While House of Fraser flirted with a total collapse, several town centres were preparing for large empty spaces to be left by the 169-year-old department store. House of Fraser took its website offline on Wednesday 15th August 2018 after their warehouse operator XPO Logistics stopped processing orders because they were owed £30million. This meant cancelling all online orders and refunding customers who were unsurprisingly left feeling less than satisfied; not a great time for them to be reversing sales.
But, how did that happen? How can powerful retail chains such as House of Fraser, Woolworths and BHS, who had built up stability and reputation for over a century, fall from such grace? Why couldn’t they move with the times?
By exploring several possibilities, we have identified three reasons for the near collapse of House of Fraser and extrapolated learning points for smaller retailers to ensure they too don’t fall foul of the same fate.
Why Did HoF Fail While Rivals Maintained Success?
There’s no doubt the department store model still works so why did House of Fraser fail to thrive? Richard Hyman, who has analysed the retail industry for 35 years, predicted a year in advance that 2018 would bring retail distress, particularly for companies that don’t understand their core customer. Could that be it?
Speaking of the HoF situation, he outlined the key sticking points for the department store were: lack of investment, declining relevance with shoppers, a lack of brand differentiation and a failure to focus on the store's core customer. By stocking a whopping 677 third-party brands, House of Fraser’s own identity became lost along with its relevance in the marketplace. Mr Hyman indicated that almost all of their successful multi-brand stockist competitors had, in addition to the external brands they carried, a strong private or own-brand label which he describes as ‘enormously valuable’ when it comes to differentiating a brand. He said, “House of Fraser doesn't have anything that nobody else has got,”; the first important takeaway for other retailers.
Furthermore, they faced fierce competition online where customers can find the same or similar items for a better price with other retailers. This is the second key insight for businesses to acknowledge.
The bottom line is retail brands need a dominating difference to thrive and safeguard their survival by ensuring that consumers come to them for their products first. In comparison, Amazon has become the biggest convenience store, Primark is a high street footfall magnet due to its low prices, John Lewis creates a trustful reputation through first-rate service, and Selfridges offers a unique shopping environment.
Aaron Shields is a strategy director at Fitch, a leading brand and retail consultancy. He commented on those stores saying, “Having a look at this list, it’s easy to see that Fraser’s house of brands approach needs a refreshed retail proposition to survive.”
At this point we would ask an independent retailer, what sets you apart? Do you carry lines that no-one else in your area does? If not, then do you have a price advantage? You must ensure that you provide your consumers with a reason to keep choosing you.
Fixing the Revolving C-Suite
Richard Lim, Chief Executive at consultancy firm Retail Economics, says most department stores are incredibly expensive to operate, especially so over the last few years due to rising business rates and rents, as well as the National Living Wage.
For House of Fraser, however, its main problems haven’t actually been attributed to staff pay but how several of their management, executive and senior marketing positions have changed, resulting in a lack of consistency for the brand. This is the third thing smaller retailers should be aware of.
Due to their leadership insecurity, House of Fraser’s sales productivity was weak. Management were focused on a settling their core team at a time when their core team should have been addressing issues 1 and 2.
While independent retailers may not have to grapple with a board of executives and multiple department heads, their core team is just as important. Building trust around a brand and relationships with customers often relies on patrons making regular contact with the same employees.
Time spent curating the right team will pay dividends in the long term as, for independent retailers, too much hiring and firing could be of detriment to sales. It’s not best use of the owner’s time and could damage the long-term brand message which would be inconsistent under a number of consecutive staffs.
Other Solutions for Small Retailers
We know that to survive in a difficult and overcrowded market, retailers need to build their brand by understanding exactly who their customer is and enhance that relationship but there are other ways to work smart and aid your cash flow while you are establishing those things.
Small retailers can struggle with recording a high volume of transactions in real time and that can cause an admin headache with a ripple effect but nowadays there are solutions available to relieve owners of unnecessary data entry. However, organised figures are more than just business eutopia.
If a retail business is struggling financially, up to date figures and organised admin will alleviate the burden accompanied with turning the business around. Being organised and efficient with general administration while armed with financial foresight will mean the business can easily apply for financial assistance which could prevent it struggling into a place of no return.
With up-to-date figures, a business consultant can make recommendations to owners and advise on any planned investment or expansion. In particular, they can focus on whether the business can afford to make an expansion in the market or adopt another financial strategy.
Another piece of guidance that advisors might give to independent retailers is get rid of, or make better use of, unneeded basements and top floors to reduce the rents paid to landlords. Additionally, marketing plans and annual goals can help to keep an indy on track.
This article was written by Cottons Chartered Accountants London. With their base in Shoreditch Cottons specialise in working with independent brands and retailers installing admin solutions to cut back on bookkeeping time and, by preparing useful end of year and management accounts.