating consumers wanting to trade up and capturing that share of their wallet which would usually have been diverted to other retailers.In addition to improving sales, the sub-brands have also allowed New Look to disguise inflationary pressures through range innovation. Menswear has also been given more of a presence in store and has been rolled out to 275 shops with a fully transactional online offer.

through collaborations with designers such as Giles Deacon. The menswear collection at New Look’s Oxford Street flagship store. The product was well spaced and has a Starbucks located on the floor, encouraging men to relax and browse the product whilst waiting for their partner.In store, New Look has successfully segmented the sub-brands, placing them in environments to reflect the higher price; this has been an integral part of their success and it is doubtful the sub-ranges would have worked so well without being placed in a distinct environment.

28 Success strategies Catering for a wider customer base through different sub-brands – New Look example New Look generic Yes Yes Denim Limited Edition Idol • • • • Caters for all customers Lower price Entry-priced products and value ranges Competitors: Primark, Tesco, Asda, Matalan, Peacocks Provides the loyal New Look customer a focused denim area • • • • Fashion-led collection in small volumes Moderately priced Attracts new customers Competitors: Topshop, River Island, H&M, Forever 21, Next • • • Higher quality and more details Higher price Targeting the New Look customer wanting to splurge and trade up • • Good price mix Competitors: Next, Dorothy Perkins, H&M, Matalan, Peacocks, Primark • • Appeals to new customers Competitors: Topshop, River Island Source: Verdict Consulting and company reports and information, 2010 9 Newness in all channels improves the shopping experience – the New Look story Store estate grows in size and profitability The vast store estate across the UK stands at over 600 outlets, growing on average by 15-20 stores a year. Stores are typically around 4,000sq ft, but larger stores over 8,000sq ft are appearing on prime high street locations and large out-of-town sites. Despite poor trading conditions New Look has maintained sales densities and increased the average store by 31. 2% between 2008-10.Props have been used to add a sense of theatre, catch Following the announcement of strong profits for its 2009/10 financial year, the retailer planned to refurbish 248 stores by 2011. The new shop-fits will have a pivotal role in attracting customers and maintaining competitiveness whilst refreshing the New Look image. Additionally, a stand-alone footwear and accessory store format was launched successfully in 2009 with more following in 2010, demonstrating that New Look’s fashion credentials reach further than just clothing.

A step ahead of the competition In March 2010, New Look successfully relaunched its website, offering consumers new features and a simpler, more exciting shopping experience. New Look has integrated its new website into stores, enabling staff to place orders online and deliver the goods to customers’ homes. This will inevitably help avoid lost sales and consumer disappointment. Space optimisation, range segmentation and stylish fitting rooms, to create continuity throughout the store portfolio, will be essential for New Look’s future success. he eye of shoppers and increase the potential for impulse purchases. New Look is also using its website as a means of testing new international markets and, as of late 2010, is selling online in over 100 countries worldwide. Multi-channel developments are crucial in order to get ahead of the competition.

London’s flagship Oxford Street store opening in 2010, showcasing the new shop-fit, was received well by customers and exhibits the direction New Look are taking their in-store shopping experience.The clean environment delivers a more aspirational fashion experience than its core market is used to from either the typical New Look store or other value retailers. The site uses lifestyle photography, enabling shoppers to see what the product looks like on, giving them a better idea of the fit, shape and colour shades.

Features such as Get The Look and As Seen on TV will spark interest from browsers and encourage impulse purchases. The development of the website gives New Look an earlymover advantage as many value players have yet to develop transactional sites. 0 Conclusion Despite the changes which are afoot, the clothing market will remain a lucrative and profitable place for many players. However, the days of easy growth have now firmly come to a close and the sector will be one in which there is an increased degree of polarisation between success and failure. As the case studies in this paper show, migrating to such a position is not simple.

It involves a very fine balancing act between extending price architectures upwards on the one hand and still maintaining a reputation for keen prices on the other.Difficult though it is, it is a balance that all will need to strike. Against this backdrop the value segment will continue to perform relatively strongly.

However, it will not be without its challenges. Foremost among them is the fall in volume sales – something that has the potential to undermine many business models which rely on the sale of large numbers of relatively low-margin items. Superior retailers will also look to innovation to drive sales and customer loyalty.Diversifying into other product areas, focusing on growth segments such as the older consumer, and increasing routes to market through multi-channel development are all ways in which growth can be secured. The bottom line is that all players will need to work far The value players that perform the best will be those who understand that true value is about much more than low prices – that it incorporates branding, embellishment, quality and service, all delivered at reasonable price levels. arder to secure a slice of the action over the next few years. 31 barclayscorporate.

com Barclays Corporate is a trading name of Barclays Bank PLC and its subsidiaries. Barclays Bank PLC is registered in England and authorised and regulated by the Financial Services Authority. Registered number is 1026167 and its registered office is 1 Churchill Place, London E14 5HP.


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