SLOW SALES DON’T DAUNT STORES
Byline: James Fallon – with contributions from Katherine Weisman, Paris
LONDON — European apparel retailers are opening stores left and right in an expansion kick not seen in more than a decade.
Too bad business remains lousy.
Designer and more mass-market retailers are rolling out stores in the UK, France and Italy despite retail environments that continue to be difficult — with few signs of a turnaround. The continuing gloom is based on statistics that show:
* Same-store sales continuing to decline at many UK retailers, with even Marks & Spencer PLC reporting weak apparel sales this fall. The market has been hit by a lack of consumer confidence and, more importantly, the success of Britain’s National Lottery. Retailers estimate lottery spending is taking 100 million pounds out of the economy each week.
* French department store sales down 2 percent in the first nine months of 1995 compared with a year earlier, with Paris store sales down 1 percent. This was before the wave of strikes there in December, when some stores reported daily sales up to 40 percent lower than the previous year. So Christmas was a disaster.
* Italian retail sales up 3 percent in October, excluding inflation. But inflation remains high at 6 percent, indicating a real sales drop of 3 percent.
The cloudy picture has bright spots, however. Some retailers in Europe are performing well despite the environment. Oasis, French Connection, Next and Karen Millen in the UK and The Gap, Zara and Marks & Spencer PLC in France are bucking the overall trend. Gianfranco Ferre, Dolce & Gabbana and Gianni Versace have opened stores in Italy in a vote of confidence in their domestic market.
The companies that are performing well generally are those that focus on tight collections and retain the flexibility to adapt quickly to the latest fashion trends. But they mostly are smaller players in the overall European retail scene.
“Most retailers remain pretty gloomy about the prospects,” said Deborah Grant, an analyst at Verdict Research in London. “The openings taking place are a small pocket of people. The designer stores opening represent less than 1 percent of the UK market. We’re predicting that same-store women’s wear sales in the UK will rise by only about 1 percent over the next five years.”
The weak market hasn’t stopped designers from flocking to London. Keen to attract international visitors, such designers as Prada, Dolce & Gabbana, Gianfranco FerrA, Christian Lacroix, Gianni Versace’s Istante and Giorgio Armani all opened boutiques in London last year, with Armani opening a 12,000-square-foot store on Sloane Street that is one of three such flagship stores worldwide. The others will be in Tokyo and New York.
“But even the designer end of the market isn’t growing,” said Peder Bertelsen, a partner in the company that owns the Dolce & Gabbana and Valentino stores. “Our sales are about the same level as last year. We’re getting a lot of Russians but not much local business. I think it’s really a case of one group of designers taking business away from another. We and Prada are taking sales from other designer stores in Sloane Street.”
Sloane Street remains London’s premier location for designer stores, although Bond Street and even Covent Garden are becoming important areas for those companies looking for a different clientele. Bond Street is a center for tourists from the Far East, while Covent Garden is a younger tourist and local customer area. Aquascutum, for example, recently opened a store in Knightsbridge near Sloane Street to attract a female tourist who wouldn’t normally visit its flagship location in Regent Street. In Bond Street, Mulberry opened a flagship store late last year and Jigsaw soon will do the same. Thierry Mugler also is opening a store in Bond Street early this year.
Across town, French Connection opened a 6,400-square-foot store in Covent Garden, and its sister company Nicole Farhi opened its first freestanding men’s wear store across the street. Replay opened a unit in Covent Garden last year and Rifle expects to open one in 1996. Meanwhile, the 18-store Karen Millen chain opened a 2,000-square-foot flagship store in Kings Road. Millen has seen its sales climb 50 percent this year to 13.5 million pounds.
“We simply have the right products at the right price at the right time,” Millen said. “We’re a vertical company and stay as close to the customer as we can so we can react quickly. We can get restocks into stores in two or three weeks. Our prices are about half those of the main designer collections yet we use a lot of the same fabrics. We have our niche and we stick to it.”
The London opening boom is being mirrored in Paris, especially at the designer end. Thierry Mugler plans to open a store in the rue du Bac early this year; Prada will open one in the avenue Montaigne this fall, and Paris retailer Alain Adjadj recently bought the Bank of New York’s retail space on avenue Montaigne and is wooing Donna Karan and Calvin Klein as clients. In the current game of Right Bank retailer flipping to the Left Bank, Louis Vuitton opened a new concept store at Place St. Germain des Pres late last year and Christian Dior and Emporio Armani will open stores nearby in 1996.
“French and foreign companies continue to think of Paris as a vast and open market,” said Betrice Terray, vice president of Kaufman & Broad France, which specializes in leasing fashion and accessory retail space. “There is a concentration here of people with strong buying power.”
But Terray believes the stores that are performing best are in the middle to mass market. Kaufman & Broad developed the Passy Plaza shopping center in the 16th arrondissement with such tenants as The Gap, Zara, Mango and The Body Shop. Sales there were up 6 percent in October over the previous year. “What makes Passy work is the selection of young, inexpensive fashion,” she said.
Overall, though, the French market remains tough and many retailers are rethinking their strategies. The seven-store Victoire multibrand chain, for example, plans to grow its private-label program into a complete collection and lessen its dependence on designers and brands offered after a tough season selling such expensive collections as Donna Karan. Meanwhile, the 160-store Naf Naf junior fashions chain is slowing its store opening program because of the poor retail climate.
“Consumption of apparel products is down for the fourth year in a row,” said Dominique Georgeon, president of the French Federation of Department and Variety Stores. “We are now facing a situation where the number of clothing stores is too big compared to the demand.”
The situation in Italy is similar, but designers there are continuing to open boutiques and to target export markets worldwide. Many observers believe flagship designer stores are more for publicity than for the money, but the Italian designers dispute the theory.
“Shops are business first, second they are image,” said Santo Versace, chief executive of the Versace house, which is opening mainline stores as well as shops for its Istante, Versus and Versace Jeans lines. “We keep opening stores because the market requires so and we serve the market.”
Versace opened a two-store flagship boutique in Milan’s Via Monte Napoleone last year that carries the full line of his products as well as his Home Signature Collection. He also opened a store in Rome and plans stores in Venice and Porto Cervo as well as a flagship store in New York’s Fifth Avenue next year and a string of smaller boutiques in the U.S. and Far East.
FerrA has a two-pronged strategy of opening wholly owned stores in Italy and the U.S., although the designer stresses he isn’t a retailer. Armani continues to expand globally with plans this year to open stores in the U.S., Europe and the Far East. Laura Biagiotti believes her own stores are vital to her long-term strategy.
“My feeling is that it’s important to divert part of our royalties to open new stores,” she said. “It means we may have less profits in our pockets but it’s part of our strategy.”
Devising and sticking to a strategy is tough to do in the current retail environment but key to a company’s success, industry executives said. No one believes the current wave of shop openings indicates a retail boom is around the corner. The women’s wear market is barely growing throughout Europe, and in most cases the new stores are simply filling in geographical gaps or are aimed more at the tourist than the local resident. The stores are simply redistributing the business pie to a company that’s hot from one that isn’t. But retailers insist the only way to get hot is to focus on what one does best.
“Business is undoubtedly going to remain hard,” said Vivian Gray, chief executive of the 83-store Oasis chain. “You have to concentrate on what you’re good at and not be distracted. The key is to fine tune what you’re doing and constantly develop it. If you don’t keep it bright and exciting, the customer won’t think it is either.”