Every retailer has a silver lining in its brand equity

In a changing retail world, brands have to learn to adapt if they don’t want to fall into the administration black hole.

lola and grace
Lola&Grace is jewellery retailer Swarovski’s more affordable brand

With HMV, Jessops and Blockbuster going into administration in the past month, the message to retailers is clear: diversify or disappear. So says Marketing Week columnist Mark Ritson, who last week spoke of brand extensions as being ‘the eternal gift that brand equity gives an organisation’. He also warns of vanishing ‘into the digital sand’.

With this in mind perhaps, both Tesco and Sainsbury’s are thinking beyond their grocery heartland, in buying streaming providers, with Tesco’s Blinkbox claiming its best trading figures to date, in the second week of January, following its launch campaign last November. Meanwhile, Sainsbury’s will launch a digital video service this year, after it acquired of online entertainment company Global Media Vault. It has also bought a majority stake in aNobii, a social network and retailer of ebooks.

As the British Retail Consortium’s Retail Sales Monitor report for the five weeks to 29 December 2012 found, the discrepancy between the rate of growth for food and non-food has been narrowing in recent months, to the detriment of food. Indeed, non-food is growing at three times the rate of food at Sainsbury’s (see Q&A). It also finds that while overall retail sales in this period were disappointingly low, online sales were up 17.8 per cent, the fastest growth since December 2011.

Sainsbury’s head of digital and cross channel Mark Bennett says that this push is helping the brand look to the future. “The recent acquisitions, partnerships and launches show that we are constantly looking to innovate and seize opportunities that will support the future growth of our business.

“On-demand, digital entertainment is an exciting addition to our online offer, and the trend for people to enjoy their favourite movies, music and books when and where they choose.”

Shopping is still a highly tactile and visual experience, but the merging of the physical and virtual world is having a huge effect on the way people shop. “We have an ambition to be the world’s leading multichannel retailer,” says Michael Comish, chief executive at Tesco Digital Entertainment. “This reflects changing consumer needs and expectations and the increasingly global nature of our business and it is critical to our success over the coming years.”

Every retailer has a growth strategy and while some are looking internationally to achieve that, others are working to diversify what they do in their home territory. With a new identity designed by marketing agency Gratterpalm, Asda relaunched its 10-year-old financial services offering as Asda Money in July 2012. It put the Asda Money credit card at the centre of the campaign. “We were the first supermarket to offer an unlimited cashback card. We believe that financial services products should be friendly and straightforward, and you shouldn’t have to be an expert to buy one,” says Asda Money head of marketing Joanne Donoghue.

For Martin Gill, Forrester’s principal analyst of ecommerce and channel strategy, getting into digital services is one of the most fertile places for retailers after financial services and mobile phones.”Like the car 100 years ago, digital is changing the world and brands that derive part of their revenue from industries challenged by digital disruption have got a clear choice: either embrace it or fail.”

tesco blinkbox

Tesco, as one of the UK’s leading retailers for movies and TV shows, music and books, says moving into these digital areas is a response to how consumers choose to enjoy those products. “Offering a digital version of books, movies or music is a further example of what Tesco does best – staying close to our customers and anticipating their needs as technology changes the way we shop,” claims Cornish. 

“From a broader business perspective, the services we have acquired complement each other and as high emotion and high frequency categories, they also complement Tesco’s broader e-commerce offer by helping to attract and engage customers.”

Bradford-based Morrisons is one retailer that announced disappointing financials in the crucial Christmas period, with like-for-like sales falling by 2.5 per cent in the six weeks to 30 December 2012. Like others in its sector, the supermarket chain is looking to the online retailing sphere to alleviate these issues, and the purchase of baby superstore Kiddicare in 2011 is a crucial part of this strategy. “Not only was Morrisons acquiring a profitable business, but also its people, who knew what they were doing online,” comments a Morrisons spokesman. “As well as a successful e-commerce business in Kiddicare, it had built a great platform that we [Morrisons] could use in other ventures.”

While some regard new territories as the online sphere, a leap into a new product area or a combination of the two, others target new markets. At a time when value fashion behemoth H&M has announced a forthcoming luxury line, high street stalwart Gap is moving into that sphere with the purchase of Intermix this month.

Gap already runs five retail clothing divisions designed to tap into different markets and Banana Republic, its premium clothing retail brand, is the result of an acquisition 30 years ago. By purchasing Intermix, Gap has acquired a small US-based luxury apparel retailer and a potential launch pad into that sector.

“This is a relatively small and opportunistic acquisition that enables Gap to enter into the higher end luxury, contemporary apparel market,” says Gap spokeswoman Edie Kissko. “Intermix presents an opportunity for us to further penetrate this area of the apparel market with an established brand.”

Arguably, the acquisition gives Gap a potential longer-term opportunity to develop and sell its own luxury brand offerings. However, Mintel director of retail research Richard Perks is not convinced: “Most retailers have done diversification well but there is another move to diversification that is much more dangerous and that is moving into unrelated areas – I put Gap’s acquisition of Intermix into that category.

“If you are going to diversify, you have to do it from a position of strength and I don’t think Gap is in that position. It doesn’t really know what it stands for and where it is going.”

Everything that glitters is not gold but in a multi-faceted high street, one luxury retailer is finding there is money to be made at the lower end of the scale. While Gap reaches for the luxury market with Intermix, high-end jewellery retailer Swarovski branches out into the more affordable category with its new brand lola&grace.

The flagship store opened in Westfield Stratford last March followed by a further outlet in Brent Cross shopping centre in July. With sparkling retail environments strewn across the globe, this youth market experiment has a price point from £20 to £60 and a strategy of using the UK’s competitive waters as a test bed.

“We saw the potential to launch a brand offering premium fashion jewellery within the affordable fashion jewellery segment, a segment below the core Swarovski brand,” says Nina Muller, head of brand at lola&grace. “The brand values are very much related to our target shopper of an expressive, confident, collected woman and this is how we, as a brand, see ourselves.”

Lola&grace is the first in-house brand Swarovski has launched and is in line with its target to develop a portfolio of brands within the jewellery and accessories market. Although no financials have been released, Muller states that there is a continuous improvement on every key performance indicator. Another three stores will open in the UK in 2013 as well as launching a retail presence in Italy.

“When it comes down to the quality of the product and the crystals that we are using – we mention that we are part of the Swarovski group,” explains Muller. “This is because Swarovski is an aspirational brand and that in turn adds value to lola&grace.”

That is all very well, but how can a retailer start to do this? They have to ensure they are standing strong before they make moves. “On the whole, retailers are better if they stick to what they know,” says Mintel’s Perks. “If there is an absolute golden rule to retail diversification, it is to ensure the core business is strong before you even think about it.”



Robbie Feather
Business unit director of general merchandise

Marketing Week (MW): When was Sainsbury’s Home & Lifestyle launched and what were the drivers for launching that side of the business?

Robbie Feather (RF): Non-food is a major growth driver for us and we launched our general merchandise business in 2004.

Before launching it, we spent a lot of time talking to our customers and one of the big things they told us they wanted was being able to get access to better non-food products without having to compromise on the quality, service and price they have come to expect from Sainsbury’s.

In our first year, we launched with 2,500 of our own brand and branded homeware products into 95 stores, and now general merchandise is sold in more than 300 stores.

MW: What does the Sainsbury’s sub-brand of Home & Lifestyle encompass?

RF: We have our own in-house design team working on everything from product to packaging. Our goal is to help our customers ‘live well for less’ so we will explore any product that can help achieve this. This is why our general merchandise business is diverse; it spans products for the home and garden, appliances, technology, games, sports and leisure – for example, customers can choose from Tupperware that helps make food go further right through to toys that aid baby development from our Sainsbury’s Grow & Play range.

MW: What synergies and differences does it have from the core grocery brand?

RF: Our core values of great quality, service and value sit at the heart of everything we do and bind our non-food and food business together. It’s why customers trust us and give us the permission to explore new opportunities. 

In the case of general merchandise, the challenge lies in being able to recognise where our customers have different needs to our food business and acting on this information. The potential for our own brand penetration (Basics, By Sainsbury’s and Collection) is also greater in our non-food business.

MW: How well does Sainsbury’s Home & Lifestyle perform financially?

RF: Our non-food businesses continue to grow at three times the rate of our food business. In many categories we are growing faster than our competitors and our market share is up in our big categories like home and electricals. Direct sourcing, in particular, has helped us forge better relationships with our suppliers and provide better deals for our customers.

Case Study: putting a stamp on it

post office

Adapting in order to survive, the Post Office brand split from Royal Mail last year and continued to engage in a programme of brand extensions that aim to make it more than simply the place to go to send letters and pick up pensions.

Rather than a choice, the strategy of moving into new business areas has been necessary for this well-known brand and the extensions have contributed significantly to the Post Office’s financial health.

“Because of our ubiquitous coverage and our low cost to serve, our telecoms business and our financial services business have driven the profitability of the Post Office particularly over the past few years,” says Martin Moran, commercial director at Post Office Limited.

“Without these businesses, this company would be in a different financial position – they have been a fundamental growth engine.”

The contemporary Post Office has four businesses: two are traditional, offering mailing and government services, such as welfare payments and passport services. The two newer business units have fulfilled its aspirations to tap the financial services and telecoms markets. In both cases they try to deliver a genuine alternative to retail bank brands and other telecoms offerings.

The Post Office Financial Services business, for example, has 3 million individual customers and £17bn under deposit. The most recent offering is the Travel Money Card, a pre-paid card available in eight currencies.

In telecoms, the Post Office is the sixth largest UK operator for home phone and broadband and is introducing a mobile service within the next 12 months.

Supporting this move into a range of new product offerings is a branch modernisation programme, through which 6,000 of the 11,500 stores will be relaunched with a contemporary design. The initiative is branded Post Office and Moran believes the key to expansion into other areas needs to be underpinned by high quality products and, where it can, low price.

“We see greater value for both our customers and ourselves in moving away from being just a channel business to becoming more of a mainstream retailer in

our own right,” explains Moran. “Our strapline is ‘Handle With Care’ which is to say that in every interaction – whether in branches, through call centres or on the internet – we take care with our customers.”  


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