WHEN Sir Philip Green’s black and white 12-seat Gulfstream jet takes off from
Luton for Manhattan next month, it will mark the start of a carefully
calculated gamble.
Under Green’s watchful eye, Topshop has been hugely successful in Britain. And
it already has 97 outlets overseas, stretching from Bahrain to Chile.
But for the Monaco-based billionaire, next month’s three-day trip to America
will be much more than just another foreign jaunt.
With his £3m star signing — supermodel Kate Moss — and 10 of Topshop’s
executive team in tow, Green will be taking the first steps to try to crack
America. Now, he believes, is the time to catapult Topshop into becoming a
truly global brand.
Topshop’s new Kate Moss clothing range is to be sold in the Barneys
department-store chain across America. But the launch is only part of a far
more ambitious plan to reshape and expand the Topshop chain — an expansion
which, analysts speculate, could eventually lead to a stock-market flotation.
Over the coming three years, Green plans to open more than 100 new Topshop
stores overseas. Discussions are already under way for a new 50,000 sq ft flagship
shop in Paris; 10 new stores are planned for Scandina-via and the number
there could eventually reach 100; and discussions have also begun to take
Topshop to China and India.
In Britain, 400,000 sq ft of net new selling space will open during the next
18 months, increasing the existing 1.3m sq ft of trading space at the chain
by almost a third. Topshop’s sales are equivalent to more than £500 per
square foot so the additional selling space could boost annual sales by
£200m.
The frenetic expansion drive, which will cost up to £75m, will see Topshop’s
smaller, older British stores replaced by glitzy new regional flagships. In
Cardiff, a new 35,000 sq ft outlet is under construction. In Liverpool, a
60,000 sq ft store is planned. In Scotland, Topshop will open a 60,000 sq ft
store in Edinburgh.
Meanwhile, in London a 32,000 sq ft store is planned for the Westfield
shopping centre in White City and a further 12,000 sq ft store is planned
for the Brent Cross shopping complex in north London.
“It is serious foot-down,” said Green. “We are starting to take some pretty
bold decisions.”
The expansion drive coincides with a review of Green’s entire Arcadia group,
whose other brands include Miss Selfridge, Dorothy Perkins and Burton.
Green plans to reshape the company’s store network, fundamentally altering the
size, look and location of the shops. Over the next three years, leases on
500 of the Arcadia group’s properties are due to expire, equivalent to more
than 20% of the total store portfolio.
“This is a massive opportunity to reshape the future,” said Green.
The expansion plan will intensify speculation that Green will one day float
Topshop. Investment bankers are known to have been pestering him for months
and City analysts believe that a flotation could be an enticing prospect.
Profits at the chain are expected to top £150m this year, up from £130m in the
financial year to August 2006, and gross sales are tipped to rise from £740m
to more than £800m.
If Topshop were to float, based on valuations of up to 25 times earnings
achieved by rival chains — Spain’s Inditex, which owns Zara, and
Swedish-based H&M — it could be worth more than £2.5 billion.
One City source said: “With Sports Direct having recently been floated at just
over £2 billion, given Topshop’s brand and growth potential, you would
expect it to attract a premium rating.”
Despite having paid out £1.3 billion in dividends in 2005, Green is expected
to reduce debt to £700m by the end of this year — giving him plenty of
firepower to implement Arcadia’s growth strategy with its own resources.
The group also has strong property backing. Consultants estimate that
Arcadia’s freehold and long leasehold portfolio is worth almost £1 billion,
but Green has always resisted selling it.
“If we sold off all our property we would end up in stress city,” he said,
referring to Topshop’s flagship store in London’s Oxford Street. “It
wouldn’t be the same walking down there and walking into a great big rent
bill.”
The bumper performance from the company will defy Green’s critics, who
forecast disaster when Jane Shepherdson, Topshop’s brand director, quit the
business at the end of last year. Her supporters described her as the most
important woman in fashion.
It is only a few months since her departure. But so far, the chain seems to be
thriving under Mary Homer and Karyn Fenn, the veteran Topshop executives who
were promoted in December to run the company jointly after Shepherdson left.
Together with Gordon Rich-ardson and David Shepherd — creative director and
managing director respectively at Topman — they have helped the chain
deliver double-digit like-for-like sales growth over the past eight weeks
alone.
But while things are going well in Britain, cracking America, the graveyard
for many British retailers in the past, will be a huge challenge.
If Green gets it right, Topshop could be transformed into a global brand to
rival Zara and H&M.
And if he gets it wrong? It’s not a possibility that he will even contemplate.
“The deal with Barneys will enable us to learn and give us a toe in the water.
The damage to the brand would be unquanti-fiable if we spent $50m (£25m)
straight away on a new flagship and it failed.
“We are in no doubt. This is the ultimate test. We are learning more and at
some point we will have to be brave enough to say that we have arrived,”
said Green.
Richard Ratner, retail analyst at Seymour Pierce, is confident that Topshop’s
entry to America will be a success. “I know a lot of British fashion stores
have struggled in America, but unless Philip had done a lot of work he
wouldn’t be doing this. He is pretty shrewd.”
Richard Hyman of Verdict Research agrees. “Doing well in American retailing is
very difficult. Doing well in American fashion retailing is very, very
difficult times 10. It is a saturated market, but the key is to be different.
“Topshop is a tremendous business and it has far exceeded what might be
expected from a pretty edgy fashion business. It is in the riskiest part of
retailing, but Topshop hasn’t got anything wrong for 10 years.”
Pressing the button on expanding in America would be risky at any time, but
simultaneously launching the new Kate Moss clothing range worldwide is
extremely bold.
So far the collection appears to have been well received. Topshop became the
first high-street chain to get its clothes on the cover of Vogue this month
with the Moss range, and the magazine raved about her poppy-print chiffon
dresses and striped jackets with matching shorts.
Kate Moss “shops within shops” will be launched across the Topshop empire and
the range will be constantly refreshed. Green has even offered Moss her own
office at Arcadia’s West End headquarters. “This is the right moment, with
the right place and the right brand,” said Green. “We are putting a lot of
energy into this — we can’t do it and not invest properly.”
There will be 91 lines in the collection, ranging from £12 for a vest T-shirt
to £200 and more for a leather jacket.
“The whole issue was that the range had to have credibility,” said Green. “If
we took Kate’s name off it, would we sell it? The answer is, yes we would.”
