US chains mend weak links

If you are concerned about the state of retailing in the UK, walking around the American shopping malls shows the European retail overhaul – closures, profit warnings and downsizing – is just the start.

Large swathes of the corporate retail sector in the US are on the Chapter 11 diet and slimming fast, often at the expense of creditors and real estate owners. Yet there are some bright spots and some high growth companies.

In truth, the appearance of many stores is virtually unchanged since my visit last year. Even in new shopping developments the design treatments and visual merchandising are little altered. US retailers are finding it increasingly hard to get a decent return from refurbishment and evolved formats – the capital expenditure cannot be justified.

Beneath the surface, however, there is a frantic level of activity focusing on operational improvements – more efficient business processes in buying and merchandising, supply chain management and data warehousing.

Corporate “unbundling” – selling off pieces of the business – is progressing at a similarly furious pace with major groups like Melville, K-Mart and The Lim

ited either selling off large parts of their businesses or separating them into discrete corporations. Doing fewer things better seems to be the order of the day.

Although marketers may be slipping down the corporate ladder, overtaken by operations and IT staff, creative marketing is booming in some of the high-performance companies.

In speciality store retailing, The Gap continues to impress and despite the maturity of its core Gap format, has created extra growth opportunities either side of its mainstream stores by developing Banana Republic as a more stylish upscale casualwear offer. More recently, it has launched Old Navy as a value-oriented fashion basics business in an attractive but low-cost store environment. Marketing and finance co-exist in harmony. Both formats could be clear candidates for successful European development.

In the “big box” low-cost sector of retailing, also known as the category killers, Home Depot, the juggernaught of the home improvement centre has one of the most interesting new formats, Home Depot Expo.

Having already carved $8bn a year from the construction end of home improvement – more than twice its nearest rival – Home Depot has now developed the smaller Expo format dealing with all of the decorative and soft furnishing aspects of home improvement. The result is very convincing and further cause for alarm if Home Depot eventually decides to settle in Europe.

Other interesting developments include Carmax, the new and secondhand car sales superstore developed by leading electrical goods retailer Circuit City. It is a highly professional operation with fixed prices which takes the sleaze out of used car sales. It is rolling out fast and seems a natural for a European out-of-town retailer to develop.

Baby Superstore is another high-growth format but 60,000 sq ft seems top end for the infant market, even by American standards.

The fashion for flagship retailing – or “concept stores” also continues apace, with the latest clutch of high-profile Manhattan stores including Calvin Klein, Liz Claiborne, Levi’s and Ann Taylor. Warner Bros, is adding a further four floors and the next Nike cathedral is still under construction.

Some of these will contribute profits but many will never show a direct return on investment in a strict retail sense. Nor are they expected to – this is part of the marketing budget and a number of firms clearly believe it is a more effective means of communication than ads alone.

Perhaps the most dangerous territory of marketing is balancing the positioning of outlet stores against full-price stores. The outlet stores of major clothing brands such as Ralph Lauren and Tommy Hilfiger are getting more and more attractive and more accessible to a very wide customer base. The same is true for the major sports brands.

How much further can that go before the customer loses faith with the brand values and the premium pricing? In our smaller, geographically concentrated European markets, the potential conflict may be an even greater danger.