Brands extension

With more and more top brands now being stocked by high street retailers, are we seeing the emergence of a new generation of department stores? And what are the implications for the brands' standalone stores?

Recently M&S has added brands such as Jack & Jones, Seasalt, Phase Eight and White Stuff to its online offer as part of their Brands at M&S initiative and earlier this year announced plans to roll these brands out to their stores. Clarks is the latest brand to be announced, with products available at eight destination stores as well as online.

So, what’s in it for them?
These partnerships have advantages on both sides. For stockists such as Next and M&S, increasing the range of brands offered broadens their appeal and lessens the point of difference of their competitors. A wider range of brands can drive additional traffic to both websites and stores. Where they are available in-store, additional brands can be an effective way of using surplus store space and can potentially diversify shopper profile as well as increase shopper dwell time.

A lack of relevant, cost-effective physical space is the main contributor to a brand's decision to partner with a larger operator. Stores and online give an opportunity to test a market and can provide access to a broader range of shoppers, without needing the same level of investment that would be required for a physical store. They can also piggyback on existing infrastructure; Next is leveraging its logistics, customer databases and warehouses to provide a `total platform' to allow smaller brands to potentially ramp up performance quickly.

What are the risks?
There is a risk for the larger brand that some sales may transfer from ‘in-house’ brands to third party brands, with a damaging impact on margin. The need for improved margins is likely to be driving John Lewis's reported renegotiations with suppliers to increase their commission fees to c.50%. While Seasalt haven't directly mentioned this in relation to their decision to end the partnership with John Lewis, in favour of partnering with M&S and Next. it is likely to have been a major factor, considering Next charges a lower commission fee (reported to be 38%).

For brands, the finding of a suitable partner which aligns with changing business plans and aspirations, is a key challenge. For example, Nike and Adidas both have flagship stores, where the fitout, atmosphere and customer service is highly aligned with brand values, but they have also benefitted from sales volumes provided through partnering with SportsDirect.

As brands increasingly look to deal direct with the consumer, they are more aware than ever of the need to maintain routes to market that develop and promote their brand values. In response to this, SportsDirect's new Oxford Street store has an improved environment, along with complementary services, with the aim of not only increasing its relevance to brands but also to shoppers

A new generation of department stores?
Partnerships with third party brands is not a new phenomenon - concessions have long been the backbone of department stores. The wide range of brands that are partnering with both Next and M&S begs the question of whether their business model is evolving to become more akin to that of a department store.

Although Next has already taken some of the former Debenhams stores with their Next Beauty and Home concept, and has physical partnerships with the likes of Dobbies and Mamas & Papas, to date they have only had very small areas within larger flagship stores in prime locations for brands such as Phase Eight. Partnerships have instead largely been focused on their online platform, with their future strategy more aligned with providing a department store offering online than on rolling this out to their physical stores. This gives brands access to Next's existing infrastructure, meaning less capital investment required in their own systems, while giving Next the benefit of offsetting the cost of their own online operation.

So far, M&S's partnerships have been limited to their websites. However, the launch of Clarks products in-store as well as online does suggest that in the future they may seek to provide more brands with in-store space. This is more likely for M&S than Next due to their larger stores, many of which have long freehold leases, meaning that they are more likely to have excess space within their stores.  In locations where a department store has closed, this would increase appeal to consumers whose physical access to brands has diminished.

The implications for physical space?
Increased in-store partnerships does pose a risk of portfolio consolidation. Where there is a high correlation in customer profile, brands such as Seasalt and White Stuff may find it more cost effective to have a concession within M&S than to have their own standalone stores. This is a potential option for Clarks, whose new owners will be seeking to reduce their cost base as part of their strategy to return the company to profit.

As both consumers and brands adapt to post-Covid reality, partnerships between brands are likely to increase as both sides seek to minimise the costs associated with both in-store and online sales. For consumers, this will potentially give them access to a wider range of brands in one place online, but there is clear potential for overall demand for physical space to be lessened as brands opt for a lower risk option than an own brand store.

Sam Fox