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Indies find that only the strong survive

Young fashion independents have been hit by a wave of administrations. Although some have bounced back, others may not be so lucky. So how can indies stay afloat?

The resurrection of high-profile independents Brother 2 Brother, Scenario, Diffusion and Limeys has renewed confidence in the sector and given hope to other indies struggling to meet their overheads in an increasingly difficult market.

Being an independent has never been easy, but now the sector faces spiralling costs and increased competition from the multiples against a backdrop of plummeting consumer confidence and sliding footfall, all topped off by some horrifically unseasonal weather.

Brother 2 Brother, Limeys, Diffusion and Scenario all fell foul of these difficulties. However, independents that have adapted their offer and moved with the times are surviving and thriving, and it is these success stories that have prompted the revival of so many high-profile names.

Last week, branded fashion mini chain Monserrat, which has shops at Lakeside in Essex and Sheffield's Meadowhall, outlined its strategy to convert its six stores to Brother 2 Brother, after administrators P&A Partnership sold the Brother 2 Brother name for £500 to Monserrat owner Kelvin Gill.

The rebirth has been generally welcomed by suppliers despite the obvious distribution issues it raises. One supplier says: "Kelvin has been to see us to explain, and I'm impressed with the work he has already done to move people's perceptions about the business. It feels like a positive move for the sector."

Separately, earlier this year Icelandic investor Kcaj rescued Midlands-based designer retailer Limeys from administration. Meanwhile, Carl Peddie bought his Diffusion business in Wolverhampton back from administrators, as has Martin Roper, owner of Scenario in Derby. Both believe they can restore and refocus their offer.

So how do young fashion independents stave off the administrators and survive a serious setback and cashflow difficulties? Competing with branded multiples such as Bank, USC, JD, Republic and House of Fraser is not an option. The former bread-and-butter brands for independents five years ago - French Connection, Bench, Hooch and Ted Baker - are now over-distributed and have become mainstream high street offerings rather than aspirational labels.

One supplier warns: "Republic can churn and burn a brand faster than Mike Ashley nowadays. Republic can buy wide and in-depth and no indie can compete with that. Independents have to move away from those brands or die."

The rise of the value offer on the high street has also put a squeeze on mid-market brands. The cheap getting cheaper has meant the middle market has suffered from further price deflation and the gap between high street and middle-market brands is narrower than ever.

Some independents are now opting to trade up, seeking out premium labels and prestigious brands to add to their product mix. Gino Da Prato of fashion agency Four Marketing, which sells premium brands including CP Stone Island and McQ, says: "We've had more interest and enquiries from branded fashion independents at high-street level, which are thinking about trading up. Some retailers seem to be looking for product that is more unique and has a luxury element, something that the high street can't emulate."

The trend to trade up has been so marked that Simon Poole, director of supply company Red Brand, which distributes Modern Amusement and Luke, has changed his distribution policy and will only deal with what he dubs the "top 120 independent accounts". This helps him to drive sales through customer loyalty as well as protecting brand equity and ensuring brand longevity.

However, Paul Jaworski, sales director at agency Gorland, says indies must trade up convincingly to feel the full benefits. "So many menswear indies try to be a jack of all trades. They sell prestigious brands such as Armani Jeans, Paul Smith and Stone Island alongside the likes of Henri-Lloyd, French Connection and Ted Baker. There is nothing wrong with those brands, but they serve a different market.

"Womenswear independents have been through this (trading up process) already but have succeeded at it. How many of them do you hear talking about Miss Sixty or Fornarina these days? Both were hot and the main brands five years ago. The women's indies have become more refined and taken their stores upmarket, and their customers like that. It has worked."

As well as offering improved margins and higher ticket prices, designer labels are traditionally more recession-proof than mid-market labels. After all, designer shoppers are said to be wealthy whatever the climate. The industry says this has helped Scottish designer mini-chain Cruise to outperform other indies this year. Cruise has also boosted its trading by sticking to its guns, protecting margin and not going on Sale until much later than the high street.

The timing of the Sale and general stock management is also vital to maintaining a healthy retail business. The key is sticking to buying budgets and talking to suppliers about payment plans. Spreading costs across the season can ease cashflow difficulties and also helps independents to survive through quieter trading periods.

One independent retailer, who did not want to be named, says: "If you go into Sale too early, you won't make the margin you need just to break even - 13 weeks at full margin is not enough. Also, don't over-buy, especially for the spring season. You may get away with some mistakes over the Christmas period because January discounting gives you a 'get out of jail' card, but spring is riskier.

He adds: "Time your spring Sale to start on a pay weekend and end it on a pay weekend. The biggest problem independents face is that Sales are too often and too early now."

Independents would also do well to buy into add-on products including gifts, watches, sunglasses, jewellery and perfume. Cruise has taken to opening accessories standalones because of the success of add-on accessories sales at its clothing stores.

Such items take up little space in store and can command high ticket prices that drive the top line, particularly at key times of the year such as Christmas. Add-on products can often be bought on a sale or return basis, thereby reducing risk. And in general, terms from licensees are often more favourable than from the brand itself.

Indies can also add a new string to their bow by launching an etail operation. Although the concept and initial investment may seem daunting at first, the rewards can be huge. York-based designer retailer Sarah Coggles' site, which went live earlier this year, has already surpassed expectations, and owner Mark Bage says he has had to employ four pick and packers just to keep up with demand.

He adds that Sarah Coggles' shoppers like the convenience of ordering online, and the store has also scored new customers beyond York and from across the UK who have come across the retailer via internet search engines such as Google.

The etail option can fuel growth without the noose of the hefty rent on a new store - and in the current climate, indies would do well to think carefully about expansion.

The demise of Limeys has been widely blamed on it taking a new large-format store in an off-pitch location in Nottingham. The new storefit is thought to have cost about £750,000 alone, and the lack of footfall in the new location, combined with a lack of marketing to promote the new store, made trading very tricky at the site. It is unclear whether the store will survive under Limeys' new management.

Balancing rents, landlord incentives and culling the portfolio where necessary is vital to survive. If your business is in trouble, now is not the time to get emotional about your company's first store or most high-profile site if it is dragging you down because of high rents or poor performance.

Drew Waddell, a partner at Scottish commercial property agent Culverwell, says: "The key is not to overestimate sales projections. A lot of indies are in secondary locations or suburbs. They have a really good business and think they can make it work in a more prime location. There is better footfall in prime locations, but the rents are higher and there are other overheads such as rates and service charges.

"You should ignore any rent-free periods or cash incentives when you're doing your calculations. But some indies are a destination store in their present location, and a shopping centre store might not be appropriate."

Alternatively, many independents choose to pursue the franchise route, linking up with brands such as denim giant G-Star. Diffusion's Carl Peddie rescued his company from administration in July and still runs his G-Star franchise business as a separate operation. Brother 2 Brother founders Andrew and Gavin Clark have G-Star stores in Sheffield and Nottingham, and Lawrence Davies, owner of Choice - one of the UK's most respected independents - has a G-Star franchise in London's Covent Garden.

But for any independent, the key to weathering the storm is knowing your customer, offering good service and tempting customers with new and interesting product - all of which are the cornerstones of being a good independent.

"To protect your business in the long run, you have to offer great customer service," says the anonymous independent owner. "If you move upmarket you still have to work really hard at the basics. My advice? Be the best at what you do in your market and be great at service with it."


1. BE EXCLUSIVE "The bottom line is that you need to get more exclusive product and make the product you have work on the shop floor. You need to get involved with your product and get personal with the customers and with service. The Mike Ashleys of the world are too big to do that, so that can be a point of difference."

Kelvin Gill, owner, Brother 2 Brother and Monserrat

2. TRUST YOUR INSTINCTS "Don't buy something that you think will just sell - buy something different and beautiful that excites you. Rich people are not affected by recessions, so go more top-end and buy product that you believe in. Even if your shoppers are not rich, you want product that makes customers think 'I've got no money but I have to have that'."

Mark Bage, owner, Sarah Coggles in York

3. CONTROL STOCK "For me it's all about stock control and management. With stock buying, a lot of people tend to get carried away and they over-buy. Larger chains have merchandisers to tell them how much stock they need, but indies don't have this luxury - that is why it's vital to go into a buying meeting with a strict buying plan that you stick to rigidly. Don't deviate from it unless you see something absolutely mind-blowing. Show the sales team your sales reports and partner with them to get the best deal." Steve Cochrane, owner, Psyche in Middlesbrough

4. SPREAD YOUR COSTS "Talk to suppliers about payment plans. More of my independent customers are now taking this offer up and making a payment at the start, middle and end of the season. Spreading the cost of stock can ease cashflow for both retailers and suppliers. This also encourages indies to buy into new brands."

Simon Poole, director of Red Brand, distributor of Modern Amusement and Luke

5. GUN FOR MARGIN "The only way to make it work is by getting better margin. You can go more premium, but otherwise you just need a good mark-up. We give indies a 4x mark-up with Ichi. We're seeing more and more retailers looking for that kind of margin."

Mark Ashton, agent for Ichi

6. CONSIDER FRANCHISING "A franchise can provide you with an alternative revenue stream, and it works as long as you go with a brand you have faith in. You apply the same principles that you do to a multi-brand indie, but it makes sense to deal with one brand rather than 15, especially if they pay for everything including shopfits and carrier bags." Carl Peddie, G-Star franchisee and owner of Diffusion in Wolverhampton

7. SURF THE WEB WAVE "A good-quality website is really important and, although costly to set up, it can be worth it. Rather than look at a website as just a revenue driver, see it as a marketing operation. If you present yourself in the best light online, making money will follow."

Jeremy King, website administrator, Accent in Leeds

8. TAKE RISKS "UK independents are intimidated by price. They all want to buy brands their customers know, and they are scared of design and new brands. But they must take bold steps and be different if they are to survive."

Paul Jaworski, sales director, Gorland

9. BE RUTHLESS WITH NEW STORES "There is a formula that you have to follow - so many retailers are overbuying and opening new shops, but they can't cope with the space. Then they are lumbered with too many outgoings. If you decide to open a new store, choose carefully - it's all too easy to become stuck with five-year minimum leases on a new store with no get-out clauses."

Bashir Mohammed, owner, American Pie in London

10. THINK AHEAD AND AUDIT "I recommend that you carry out an audit of your property and business before you get into bother. Then you can identify errors before they become a problem. We find that many independent retailers haven't got the time to look at their bills properly, so we take the job on and look for overpayments on property and other outgoings."

Tony Sweeney, director, audit & property adviser Capa.

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