DRY FUSION

Superdry is a UK men’s and ladies fashion retailer. It opened its first outlet in London, under the Superdry label in 2004. Since then it has grown rapidly and continues to deliver growth and profits through its multi-channel strategy globally. More on this later.

Founded by Ian Hibbs and Julian Dunkerton in their home town Cheltenham, Superdry has proven to be the ultimate chameleon when it comes to defining its core characteristics and brand values.

It has identified three dimensions to its overall brand strategy.

  • To build a global lifestyle brand.
  • To derive awareness of the breadth of the Superdry product range.
  • To build a cross-channel relationship with its customers.

It markets over 2,000 items in its product range but is best known for three key product lines.

  • The windcheater
  • The hoodie
  • The T-shirt.

It has avoided all forms of traditional advertising and promotion, instead relying on social media in the main to build up its brand identity and values. It has focused on creating events and experiences and has invested in content marketing to build up a consistent and creative narrative using Facebook and more recently Instagram as key elements in this approach.

It has made use of a number of celebrities to endorse the brand. These include David Beckham, Idris Elba, Zac Efram, Helene Christensen and Justin Bieber.

It has been described by its owners as a “fashion chain for men and women blending vintage Americana with Japanese and British inspiration”. It must be said the Japanese influence would appear to be based on the use of Japanese characters on the various items. This has created the visual effect of being an international brand and the Japanese words have conveyed the impression of an Asian, international design in the minds of its core market.

Superdry positions its brand as being distinctly upmarket but not in the “super-premium category. This is reflected in its price points. For instance in 2016, in the UK market, its male leather jacket were priced at £450 and its range of embroidered T-shirts sold for £16.99p. The price points are slightly lower for the female range. Its leather biker jacket was priced at £224.99 and its slouch T-shirts came in at £14.99.

Since its launch in 2004 it has grown to over 860 stores, including franchises, owned-stores and concessions in sixty-two countries. It operates over twenty-seven international websites, selling in twelve different languages in eighteen countries and also has extensive wholesale operations. This strategy focuses on entering into collaborative arrangements with a range of local partners across the different geographic regions.

In the UK market it also sells its range of products in well-known retailers such as Next, House of Fraser, Zalano and Shop Direct.

It also generates around fifteen per cent of its online sales from using third-party websites such as Zalando, Le Redoute and The Iconic.

In-house research indicates that its customers make extensive use of mobile devices when visiting the twenty-seven websites. Interestingly the research also pointed to the fact that multi-channel shoppers tend to spend more often and display stronger brand loyalty than shoppers who rely on a single channel for doing business.

Its international business generates over fifty-five per cent of sales (2016), with Germany proving to be its biggest market. It recently opened a major flagship store in the Kranzler Eck Shopping Centre in West Berlin as an indication of its commitment to this important market.

In order to service the channels in the diverse markets Superdry has established three main distribution centres in the UK, Europe and the USA.

It follows a blueprinting process to facilitate its strategy which it call “design to customer”. This maps out everything from the creative idea right through to the customer purchase and its sourcing strategy. To this end it has established offices in areas such as Turkey and China. Senior management argues that this allows for closer and more collaborative arrangements with its range of suppliers.

In the case of the latter it has reduced its dependence on agents and has begun to source directly with suppliers.

The word “fusion” comes to my mind as I undertook an assessment of the Superdry strategy. From its eclectic fusion of Japanese impressions with Americana design to its bewildering array of multi-channel arrangements globally, Superdry has managed to carve out a distinctive form of brand identification.

Its online business continues to grow, at the end of 2017, twenty-five per cent of its retail business came from these channels.

It has also succeeded in remaining relevant to its target market by connecting with celebrities that resonate with them.

Its overall brand strategy appears to be focused on creating new designs with a distinct emphasis on quality and design. It “touches its hat” to the notion of affordability. As mentioned earlier it does not explicitly offer lower prices; instead focusing on carving out an image (supported by its price points) that is midway between “slightly upmarket” and “super-premium”.

There is no explicit evidence from the published material about Super Dry to suggest that it is practicing an omni-channel strategy. It operates around seven to eight different channels to connect with its target market. It focus on providing large Distribution Centres and its adoption of technology would suggest that it is moving in the direction of full-blown omni-channels. However it is probably accurate to note that it has not arrived at this stage yet.

The typical Superdry shopper can best be described as someone who likes buying clothes but is not heavily into the fashion element. This individual is also not heavily into outlandish designs, preferring items that reflect a “cool” image, have plenty of product features (in the form of zips, pockets and buttons) and offer a competitively priced selection of items.

What are the longer-term prospects for the Superdry brand?

It is a diverse range of items and markets. This insulates it somewhat from potentially negative economic developments such as Brexit: it is not dependent on the UK market and has already made some significant footprints in large markets such as the USA and China.

Although it uses a wide range of channels to connect with its customer base, this can also work in its favour. It is not a “pure-play” Etailer. Nor is it dependent on its physical stores and outlets portfolio. This potentially makes it easier to adjust if one or either of these channels shows evidence of decline.

The challenge in my view revolved around remaining relevant to its target market. The fashion retail market is notoriously fickle and volatile; with shoppers moving to the latest “craze” without too much evidence of strong brand loyalty. Can the fusion of Americana and the use of Japanese script on the product items sustain the brand into the future?

The brand has shown dexterity and imagination with respect to its adept use of social media on general and content marketing in particular to address the challenge of remaining relevant. This should stand it in good stead going forward.

I particularly like management’s attitude to pursuing growth. They do so by not actively seeking major transformation and change. Instead they focus on small incremental improvements as they assess and map out their response to the customer journey through the buying process. It appears to follow the principle of “steady as she goes”.

What do you think?

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COPY CAT

The mundane world of food retailing in the UK market was rocked by a recent rumour about the future strategy of Tesco earlier this week (early February 2018).

This came about in the business press when they informed their readers that Tesco was about to launch a new range of discount stores to directly challenge the ever-growing threat of the two major food discounters in the UK market: Aldi and Lidl.

The backdrop to this development in interesting. The Kantor World Panel survey of market shares and sales figures for the quarter ending January 2018 showed that Tesco improved slightly to achieve a market share of 28 per cent. Aldi and Lidl respectively returned market shares of 6.9 per cent and 5 per cent. The sales of the latter retailers rose by 16.2 per cent and 16.3 per cent respectively.

When the figures of Aldi and Lidl are combined it is clear that they have overtaken Morrison’s (one of the “Big Four” retailers) and edged it into fifth place. Aldi on its own overtook the Coop in 2017 in terms of market share.

The impact of the deep and long-lasting recession has led to the inexorable rise of the discounters. Shoppers, faced with a never-ending decline in real incomes initially tried out the value propositions of the discounters. Many were surprised by what they saw and experienced and continued to direct some of their shopping in these stores.

The other major trend is that the concept of the “big weekly shop” has declined. Instead people are shopping more frequently during the week, using two or three different food retailers and shopping more locally.

In the context of this background perhaps it is not surprising that Tesco may react by establishing a separate discount brand format to address the threat of Aldi and Lidl.

At present £1 out of every £8 spent by shoppers on food retailing goes to Aldi and Lidl. Estimates suggests that the discount sector is likely to grow by 49 per cent between 2018 and 2022 and that £1 out of every £7 will go that that area.

In another connected event Tesco got approval from the competition authorities to merge with Booker – a major distributor, wholesaler and retail operation towards the back-end of 2017.

What are we to make of this move – if it eventually happens? It appears that something is afoot as some of Tesco’s own brand suppliers have been asked to sign a noon-disclosure contract before they can contribute to the new venture.

Firstly this concept has been tried before. Sainsbury’s entered into a venture with the Danish discounter Netto, a few years ago to launch a discount format in some of its existing stores. Ultimately it failed. Sainsbury’s divested out of it because it under-estimated the level of investment required and the inability to gain a quick critical mass of such stores.

Tesco arguably are in a stronger position. They have over 6,000 stores across all of its formats including “One Stop” and “Express” outlets. If the Booker merger goes ahead it will also have access to a range of other stores and outlets. Some of the latter could be re-badged under a new discount fascia.

This rumoured move has implications in a number of different areas.

For instance does the food grocery market in the UK need a Tesco Light version to compete with already well entrenched discounters such as Aldi and Lidl? The trends as noted earlier, suggest that the demand for discount retailers in this field is growing. Arguably this is a strong indicator that opportunities exist for another entrant.

Will Tesco not damage its current brand image and equity? While it is certainly not regarded as a discount retailer, competing instead on issues such as reasonable prices at good quality levels. It has invested heavily in its own brand part of the business. This is most notable in the case of its Farm Labels. Moves in this area included the design of packaging which appeared to suggest that these were premium food products from genuine farms with appropriate “folksy” names, redolent of the pleasant English countryside. This was not the case in reality. Tesco was accused of creating the names of the farms and also in the case of its Willow Chicken range using repackaged meat that was already being supplied to Lidl.

If it were to come out with another fascia, using a different brand name would it not be in danger of confusing its shoppers and sending “mixed signals”.

Some commentators have highlighted the danger of cannibalisation. In other words it simply divert people from its One Stop and Express formats to the new stores. The net effect would be felt in little or no increase in overall sales coupled with a significant degree if investment that would be needed to provide it with a footprint in the market.

Other observers have noted that a new corporate philosophy and culture would be needed in order to succeed in the discount space. They point to the experience of the big airlines who attempted to take on the likes of low-cost operators such as Ryanair and EasyJet. BA struggled because it did not understand the economics and culture of working in the low-cost, low-price segments.

From what information that I can gather on the topic it would appear as though Tesco would be engaging in a “copycat” strategy. It proposes to stock these new outlets with around 3,000 items (similar to a typical Aldi or Lidl store). This contrasts with around 30,000 to 40,000 items in a typical Tesco supermarket format.

You might seriously question what this new proposed value proposition would offer shoppers that is not currently provided by the likes of Aldi or Lidl? It would stock brands that are not well known – again similar to the core strategy of Aldi and Lidl.

In the case of the two discounters, they would appear to be going away from the hard discount model, where they only stock cheap and relatively unknown items to a softer version of discounting. This is evidenced in items such as whiskeys, chocolates and even Champagne.

There is no doubt that it has the financial resources and available retail space in the form of outlets to attempt such an ambitious project. This is critical to success, if the experience of Sainsbury’s and its ill-fated venture into the discount space is to be believed.

In my view Tesco would have to identify some point of differentiation from Aldi and Lidl in order to make any sort of viable impact. It is difficult to see where this might be likely to occur.

It is possible that it could attempt to provide a limited range of product categories that would be priced even lower than Aldi and Lidl.

However it would appear to me that Tesco does not have the existing capabilities to do this from the point of view of corporate culture and the cost disciplines that would be necessary to effect such a strategy.

What do you think?

CLICKETY-CLICK

On the face of it the subject for this blog sounds somewhat mundane: a look at the issue of “click and collect” in the context of retailing. However I was encouraged to consider it as a result of hearing about Zara and its recent opening of a dedicated “click and collect” store directly opposite one of its outlets at the Westfield Shopping Centre in the UK.

The background to this topic revolves around the challenge of delivering on the so-called “last mile” of the purchasing process. In essence this refers to the time when the shopper takes physical possession of the purchased item.

Traditionally this occurred in the physical outlet. We went to a physical store to consider the purchase of an item. Once satisfied that it met our needs we would complete that purchase and either take the item home or have it delivered.

Over the past ten years or so retailers have had to grapple with the substantive challenge of meeting the shopper’s needs and expectations with regard to that “last mile”. This has been further driven by shoppers making use of a number of different channels to engage with a retailer as they go through the buying process.

The omni -channels concept has led to the philosophy of retailers providing a seamless experience for shoppers across the different touchpoints.

This takes us to the process of collection and delivery.

Zara, with their approach are pursuing a strategy that is different to what the majority of retailers are doing in the “click and collect” area.

Most retailers have a section within some of their physical outlets where shoppers can call in and pick up their items.

However such as an apparently simple task is not quite as easy as it seems.

The main motivator for shoppers to collect their items is driven by some key influences. These include speed and convenience and cost. Some shoppers want to be in control of the delivery of items. Waiting for companies such as Royal Mail and DHL injects some uncertainty for shoppers – particularly if they have experienced some inconsistencies such as deliveries not arriving during the promised window.

A study by Bell and Howell (2017) also indicated that 78 per cent of respondents indicated that they preferred to pick up items in order to save on potentially larges shipping costs.

Therefore retailers have to ensure that they operate a click and collect system that meets the expectations of shoppers.

Zara’s introduction of a 2,000 square foot “pop-up” store is a departure from conventional models. Orders placed with Zara before 2pm will be available for collection each day.

This approach is based on the rationale that shoppers can benefit from a dedicated space for picking up items. Contrast this with many retailers who in fact create an environment where customers calling to collect have to mingle with regular shoppers, deal with queues at check-outs and may indeed have to queue at dedicated collection points at peak times during day or periods during the week.

This in many ways challenges the ability of retailers to meet expectations with respect to speed and convenience. For many customers, ordering online means that they can avoid the hassle of having to physically visit stores to browse, discuss issues with sales assistants and the inevitable queues. In the worst case scenario it defeats the whole purpose of online shopping and adds a layer of inconvenience.

Zara, with its dedicated model does not miss the opportunity to tempt customers into making purchases. It displays a small range of menswear and womenswear across he way from the collection points.

It also makes use of mirrors with RFID to technology to allow customers to view coordinating and complementary items, adding further temptation to make a purchase that they had not originally intended when they arrived to simply collect items.

This approach minimises the problem of having to mingle with people engaging in conventional shopping and browsing activities and speeds up the process of collection.

Contrast this approach with some other retailers.

The House of Fraser in its main store in London has located its collection point on the third floor. Customers have to make their way up a number of escalators before they arrive at their destination. It has six collection points available.

Debenhams, in its new store at Stevenage has operates on two floors. The collection area is located on the first floor. In order to create a mood of calm and reassurance it contains a desk with armchairs around it and an orchid placed on the table. It also provides teasers by having a range of items. Debenhams also provides fitting rooms which are located near to the merchandise.

Retailers have also experimented with other options. Instead of locating collection points within their stores they may use third party operators such as Collect+.

In this case they sign up with Collect+. This company has signed up over 5,000 convenience stores and corner shops. Once customers receive a code for their purchases they can present it to a designated convenience store and collect the item.

Other retailers have mode use of third-party operated pick-up points or indeed train stations or underground stations.

In essence retailers are going beyond the traditional collection points. Of course another option is to deliver direct to the shopper at a nominated location such as a house or apartment, office or a friend’s house. Amazon has taken this concept to another level by experimenting with drones. We have discussed this in a previous blog and as I write, tests are still on-going.

It is important to note that click and collect no longer provides a point of differentiation for a retailer. In the era of omni-channels retailers can no longer avoid the issue. Shoppers demand flexibility in delivery. Rising expectations also leads to perceptions that next day delivery in many cases is not acceptable.

The evidence also points to the importance of click and collect.

For instance 72 per cent of UK shoppers use click and collect (Interretailing report: 2016).

The same report also indicates that 58 per cent of the top five hundred retailers offer such as service.

Interestingly 65 per cent of shoppers who collect items also make additional purchases (Cybertill: 2016).

Also the above report suggests that 17 per cent would abandon a purchase if the click and collect option was not available to them.

Managing the process of click and collect can represent considerable challenges for retailers. For instance during the Christmas period for 2017, Marks and Spencer found that two-thirds of all items ordered online has to be routed through click and collect.

Dealing with queues and waiting times presents the most difficult challenge.

Some commentators argue that by bringing people back to the high street it can rejuvenate shopping. Personally I am not so sure in the context of the UK. Parking and parking charges pose a significant obstacle and cost.

Zara’s dedicated pop-up collection store is an interesting response to the challenge of meeting that “last mile” in the process. Let’ keep an eye on further developments in this superficially mundane but challenging area.