The footwear concession market is set for a shake-up – but who will be the winners and losers of changes at department stores?
When Dolcis collapsed and Shoe Zone put Stead & Simpson out of its misery with a rescue package earlier this year, it looked like the tumultuous and competitive footwear sector might have been settling down. But six months down the line, footwear retailers have taken the battle for sales onto department store shop floors, eager to suck up sales from concessions.
Last week, House of Fraser served notice on about 13 of Shoe Studio Group’s young fashion concessions – the concept that Shoe Studio Group introduced to the department store last year to promote some of its newer brands. Two Kurt Geiger concessions were also affected. HoF has now switched to Office, which has traditionally focused on standalone stores, but is a leading player in young fashion footwear. By next February, Office will have 17 new HoF concessions, including Bristol, Glasgow, Leeds and Birmingham.
HoF’s decision to switch young fashion footwear partners surprised the market because both HoF and Shoe Studio are part-owned by Icelandic investor Baugur. HoF and Shoe Studio have both said that having a young fashion section in department stores diluted sales in Shoe Studio’s mainstream areas that were sited elsewhere in store.
One source says: “It’s odd that Baugur is effectively taking sales away from one of its own businesses.”
Meanwhile, John Egan, the former chief operating officer at Shoe Studio Group, reappeared earlier this month as chief executive of footwear retailer and Shoe Studio rival, Dune. He has been tasked with growing Dune’s concessions as well as building its overseas business. Quite why Egan was not held to a long non-compete clause when he left Shoe Studio Group is unclear, but his tight relationships with department store bosses should have Shoe Studio sweating.
Dune looks to be winning more shoppers with its new premium offer – prices are up 11% year-on-year but volumes are unaffected. Department store shoppers traditionally favour a premium and aspirational range.
There is no stronger evidence for this than at Kurt Geiger, which has invested heavily in building a design team led by Michael Lewis, formerly of Burberry, to set its offer apart from its rivals. This February, Kurt Geiger was sold to Graphite Capital for £95 million – proof that private equity firms will still buy retailers despite the banking crisis.
Private equity ownership of both Kurt Geiger and LK Bennett – which was sold to Phoenix Equity and Sirius Equity for a rumoured £82m this week – is likely to see both businesses push to grow their UK concession businesses further.
Meanwhile, at the lower mid-market department store level, Shoe Studio’s deal to supply own-label footwear for Debenhams’ Designers At and Red Herring brands has also ended. It is unclear which party severed the deal. At the time, Shoe Studio said it would focus on building its own brands (see box) in its concessions. But sources question the “real strategic sense” of shrinking group sales, while sources close to Debenhams told Drapers that the department store was keen to drive margin by buying in its own footwear ranges.
Meanwhile Faith, which has about 100 concessions within Debenhams, has had a rough ride in recent years, but sales at its Debenhams concessions are said to have picked up lately thanks to improved ranges.
Of all the footwear concession operators, Shoe Studio seems to be suffering the squeeze on its concession sub-sector most acutely.
Shoe Studio was bought by Mosaic Fashions in 2006 as part of a deal to buy Rubicon Retail, which included the Warehouse and Principles chains. The deal valued Rubicon Retail at £320m and gave Mosaic Fashions six womenswear brands plus Shoe Studio and its seven brands and sales of about £820m. At the time, Shoe Studio was understood to be making in excess of £12m EBITDA on sales of about £125m. Financial performance since is unclear because Mosaic Fashions does not break out its accounts by brand.
The Mosaic Fashions deal appeared to be a huge opportunity for Shoe Studio, giving it access to powerful high street chains such as Warehouse and Oasis. However, sources say the sheer scale and unwieldy nature of the enlarged Mosaic Fashions was the beginning of Shoe Studio’s problems.
The management team at Mosaic Fashions did not expand at the time of the deal, while Shoe Studio also lost some of its key management team. One footwear retailer says: “The business immediately doubled in size and became a bit of a monster. Where Mosaic Fashions had previously been very focused on its brands and intimately involved with all of them, this was no longer possible.”
While Egan, then retail director of Shoe Studio, stayed on to run it, Don McCarthy, then the chairman and chief executive, and finance director Stefan Cassar both left to join HoF. Footwear sources say McCarthy and Cassar were the real heartbeat of Shoe Studio, with McCarthy in particular playing a big role in every aspect, from product and marketing through to retailing and negotiating with department store and brand partners.
Another footwear boss says: “Don fundamentally ran that business and was a sharp operator and a good product person. Without him there was no one to lead the buying team and the ranges became less commercial.”
Some industry observers were surprised that Mosaic Fashions did not try to buy Kurt Geiger earlier this year. The deal would have given it a virtual monopoly on the concession market and would have parachuted in an experienced management team to tackle the problems at Shoe Studio.
Elsewhere, suppliers blame Shoe Studio’s sourcing for some of its woes. “Its prices have risen yet its product has remained dull. The collections don’t look like a value-for-money proposition any more,” said one supplier.
Another own-label supplier claims Shoe Studio lost its edge because of a lack of investment in stores that has made its brands look tired against other fashion operators. “There has been no capex investment and nothing creative or new store-wise. The Nine West and Bertie stores just look tired.”
At the same time, some of Shoe Studio’s department store partners are said to be nervous about their exposure to and reliance on Mosaic Fashions’ brands. This has led some smaller groups to look for new footwear partners at the time of the Rubicon Retail merger.
Despite the challenges facing Shoe Studio, Mosaic Fashions has started to act to stabilise the business, and management insists the loss of the Debenhams contract and HoF concessions was driven by Mosaic and its desire to bring focus back to the business.
Last month, Mosaic drafted in Gordon Baird from US footwear giant Wolverine, as managing director of Shoe Studio. Baird’s appointment surprised the industry because of his branded background, but Mosaic Fashions chief executive Derek Lovelock hopes Baird will help Shoe Studio recover some brand status and bring in sourcing expertise.
This week, Baird told Drapers he was conducting a complete review of the business strategy. He said: “We are totally committed to our concession strategy. We have grown our concessions by 25% over the past couple of years and the business is pretty robust.”
Shoe Studio still commands an enviable stable of brands, including Nine West and Pied ࠔerre. However, whether it can regain its status as the UK’s leading footwear concession operator will depend partly on what happens at its owner Mosaic Fashions.
Rumours persist that the group could be broken up – it has already spun off Whistles earlier this year – or that Shoe Studio could be sold. But it is clear that with new rivals entering the concession territory, Baird must get back to retailing basics – product, stores and value for money – pretty sharpish.
Key partners: Debenhams, John Lewis
Brands: own brand
Key partners: Debenhams, Topshop in London’s Oxford Circus
Brands: own brand and designer tie-ups with the likes of Olivia Morris and Gil Carvalho
Key partners: Fenwick, Harrods, House of Fraser, John Lewis, Liberty, Selfridges
Brands: Carvela, KG, Kurt Geiger, plus licensing deals with Agent Provocateur and French Connection and bought-in luxury brands such as Marc Jacobs, Chlo鬠Prada and Gucci
Key partners: Fenwick, Harrods, House of Fraser, Selfridges
Brands: own brand
Key partners: Harvey Nichols, House of Fraser, selected Topshop stores
Brands: own brand, plus premium own labels Poste and Poste Mistress in addition to bought-in brands such as Converse and Adidas
Shoe Studio Group
Key partners: Debenhams, House of Fraser, John Lewis, Selfridges
Brands: Bertie, Chelsea Cobbler, Kenneth Cole, Nine West, Pied Terre, Roberto Vianni, Roland Cartier, plus footwear for the Oasis, Warehouse and Coast chains, which are part of parent company Mosaic Fashions’ stable