PRINT THIS STORY:

CHANGE TEXT SIZE:

HIGH STREET FIGHT

Rivalry heats up between U.K.’s two leading apparel retailers

By Susan Thorne

Marks & Spencer’s High Street store on Church Street, Liverpool.

The midprice apparel market in the United Kingdom is seeing some lively competition between two dominant players: Marks & Spencer (M&S), a longtime retail veteran trying to recover its edge, and Next, a relative newcomer that has climbed rapidly to the top. This contest will intensify if Next follows through with an anticipated broadening of its retail concept to become a junior department store name similar to M&S.

Leicester-based Next has come to the fore in a mere 20 years through its young, contemporary image and quality fashion goods. Starting with 70 women’s wear shops in 1981, Next branched out into men’s clothing and then children’s in 1984 and 1987, respectively. It opened its first department store with apparel plus home goods in 1985, and a mail-order arm, Next Directory, in 1988.

There are 330 Next stores in the United Kingdom and Ireland, and 49 overseas stores. Total sales grew by an astonishing 18 percent to £1.9 billion ($2.8 billion) in 2001. With its 5.6 percent market share last year, Next ranks third in the field behind Arcadia Group (which operates under such diverse banners as Miss Selfridge and TopShop) and M&S.

For all its problems, mass-market retailer M&S — affectionately called “Marks & Sparks” — holds the No. 1 position in midmarket fashion apparel with a 15 percent market share and 312 stores. It is also an important purveyor of groceries, home furnishings, and health and beauty products under its in-house St. Michael label. But the venerable M&S fell victim to consumer trends in the late 1990s when Britain’s increasingly affluent shoppers began to demand more in terms of fashion, while value-oriented shoppers turned to lower-priced retailers Asda (an English food and clothing superstore that is now a subsidiary of Wal-Mart Stores), Matalan and Peacocks. Upbeat foreign entrants, including H&M and Zara, have also heated up the fashion competition, while Gap continues to expand in the United Kingdom.

M&S isn’t the only traditional midmarket fashion player to experience difficulties recently. In 2000, Brussels-based C&A decided to close its 113 U.K. stores and withdraw from the British market after 75 years, citing competition.

M&S suffered a drop of £500,000 in nonfood sales between 1997 and the end of March 2001, more than 3.5 percent of market share in that category. In 2001 the company reluctantly moved to close its 38 European stores and dispose of its North American subsidiaries (it sold Brooks Brothers in November and at press time was selling its Kings supermarket business) as well as its U.K. direct catalog business. Yet, it has staged an effective comeback in the new millennium by revamping its merchandise lines and image, making significant supplier changes and improving fashion quality. It launched a young women’s store brand called Per Una last year, recapturing shopper interest. Ironically, Per Una was developed by the founder of Next, George Davies, who also designed the highly successful George clothing line for Asda after leaving Next in the 1990s. In February M&S announced a new apparel line for youth based around hugely popular English soccer star David Beckham.

M&S reported its first quarterly sales increase in three years (2.8 percent) for the second quarter of 2001. This was followed by a year-over-year increase of £165,300 for nonfood sales in the fiscal year ended March 31, 2002.

“It is showing strong signs of having halted the decline and even of being able to claw back some of its lost share,” said Richard Perks, senior retail analyst with London-based retail research consulting firm Mintel Retail Intelligence. “Whatever has happened, Marks & Spencer is still a hugely powerful business, and it is still by far the largest clothing retailer in the country. It is vastly dominant, and shopping centers can’t do without it.”

Bigger stores and broader merchandise offerings are pitting Next against Marks & Spencer’s department stores.

The revitalized Marks, with its new emphasis on current fashion, has placed itself in closer competition with Next, which has traditionally had a younger fashion orientation aimed at the 20 to 30 age market. The rivalry, however, doesn’t appear to be hurting either competitor. Though Next gained market share during M&S’s decline, it is not losing that share as M&S recovers, noted Marcus A. Kilby, director of London-based real estate consulting firm Lunson Mitchenall.

Shopping center landlords consider both Next and M&S part of a dynamic retail mix in any successful regional mall and usually include both as tenants. Neither company agreed to be interviewed for this article.

“Each in its own way provides an attractive offer to our customers, and there are many examples where they are represented in the same center to good complementary effect,” said John Bullough, retail director of London-based Grosvenor Estate Holdings, a developer of shopping centers and downtown retail properties in Britain and elsewhere in Europe.

Sheila King, director of retail leasing for London-based developer Hammerson UK Properties, agrees that Next and M&S complement each other.

“An ideal tenant mix contains both,” she said. “Marks & Spencer appeals across the board to people of all ages, while Next has a much narrower range.” Hammerson has signed Debenhams, M&S, Next and Selfridges to anchor the BullRing, a 1.2 million-square-foot retail center in downtown Birmingham, England (SCT, May 2002).

However, Next’s progression to ever-larger stores and broadened merchandise offerings could challenge M&S in new ways. Like Gap and other retailers, Next has been expanding the average size of its stores, from its earlier outlets with a maximum 20,000 square feet of gross leasable area to as much as 50,000 square feet at the BullRing.

Next is expected to expand its other merchandise categories, adopting a variety store or junior department store role that would confront M&S more directly. One milestone will be Next’s proposed store, due to open in about four years, at Arndale Centre, Manchester. Next will occupy 157,000 square feet at the downtown shopping center — as large a store as M&S has there, observed Kilby. Next’s merchandise mix at Arndale will consist of roughly 30 percent housewares, with apparel, gifts and cosmetics making up the rest, he added. Next’s positioning would then become uncomfortably close to that of M&S.

“Next already has the same market position and price point as Marks, with midpriced, good-value merchandise in well-designed stores,” Kilby said. “They are similar to Marks in having their Next brand for everything, and Next has all the product lines — apparel, home goods, cosmetics, lingerie — which Marks & Spencer covers, with the exception of food.”

Would there be room for two such similar stores in the marketplace or in a single shopping center if Next evolves into a variety store? Kilby opines that this would depend on the demographic of particular customer markets.

Hammerson’s King is skeptical that Next could function as a true department store.

“It’s very early days,” she said of the idea. “They’re going to have to experiment with the concept.”

Faced with a choice between M&S or some other retailer as a mall tenant, King said, Hammerson would still go for M&S over an untested concept. But she welcomes Next’s push to larger stores, arguing that it will help pump up the notoriously low department store rental rates in U.K. malls, which currently run between £5 and £9 per square foot. “With Next coming in, I think we’ll see the rates rising,” she said.

© 2008 ICSC. All rights reserved. | Terms and Conditions | Privacy Policy | Contact ICSC | ICSC Home |