Mono a mono

When is focus an asset in retailing, and when is it a liability?

Swatch in Covent Garden

Arriving in London for an event last night, I took the opportunity of a few spare minutes to have a wander around the shops of Covent Garden. What I saw prompted me to think some more about something that has been bothering me for a few weeks. The lovely Piazza and the walk up to the tube station are chock full of an interesting retail phenomenon - the mono-brand store.

It would be sensible to start with some definitions. Conceptually, what we are talking about are stores which are entirely focussed on a single brand - in effect outlets for that brand rather than emporia offering a selection of products. In that sense, a mono-brand store is the physical manifestation of the broader strategy of Direct to Consumer (DTC) where a brand decides it will cut out the indirect channels of ‘normal’ retail or e-commerce sites and instead sell to customers through channels which carry its brand and which it either owns or at least almost entirely controls.

Single-brand stores are sometimes a brand’s only physical retail presence (consider the ‘pureplay’ ecommerce brands who have gradually discovered the merits of physical distribution and opened a few shops of their own). They can also, though, be part of a broader retail mix - you can buy Swatch watches, for example, in plenty of retailers as well as their own stores.

So what is it that I find puzzling about this mono-brand phenomenon? Regular readers will remember that a few weeks ago we talked about the problems facing Superdry, who subsequent to that post have confirmed that some painful restructuring is on the cards. It seems clear that a big part of the trading difficulties the brand has had is that it is a business built around a strong single-minded brand, but one which has simply gone out of fashion. As the brand has ‘lost its cool’, dwindling trading volumes have made its cavernous stores into a high cost liability.

Tempting, then, to conclude that operating a store estate based on a single brand is foolish - briefly profitable when all is well, but high risk and a big cost burden when times are tougher.

But if that’s true, then why are there so many of them about - what is it about the lure of a branded store that attracts so many businesses? There are, it seems to me, several key benefits that drive the business case for these stores:

• They offer a brand a high degree of control. If part of your value-add as a brand is the sales experience that you offer your customers, then the ability to manage that experience from beginning to end is really valuable. This is particularly true for high-end luxury brands and many have come unstuck by allowing their product and branding to be displayed in the wrong environments, surrounded by other brands in a way that diminishes their exclusivity and aura of quality.

• They offer a sense of exclusivity. Consider the experience of Thorntons, the chocolate retailer who fell by the wayside just as Hotel Chocolat were becoming the real sweet-tooth powerhouse. There were several reasons for Thornton’s failure including a real lack of product innovation but it was also clear to any observer that the strategy the business had followed of making its brand available in supermarkets had detracted from the ‘specialness’ of a product which is so often purchased as a gift. Too broad a retail distribution strategy had, in the end, a negative impact on sales.

• The act as hubs for customer recruitment. I spoke to one retailer recently which is fundamentally an online DTC brand but which has opened chains of mono-branded stores in the UK and the US. Fascinatingly, their main justification for doing so was the high cost of acquiring new customers online. It has gotten harder and harder in recent years to cut through online and paid-search costs have ballooned. For this retailer, then, the logic of opening a store was ‘it makes money it its own right but we also acquire thousands of new customers for our online business at the same time, effectively for free’. If you are a business which earns a ‘customer lifetime value’ from your customers by selling them products or services repeatedly over time, then this way of evaluating stores as an acquisition channel makes sense - just ask any of the mobile phone brands why they operate such big store estates.

So is the mono-brand store the future? Not necessarily. It is still the case that the economics of operating an entire building selling one product can be challenging. As a result, mono-brand stores need to be carefully positioned where significant volumes of potential customers are likely to be, and even then they are likely to deliver sales densities which are poorer than a multi-brand retailer can deliver in the same space. That’s why they often need to be evaluated not just on traditional retail metrics of direct profitability but also based on their value as advertising hoardings for passing customers and on their ability, as we’ve seen, to act as customer ‘recruitment hubs’.

Even carefully managed, though, mono-brand stores can easily drift into becoming marginally profitable vanity projects. And, as the Superdry story illustrates, if you try to build a big multinational chain on the back of a brand, you certainly need to make sure it stays relevant to the target audience you’ve built those stores to reach.

Is there an implication for ‘normal’ multi-brand retailers from all of this musing? I think so. At least a part of the growth of mono-brand stores has come from their frustration at seeing their products presented in multiple retailers in a way that actively detracts from the image they are trying to build. It isn’t easy, of course, to deliver (for example) a really high-end perfume and beauty brand experience when you have to do it in hundreds of stores around the country, but if you aren’t careful and just allow that brand to become a pile of slightly dusty boxes next to other lesser brands, you shouldn’t be surprised when the brand-owner decides to go it alone.

Are mono-brand stores the future? Only in very specific circumstances, I think, but they do illustrate a fundamental retail truth - whatever kind of store you operate, part of your purpose is to bring brands to life in ways that inspire and engage the customers who walk in. And anyone in retail who forgets that is in for a tough time.