Christmas at Westfield London

We visited Westfield London at the end of last week to gauge trading and the body language of leading stores. With slightly less than two weeks of shopping time the overall impression is rather subdued. Firstly, footfall was relatively sparse – I would say typical of a regular midweek day rather than in the thick of Christmas trade. Secondly, the vibe was quite relaxed, with little of the usual Christmas mixed undercurrent of excitement/urgency/shopping on a mission.

Since the end of October we have been measuring the promotional stance of the High Street, adding detail to what was clear anecdotally. We already know from our regular analysis of ONS data that this is by far the most promotional market of modern times. But understanding just how promotional the market is and who is doing what, when and by how much, has been a revelation. And this is the overwhelming backdrop to trading right now. The industry at large is progressively devaluing its offering and the results can be seen in lack-lustre retail sales numbers each month. However, this is far from being democratic – some retailers are standing aside from all this, refusing to engage in lemming-like promotional events and maintaining their price and brand integrity. This may cost them some sales on the edges but I have no doubt their stance will ultimately pay off. Discounting on this scale is a zero sum game.

In my view Black Friday and Cyber Monday will prove to have been less than exciting. There may well have been a modest sales increase on last year but the cost of this will be aloss of price integrity, a loss of trust and a squeezed margin.

Back in Westfield, the stronger players are generally those not cutting prices. Their offers look cleaner, less cluttered, and trading can follow the plan, as opposed to the kind of hand-to-mouth knee jerk trading that has become the order of the day.

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H&M is very different, and has embraced sales and discounts full on. To a degree, it probably has had little choice in that too many competitors are simply too close in both price and style. A fundamental result of this price promotional market is that the architecture across the entire market has become much compressed. This means that everyone is now much closer together. The challenge for a retailer like H&M is that Zara and Top Shop for example, are now often much closer (and therefore more affordable more often) than before. This applies right across the market to virtually every player.

Next is by far the largest rejectionist of price cutting in the clothing market. The business continues to outperform its competitor set season in, season out. And this is certainly the case right now. However, might there be some major challenges on the horizon? While the company has proved amazingly durable and consistent, might this solidity become inflexibility and resistance to change if the market demands more dynamism. I believe that the market is going in this direction, and Next will need to embrace more change, be more innovative, and fine tune its model. How it adapts to this new reality remains to be seen.

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DP (Dorothy Perkins) was once the country’s largest specialist clothing brand. That was many years ago and it now faces huge competition from both below (value players with sharper prices) and above (brands that are more stylish and more fashionable). The general market price compression I talked of before is a key factor here and competitive pressure can only intensify. Over the years the business has been resiting stand-alone stores and opening within BHS units, alongside sister Arcadia brands. This is one of DP’s better stores and it does not look out of place alongside the competition. Nevertheless, this highly promotional market can only make its life tougher.

These days M&S is a very mixed bag. This store has all the physical assets needed to get it right in terms of footfall, footprint, size and space configuration. But the overwhelming issue is still womenswear and the mismatch between Marks’ core customer and the range it puts in front of her. M&S womenswear tends to be aimed at the daughters of its core customers and women will very rarely want to shop where their mothers do. Mens continues to look better although I think the formal/casual balance too skewed to the former. Home is OK but M&S lacks the authority and weight of offer to ever really make this work. And food remains the star, with unrivalled innovation and quality driving the business. The irony is that M&S is very much a fashion food retailer but has failed to translate this to clothing.

This is New Look‘s flagship store of the future. I have written in detail about it before, and it still looks streets ahead of most of its others. The business has been having an excellent run and continues to reap benefits from a re-engineered model ie edited ranges, increased product quality and a reconfigured price architecture. However, there are some big challenges ahead. How will performance look against much more demanding comps? How will its very ambitious move into menswear fare? What is it going to do about the massive number of stores it has?

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Monsoon looks increasingly tired and passe. Its offer and handwriting are very stylised and the brand is synonymous with a particular look. The product quality is generally good but it would be impossible to change the handwriting fundamentally – what was once a tremendous strength has become a limiting factor. Last Christmas was very tough and Monsoon went into the New Year with far too much stock. I suspect we will see the same this time around. I see the business leaning increasingly on Accessorize which in marked contrast, continues to be a very solid performer.
Top Shop remains the jewel in the Arcadia crown, and would be the jewel in anyone’s. While the rest of the Arcadia brands are very much in long term decline, Top Shop manages to maintain its edge and relevance in a market which is increasingly overcrowded. This is a great store and has the hallmark Top Shop buzz. While the very promotional market hits everyone, Top Shop’s fundamental brand strength allows it to cope better than most.

My sense is that Reiss has changed tacked subtly. Until very recently its stores were a bit like a club, with very load, rhythmic music and staff looking and dressing to match. The result in my view was both out of kilter with the offer and extremely exclusive, in the sense of excluding many customers. Having said that, results have been strong. Both have now been toned down and replaced buy a much more inviting ambience which allows the product to shine through. And the product is very good. Prices are pushing the boundaries but tailoring in particular is outstanding. Looking very strong.

jigsaw

Jigsaw has just opened a newly resited store at Westfield, featuring a funnel-like design of wooden slats to draw customers in and through the space. The business is being transformed and turned around by Peter Ruis, the ex M&S exec who put John Lewis on the map as a serious retailer of fashion. Jigsaw had become over time a tired, rather passe brand with little point of view. The speed with which he has brought it back to real relevance says much about his vision, leadership and determination. His approach to promotions in general and Black Friday in partIcular has been clear and consistent. Jigsaw’s price manifesto made a virtue of opting out of Black Friday, underlining that its values were, and would remain, totally unchanged.

The White Company is one of the retailers most hit by today’s highly promotional market. It was sucked onto the price promotional treadmill many years ago – original prices always too high >>> customers react and wait for sales >>> company has to run more sales to drive cash flows etc etc. Now that the majority of retail is doing this, The White Company’s promotions have to run so much faster to stand still. Fashion is now a much higher part of the mix in an attempt to strengthen gross margins and ATVs. Product still looks very good but the pressures of a protracted price-driven market ensure the company is under relentless pressure and its room to mitigate is extremely limited.
Debenhams faces a very challenging future. Of all the businesses I am discussing here, no one is hit harder by the constant diet of price promotions. The company has been one of the major employers of the price promotion for many years. It is ironic that at the very time when its management decided it needed to edit frequency down, the rest of the market did the opposite. With UK sales per foot of little more than £200, Debenhams is competitively very vulnerable. Further dropping its sale days exposes its prices against rivals that are on sale, and doing so risks further margin erosion. Next year will challenge the company’s model much further still. Meanwhile, CEO Michael Sharp is stepping down and his successor has a very unenviable task turning back what looks like an unstoppable tide.

camper

Camper is a Spanish footwear business which both manufactures and retails. The business trades internationally, across Europe, in the USA and Far East. It has over 300 branches in all and 12 stores in the UK. It is a young fashion footwear brand, spanning formal and casual styles. Right now, the really outstanding thing about Camper’s stores is that not only is it not running a price promotion but it is not running any kind of Christmas promotion whatsoever. There is however a sale on it website.

French Connection has always been a roller coaster retailer, even more than might be expected from the topsy turvey fashion market. Apart from Black Friday, French Connection managed to confine sale merchandise to a low key offer on its website. Trading at full price suggested FC was bucking the trend. However, it has just launched an “up to 50% off” sale of current season’s merchandise. Given the timing, this looks unplanned and does not suggest robust trading.

Phase Eight seems to have been on sale more or less since it was sold to Forschini of South Africa at the beginning of the year. Given the stance of the UK clothing market it is far from being alone. Nevertheless, promotional stance is now a key indicator of sector health and on this basis, Phase Eight is not in the best shape of its life.
Lululemon opened this flagship store just a few weeks ago and it sits on a prominent corner with very high visibility to passing footfall. It should do really well here given the lack of genuine competition at Westfield. The fashion fitness market has seen lots of activity of late with retailers like H&M and New Look launching ranges, Nike launching a womenswear stand alone, and the Canadian Kit and Ace (the new venture of former Lululemon founder Chip Wilson) opening three units in London.

tesla

Tesla is the Californian luxury electric car brand. As well as breaking the mould in terms of fuel, it does the same in selling. Tesla has no dealerships in the traditional sense and has for some years taken units in shopping malls. Relatively recently it has launched stores in the UK at Brent Cross and here at Westfield London since October 2013. It is a great addition to the shopping experience and really does not look out of place at all.
As might be expected, the Westfield London Zara is a highly visible flagship store in a prime location. The site was refurbished and enlarged in October this year. The company’s vertical integration and resulting built-in flexibility enhances its trading advantages in this promotional market. Apart from a relatively modest Black Friday with 20% off knitwear and outerwear, Zara has traded at full price throughout and this underlines its tremendous brand strength and tight management.

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Zara’s lower key, more grown up sister brand is Massimo Dutti. Massimo is a menswear brand that has added womenswear and is stylish, sophisticated and understated. It looks far more expensive than it is and delivers excellent quality at very reasonable prices. It does rather less well in the UK than it should, maybe because it has never really effectively communicated its tremendous brand values. There may be a degree of reluctance from Inditex, nervous about cannibalising Zara’s business. Like Zara, Massimo has remained at full price throughout. Black Friday launched on the day at 20% off, and quickly reverted to full price again.