THE STORE SOLUTION: TIME, SPACE, QUALITY
DEPARTMENT STORES AROUND THE WORLD FACE UNPRECEDENTED COMPETITION, FROM DISCOUNTERS IN THEIR OWN BACKYARDS TO TRADITIONAL STORES AND E-TAILERS ALL OVER THE PLANET VIA THE INTERNET. AND WHILE SOME DOOMSAYERS HAVE BEEN HERALDING THE EXTINCTION OF WHAT ARE OFTEN TERMED RETAIL DINOSAURS, DEPARTMENT STORES AREN’T GOING DOWN WITHOUT A BATTLE. HERE’S WHAT SOME STORES IN EUROPE ARE DOING TO FIGHT BACK.
Byline: James Fallon
LONDON — Selfridges PLC is all about space — and it’s paying off.
The British department store retailer has revitalized its business after a seven-year, $139.5 million program of remodeling its flagship Oxford Street site from top to bottom and expanding the space it devoted to women’s and men’s wear by up to 25 percent. It has also shifted away from private label merchandise to focus on major brands.
“Our experience is in creating a space, not product,” Vittorio Radice, who became the retailer’s chief executive in 1996, said in an interview. “I don’t want anyone in the store to be wasting time creating product. Other companies are better at that.
“We are now a house of brands,” he added. “You get higher margins with private label, but lower sales. Designer brands advertise month after month after month, and their cachet is higher. As a result, you receive a cash margin that is higher, because in the end you sell more of it.”
Analysts and industry observers now consider Selfridges one of the U.K.’s best department stores — if not the best — in a sector that is struggling with slower growth. The retailer, which previously was the third and last choice of most designer labels, now carries almost all of them and remains the choice of many beauty companies for their U.K. launches, including Calvin Klein Color and Helmut Lang’s first fragrance this fall.
In addition, it is expanding beyond London, as its competitor Harvey Nichols PLC has. Radice has overseen the opening of a second Selfridges, a 150,000-square-foot unit in Manchester, and has announced plans to open a third, in Birmingham, in fall 2003. Up to seven more stores will follow in the U.K. over the next decade.
Radice’s emphasis at all the stores is on whatever product category is hot. He initially created disgruntlement among some longtime Selfridges customers by pulling it out of such categories as white goods in order to expand its fashion offerings. But the moves have paid off. Selfridges reported a 71.1 percent increase in after-tax profits to $36.4 million on a 17.1 percent rise in sales to $540 million for the year ended Jan. 29. This compares with after-tax profits of $21.3 million on sales of $461.1 million in the previous year. (Dollars are converted from pounds at current exchange rates.)
While the results were boosted slightly by the first-time inclusion of the Manchester store, the growth came mainly at its 540,000-square-foot Oxford Street flagship, the U.K.’s largest department store after Harrods. The results compare with substantially lower growth at such department store retailers as House of Fraser PLC, Harvey Nichols, Marks & Spencer PLC, BHS PLC and Debenhams plc, which have been hit by increasing competition from specialty chains like Zara, Hennes & Mauritz, Mango, The Gap and Next PLC.
Radice admitted the Manchester store has had its teething problems, but said it’s now on track to achieve its sales target of $450 a square foot within three years of opening. It had sales per square foot of $355.50 last year. Selfridges recognizes one weakness with the Manchester unit — it’s too small at 150,000 square feet. The Birmingham store will have 200,000 square feet of selling space, which Radice said is now recognized as the minimum required for its out-of-town stores to adequately display the full Selfridges assortment.
“What I think is proving successful for us is our ability to decide to go out of one business and into a new one freely without being too constrained by history or mechanics,” Radice said, explaining that his vision of Selfridges has been most influenced by Takashimaya in Japan. “Are people today more in the mood to buy Oriental rugs or mobile phones? That’s why we’ve just devoted 3,000 square feet to mobile phones, even though the margins are less than on rugs. But we sell more of them.
“We measure everything now by brand and not by department. We play with our space and make a soup out of the different products we sell. We aim for a good flavor, good ingredients — and hopefully everyone likes the dish and will come back.”
Radice, who joined Selfridges from the home-furnishings retailer Habitat, is eager to create excitement in every area of the store. All its buyers now work with a store plan when they buy to make sure the collections will work within the overall environment.
“We’ve broken the store down into 2,000 smaller stores, each with its own cafe, music, decoration and, perhaps at some point, even its own shopping bag,” Radice said. “Retailers think they’re in one business — selling products — but we’ve realized that we’re not selling anything but experiences. Nobody needs more product; we all have too much already. But everybody needs new experiences. An experience can be a perfect banana that you eat here or take away, the latest mobile telephone or the latest designer outfit.”
An advantage in operating the store as one massive space open to anything is that it helps to separate Selfridges from the growing competition.
“If you look at it just as space, you don’t have to think of being only a department store selling only fashion,” Radice said. “The space selling a designer brand today could tomorrow be a gym, a spa, a restaurant or a pharmacy.
“When you go into other stores, they’re all fighting on fashion and all developing private label — which they don’t advertise, yet expect customers to discover and buy. If you are about space management, you focus on the product story and make sure each one makes money. That’s what we do all day.”
For example, Selfridges has three different strategies for designer shops. Some are operated as leased departments, with the brand providing the staff and the fixtures; some are Selfridges’ own buy, with the brand providing the fixtures, and some are operated on a consignment basis, with Selfridges paying the vendor only on what is sold.
“Each one has different risks and different conditions, but it depends on the brand,” Radice said. “The ultimate aim is to make as much money as possible. We’re not going to say a brand can only do it one way or not at all.”
Selfridges also is examining how to restructure its junior and children’s wear areas to boost sales. In Radice’s view, the children’s wear industry’s segmentation of its customers is outdated. “They’re still focused on age 0 to 8 and then age 8 to 16. But kids don’t behave like their ages any longer. At age 10, girls want to shop for designer brands while boys want the latest electronic games. The stores should reflect that.”
Radice is cautious about criticizing other department stores but believes there’s one reason why many are struggling — they’re focused too much on just selling stuff. In his view, these stores are not competition for Selfridges; he’s more worried about restaurants, movie theaters, vacations and other activities that take money out of consumers’ pockets.
“I don’t want to sound arrogant, but I see many other department stores in other countries — especially the nationwide chains — selling only product. That means there’s then only one tool left to differentiate themselves, and that’s price. Retailers are always fighting with their suppliers for better prices. Shouldn’t they be fighting for better design, better quality, better service?”
Robert Blyth, strategy director at consultants Kurt Salmon Associates, agreed that Selfridges is outperforming the department store sector but said it’s simply a reflection of its superior attention to detail.
“It’s not that Selfridges has a secret no one else can replicate,” he said. “They’re just one step ahead in their attention to detail and their follow-through.”
That results from Radice, who has put a significant effort into the choice of brands the store carries and how they are positioned in relation to each other, Blyth said. Radice also has begun to form closer links with Selfridges’ key suppliers, even launching a pilot business-to-business Internet service to improve supply and logistics.
“Selfridges is simply more focused than a lot of other stores,” Blyth said. “It’s not that the others are doing things badly, it’s just that Selfridges is doing them very well.”
For now, Selfridges’ focus is on the U.K. Now that the remodeling of the Oxford Street store is complete, the Manchester store is up and running and the site for the $60 million Birmingham store has been chosen, Radice is ready for his next project — a further expansion of the Oxford Street site. It has applied for planning permission to redevelop the site behind Selfridges, which would enable it to add 100,000 square feet of selling space. There also would be leisure, retail, residential, hotel and office space on the site.
Radice quickly runs through what he’d do with the extra space: “We’d add experiences. We need to expand sports in a major way, and also technology. Our food offering is weak in spots and could be improved.”
There are no plans to open Selfridges overseas — unlike Harvey Nichols, which is rolling out franchised stores in the Middle East. But Radice said the retailer could acquire local chains in certain countries and apply Selfridges’ expertise to help them grow.
“To do the same exercise, you need an existing place,” he said. “We can apply what we’ve learned in 90 years in terms of systems, logistics, brands and policies. We’ve proven our ability to run large spaces with diverse uses.”