Are concessions a sign of weakness?

Although retail concessions often benefit both parties, they can be a sign of the host’s shortage of ideas – or sometimes the fit just isn’t right. Amanda Wilkinson looks at the omens for WH Smith

Retail concessions are generally billed as a “win-win” for both the host retailer and the incoming brand, but the benefits are not always so clear-cut.

Retail analysts are already querying the reasoning behind WH Smith’s decision to give concessions to Virgin Mobile and Costa Coffee (MW last week). As part of chief executive Kate Swann’s plans to revive the troubled retailer, a contract has been granted to Virgin Mobile to test concessions in eight stores.

WH Smith has also extended its relationship with Costa, giving the chain the right to install concessions in 20 stores in addition to the four that are already in place.

Mintel retail analyst Richard Perks doubts that WH Smith has the excess space necessary for concessions. He thinks the store should instead “focus on a few areas, offering its own merchandise and delivering it with authority”.

Nick Gladding, an analyst at retail consultancy Verdict Research, also has concerns over space and believes the retailer should concentrate on getting its core offer right rather than looking for “a quick fix” by introducing concessions.

He adds: “WH Smith is more of a convenience store: people don’t necessarily spend long in the shop and I’m not sure that having Costa there will improve that.”

A number of book retailers are already in bed with coffee brands – Costa has deals with Ottakar’s and Waterstone’s and Starbucks has outlets in Borders stores.

A WH Smith spokeswoman denies that space is an issue and says the retailer has identified a number of large stores with excess capacity. She says the concessions will not take the place of WH Smith’s core ranges and that work on improving its own product offering is continuing “simultaneously”.

But Mark Dickens, a director of retail design agency Astound, says: “I would question whether the concessions will enhance cross-selling into WH Smith. The main advantage of them is revenue generation, rather than any ‘halo effect’.”

WH Smith refuses to be drawn on the financial details of the deals, but concessions generally take the form of either a straight rental agreement or an arrangement whereby the host retailer also takes a share of turnover or profits. In any event, a concession offers the “paying guest” the chance of a retail footprint without the long-term commitments and overheads associated with a standalone shop.

It also gives a brand a guaranteed set of customers through the door, and the chance to expand more quickly. Virgin Mobile already has 92 concessions in Virgin Megastores and Xpress outlets and the WH Smith deal will take the brand to other prime high street locations and a wider market.

It goes without saying that concessions work best where there is a natural fit between host and concession operator. One deal that did not work, says Dickens, was that between Costa and Abbey. It failed, he says, because the bank found that although customers were prepared to take time to drink coffee, they weren’t necessarily prepared to discuss financial services products.

Although not strictly speaking a concession arrangement, the joint venture whereby Sainsbury’s took implants from Boots in place of its own dedicated aisles also collapsed. A Sainsbury’s spokeswoman says: “We decided we could do it better for ourselves.”

At one time, many expected supermarkets to grant concessions left, right and centre in order to offer their customers other products and services. But many UK supermarkets prefer to offer extra services on their own terms, believing they have the brand and buying power to stand alone, rather than aping the “galleria” effect of hypermarkets such as Carrefour on the continent.

Although it has 220 concessions in its stores, Asda has taken a different approach since its purchase by Wal-Mart, which gave it access to a wider range of goods. An Asda spokeswoman says: “Recently, when contracts for renewing concessions have come up, we have opted to convert the space to Asda products.”

Sainsbury’s has decided only to offer concessions to well-known brands for services in which it does not have sufficient expertise – Thomas Cook travel agents and Sketchley and Persil-branded dry cleaners being cases in point.

The traditional home of concessions in the UK is the department store, where beauty and fashion brands are quick to rent space and create their own environment and host retailers are eager to take the cash. But even here it is a question of fit: Selfridges is considered by many retail analysts to have perfected the art, using concessions to reinforce its image as a destination retail brand.

John Lewis, one of the UK’s most successful department stores, takes a different approach. It refuses to give space to concessions, preferring instead to manage its own space and to deal with brands on a sale-or-return basis.

Director of retail operations Gareth Thomas says: “We believe that it’s our name that counts most with consumers. We spent decades establishing a relationship based on trust and we want to take care of it.”

While some retail brands make perfect partners, it seems that other pairs just don’t match – and many don’t even feel the need to try.

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