Are concession stores the future of retail?

It's fair to say that 2016 has thrown a few challenges at retailers. What can we expect from 2017? The online vs in-store debate rages on, but both sides can agree that retailers need to make better use of their physical properties.

Argos

Image copyright: Argos

 

Whilst many brands are closing their high-street doors to focus on digital sales, some are moving to larger premises. The latter group's strategy is focused on maximising revenue by making best use of the vast physical space. GO Outdoors have opened large format stores and GAME are hoping to capitalise on the growth of eSports by opening larger footprint stores to accommodate in-store gameplay.

The concession model is another popular approach. Recent examples include the return of Habitat to Sainsbury's and GAME pairing up with ex-competitor WHSmith (they used to sell videogames, remember?).

Peter Ridler, former President and CEO of The Body Shop and Monsoon, explains:

"What's accelerating this change is that the standalone store model is no longer sustainable due to increases in payroll/rents and the lack of footfall on our high streets. And of course the flight to online has left retailers with excess of space. What do you fill it with? Complementary brands."

What was once the domain of luxury and premium brands within department stores (think Ralph Lauren in House of Fraser, Dior in Debenhams, etc.) is now being explored by already established high-street brands looking to mitigate the risks and challenges of a hugely turbulent and fickle market.

Interestingly, Neil Turton, former CEO of NISA, believes it's not purely the cost factor, but also a change in consumers' shopping habits:

"...customers prefer micro-retailing to big boxes these days. It's more of an authentic experience. Retailers like White Stuff understand this well - they are selling a lifestyle and that's best implemented on a small scale. It also gives personality to big shops and of course helps small retailers with costs, such as security, as long as rents are reasonable."

 

Win-win?

Done correctly, I'd say yes. For the host, advantages include the incremental rent revenue, positive brand association and extra footfall. The tenant will enjoy the same mutual benefits, as well as the financial saving of not fitting out an entire store, and the even bigger attraction of not signing a long term inflexible expensive lease (ask Woolworths). Another not so obvious benefit is the control you retain over your brand identity. Depending on the terms of the concession, the tenant retains control over the staffing, the pricing, the promotions and does not get drawn into price-wars or heavy discounting that the host may advocate.

 

Why not supplier-retailer?


Why bother with the concession at all? Why not move to a supplier-retailer relationship and cut out the rental and staffing cost completely, taking out all the risk? The tenant still gets the footfall and the product is still associated with like-minded brand gaining exposure, right? Not necessarily. Any independence and control over sales and customer services staff is lost. But also, as with all suppliers, the tenant is now facing the same pressures around margins being squeezed, price-matching and promotions between the large retailers, a loss of brand identity and, more importantly, these sales are cannibalizing the standalone stores and the brand is ultimately damaged.

Tony Walsh, Retail Operations Director at GO Outdoors says:

"The key is bringing together brands with similar customer demographics/segmentation, the same service principles and a like-minded vision of future retailing while fully embracing a truly Omni-channel customer journey. Brands finding the right concession relationship will be well placed to succeed in the future."

 

It sounds simple, so why isn't everyone doing it?

Finding a complementary brand to partner isn't as easy as it sounds. Your product range cannot compete with what is already instore (WHSmith no longer sell videogames, Sainsbury's doesn't sell Habitat style furniture). The brands need to be close in aspirational terms but not offer the same products. For example, could The Body Shop have a concession within Morrison's? Maybe, but then The Body Shop is pitching its products against Morrison's own brand beauty products, but also those of Dove, L'Oréal, etc. Any Body Shop sales would likely be at the expense of the own brand or branded product, and vice versa. I doubt any of the three parties - Morrison's, The Body Shop or other suppliers - would be happy with this arrangement!

Peter Ridler added:

"The move to a concession model is not without risk, you dilute your brand proposition / experience... it's key to get in bed with the right partner, customer profile and service proposition."

So while the concept sounds great in theory, the challenge of getting it right is anything but! I'd love to hear the thoughts of retail professionals out there. Is the concession model really a win-win when done correctly or are there fundamental flaws in the concept? Will we see more of this going forward or is this a retail fad? Which brands do you think would work well together?

Interim Partners is currently working with a number of organisations looking to capitalize on these kinds of opportunities. To learn more about how we can help your business, please get in touch. At Interim Partners we work with only the most talented and experienced interim professionals who have a track record of helping not only identify these opportunities but also to implement the change and transformation needed to deliver success.

 

Stuart Hogg is the Principal of TMT, Retail and Digital

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