Retail is risky for a product business, but the prize is big

Risk and reward
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Christian Annesley
Staff writer
BusinessZone
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In retail, some businesses exist to sell on the high street – think Tesco, think Boots and, until recently, a business like BHS. But alongside these multi-brand retailers are the single brand businesses that use retail outlets to reach customers, drive new business and to build the profile of their products and offer.

For these brands, the price that’s attached to being on the high street can be a stretch, but it’s also a natural step for many when the time is right. When is the right time for a product brand that’s growing to consider selling directly to its customers as a high-street retailer?

Matt Tipping runs Double Retail, a business that specialises in the fashion, footwear and sportswear sectors, focusing on retail design and consultancy. Tipping says the arc of growth for a products business will often include a retail move, but there is plenty to work through along the way.

Big call

“It’s an important call to step into retail, but it is often the right one,” he says.

“Remember, brands start as product focused business. They bring products to market – footwear, fashion, cosmetics, etc. – and will naturally start off by using distributors and other routes to market. The mindset they bring is a brand mindset, rather than retailer’s, but that brand mindset needs to keep evolving and growing so it includes the retail piece.”

What’s changed over the years, for brand businesses that are growing well, is that most want to launch a retail offer early in their lifecycle.

“Many these days want to make that splash,” says Tipping. “They see it is a part their marketing and development journey. By dropping into the right place – London, Paris, Tokyo, New York, whatever – the thinking is that it will drive the next phase of growth and boost profile and engagement.”

Many start with two or three to get underway, and all but a few top out at below 50 stores globally, because the logistics and balance of the business would skew with more than that.

What are the issues to consider in making this move?

“Well, starting a brand at retail is very costly. It’s a big capital outlay because it is expensive to rent good retail space and there are lots of other overheads, including specialist senior people to oversee the retail side. So, of course, you need to make a lot of extra sales to cover those costs. Plus running retail is hard operationally: it is seven days a week and extended hours and it comes with all the challenges of employing an often transient workforce.”

But the upsides are there too, adds Tipping.

“So why open in retail? It’s more profitable per unit because you are selling at retail rather than wholesale prices and running the whole supply chain. You just need the volume to be there for the numbers to stack up.”

What’s the blueprint?

It makes sense to ask if there’s a blueprint to follow for the next wave of brands that want to take the plunge.

“There’s no single blueprint because there are so many variables, but I have to say it needs commitment and a vision. If you don’t plan this properly and take it seriously it won’t come together.

“You also need a certain product range to make it pay, though a business like Apple undermines that certainty that with its tiny product range and very successful stores.  

“In fact, many brands will have too broad a product range online for it to all fit in the store, and have to be selective about what goes into a retail unit and represents the business.”

What about the financial heft and size of a business? How big should a business be to look at retail?

“The size varies, though many brands with a few million of turnover a few years of trading will feel ready to take the plunge,” says Tipping. “Ultimately a business will need enough capital to hand to put in the up-front investment – and product businesses struggle with cash flow at the best of times, so the financial commitment is not something to be taken lightly.”

How Havaianas moved through the retail gears

The step into retail can also be accomplished in a few smaller steps rather than a single big-bang leap. There are options for concessions and shop-in-shops and franchise partnerships, plus other possibilities to step into retail environments without just taking a big-ticket lease in a trophy location.

Brands can even just take seasonal branded displays, and that’s one route that worked for a brand that has managed the transition into retail in a considered, and risk-limited way – the Brazilian flip-flop business Havaianas.

“Rubber flip-flops, which is what Havaianas is best-known for, are summer footwear in northern Europe, of course,” says Tipping. “So it made sense for Havaianas to start with seasonal displays in many locations and go from there.

“Further down the line it moved into own-brand stores, but just a handful of them. It also invested early in getting in the retail expertise at board level to ensure retail got the attention it needed.

“It has also always kept costs tight because displaying flip-flops is something you can keep simple, and that’s consistently been the company’s approach.”

The controlled approach of Havaianas to retail has paid off handsomely. Today the business has hundreds of stores around the world and makes 150 million-plus footwear sales a year. But the point is it got there on its own terms and at the right pace.

“Today’s rising-star brands could do worse than look to Havaianas and learn. The scale it has achieved today shows how it got a lot right, even if a 50-year-old flip-flop business isn’t the only brand journey worth getting a grip on.”

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