Planet Retail Exclusive Interview: George Executive Managing Director

Transcription

1 Planet Retail Exclusive Interview: George Executive Managing Director L ast week, Asda s clothing arm George exchanged contracts with the owners of the Türkmen Group to acquire the sourcing division of its Istanbul-based supplier GAAT. The latter is George s largest supplier, working with over 80 manufacturers to manage garment production on behalf of the UK retailer in key locations such as Turkey, Sri Lanka and Egypt. The acquisition follows similar moves such as the 2009 takeover of South Africa-based International Produce (IPL) which now sources fruit and grocery items for Asda as well as other countries in which Walmart trades. Following the move, Planet Retail Senior Retail Analyst Isabel Cavill spoke to Andrew Moore, Executive Managing Director of George at Asda, to discuss the implications. What is the reasoning behind George acquiring GAAT? We ve been working with GAAT for 12 years, we have an exclusive relationship with them and they are highly professional and I certainly see us being able to get a genuine competitive advantage through their capability for highly professional sourcing. So I want to integrate the GAAT operation into our George business so that it is no longer going to be a standalone sourcing arrangement like some other retailers have constructed. We want to take that team expertise and experience and plug it into our George product design and process so it will be a seamlessly integrated business. Does that have implications for lead times? George at Asda Executive Managing Director Andrew Moore says that the acquisition of GAAT will help reduce lead times for the brand. George This is a hot topic because of the competitive state of the UK market and the volatility of sourcing around the world. Last year, we had to contend with cotton prices going through the roof and the cost of manufacturing in China and other locations. What we are going to be doing with the deal is bring our production closer to home. We do actually produce some products in the UK now, not an awful lot, but enough to see the benefits of sourcing so close. We use seven factories in the UK and have increased supply from the UK by over 80% in the last year. George works with 700 factories in 23 different countries. Currently, around 15% of our production is now closer to home and of course with the acquisition of GAAT we will be looking to grow that. Locations like Turkey represent a lot of opportunities. Turkey, for example, is six or seven days away from the UK by truck and it s a centre of excellence for fashion manufacturing. There are a lot of manufacturers there, a lot of capability and a lot of experience. With this deal with GAAT, we will be able to get our lead times down from three months to within six to eight weeks from design to landing onto the sales floor. Our designers are now working very closely with GAAT [now George] on sourcing and it s going to take a lot of time out of the process and a lot of iteration because we will now be one business. - Planet Retail

2 Does this mean that you are moving to a model similar to Inditex? The Inditex model is interesting because it was started by the Ortega brothers and the Ortega brothers are manufacturers. It is a model to aspire to. What we are trying to do by creating a sourcing capability and plugging it into our development capability is marry the retail and buying expertise to create one business. We don t have to do this with every part of the business as our essentials lines are products that can have longer lead times. However, for fashion - where it is so volatile and ever-changing - I want to get to a situation where we can respond to new and emerging trends and customer requirements rather than anticipate what they are. Through this we can build a range that shoppers want and respond to it with shorter lead times. After the Middle East, do you have any further expansion plans? As a business, we have an ambitious growth plan for the next five years and that involves genuine growth in the UK. We still see significant opportunity to grow in the UK and internationally with George as a franchise. We re also developing some interesting plans with Walmart to merchandise George [UK] clothing as you would see here today in the UK in Walmart stores around the world. That would be a significant opportunity for us. George George is looking to produce its more fashionable items in manufacturing centres of excellence like Turkey. 2 Planet Retail

3 You can find George in Bentonville in Walmart stores but it s not merchandised by the UK team. We do see an opportunity to leverage scale and really focus on George as a centre of excellence for Walmart so we see opportunities to take the merchandise from the UK and offer it in Walmart stores. So, we are going to do an interesting trial in Chile that will kick off in a couple of months time. This will see our womenswear merchandise selling in Chilean Walmart stores. We want to see how we can take UK-developed merchandise and sell it in overseas locations. Why did you choose Chile? We had a discussion with the management team in Chile and they were very keen to take the George brand. They like the merchandise, it s a Walmart in the US currently does not stock the same George ranges as in the UK. developing market, it s quite fashionable and so it was a good fit for us to start with. The Southern Hemisphere does add a certain challenge to the deal but we ve got around that. The Q1 merchandise is women s fashion sourced from Turkey - we used Turkey to respond quickly. We ve used the A/W range which will go on display in their stores in May [which is their start to A/W]. By deliberately using a 16-week shipping route, we ve only had to warehouse for two months and this also keeps costs low. Planet Retail Are you likely to roll out the range to South Africa? Well, I used to work in South Africa so I know the market reasonably well. I think there is an opportunity for us there. It s not a top priority at the moment - we have other things to do - but we certainly aren t ruling it out. Is there a risk that the George UK brand will lose its character if it is integrated more closely with Bentonville? No, we re not integrating in that way. George operates a separate head office in Lutterworth [Leicestershire, UK] and we re not in the same head office as the food business. I run it and I have my own Board of Directors so we have our own dedicated George team. Walmart is very proud of the George business and understand it s probably wise not to tinker with it! However, what is great about Walmart is that it is the largest company in the world and we consider ourselves to be a UK business powered by Walmart so there are great opportunities for us. I mean can you imagine how much denim Walmart buys? Furthermore, when we saw the opportunity with GAAT we put the business case together, presented it to the Walmart Board, the Board liked it and we bought them. - Planet Retail

4 Why did George choose Azadea as a franchise partner? Franchising at the moment is a bit like a marriage so we spent a lot of time looking at potential franchise partners, looking at their business, looking at their values, looking at how they operate and we found that with Azadea their culture and values and priorities fitted really well with the values of George. We visited their offices in Beirut [Lebanon] and there were things like open-plan offices and an absence of hierarchy - the way that they were dealing with each other was very similar to the culture that we have at George. We visited the stores they ran and were very impressed with the way they handle the Inditex stable. But, it was more about the retailing standards - they are really good retailers. Why the Middle East - is there a market out there for value brands? It s a big clothing market, a USD90 billion market. Obviously, we are very conscious about the number of big UK retailers that have gone out there. We think there is a gap in the market for a good, professional, high-quality, stylish value retailer. We spent a lot of time analysing the markets and the opportunity in the Middle East was so compelling that it seemed to be the right place to start. Just looking at demographics - the average age of customers - we think there is an opportunity for kidswear and obviously for us we think we can do extremely well with this category. However, we re not just focusing on kidswear; it will be a family offer so we will be retailing kidswear, womenswear and menswear. What is your positioning in the Middle East? We want to go into the Middle East with exactly the same positioning as we have in the UK - not necessarily exactly the same pricing because of the costs of getting the stuff out there but in terms of offering stylish, fashionable, high-quality value clothing. We will be offering Middle Eastern consumers the same ranges as in the UK. We ve done a lot of research on it and we are very confident that at least 90% of what we have in the UK will be appropriate for the Middle Eastern market. We re going to start with that but clearly we re going to learn and there may be a need to modify as we go along but that will be further down the line. If we get 90% of it right with our UK offer then that ll be a big success story for us. When are you opening your first store? Our first store will be opening in the summer this year. We haven t got the exact date yet. It will be a standalone unit in a shopping mall. It will be a genuine franchising relationship so we will take pretty tight control of the look and feel of it and the marketing of the store, POS fixtures and layout. 4 Planet Retail

5 Do you have any plans to re-open George stores in the UK? No standalone store openings are planned for the UK. The high street is not a good place at the moment, fewer customers are going to the high street, the internet is growing rapidly and multichannel is a huge opportunity for us. I m delighted with the way our dot-com business is going, making 50-60% increases on the year. George. com is helping us to become a genuine global multi-channel brand and that is our ambition. That is what we are doing with our foray into franchise markets this year, the development of our business with Walmart and the investment in our new website last year. We also have 18 million customers going through our doors every week to buy food so we have a great base on which to convert customers to buy more George clothing. George is merchandised as Asda in UK stores - the brand has seen strong demand with customers wanting more products in smaller stores. Planet Retail There is a problem with big-box stores at the moment. Has George been affected? We have total control over the layout in the big stores. We do our own planograms, our own layout and they are managed separately. We see a big opportunity with Netto. We have been talking to customers and they keep saying that they want more George products in these stores so we see convenience shopping to be as appropriate for clothing as it is for superstores. We are still learning about what we need to offer in those stores but we know we can do more. It s about choice. Customers want choice for clothing. In the large stores, the George business is doing well. We had a great Christmas, a great [fourth] quarter and I m really pleased with the momentum that has continued from where we were in business [last] week. We did this not through discounting, not through sales, not through a lot of offers. We traded on a full price platform and customers valued that and they know that they re getting good quality and genuine value and we are looking at what more we can do around product, positioning and in some cases we are looking to reposition our kidswear. - Planet Retail

6 Apart from the relaunch of George.com, what is next for your multichannel offering? Over the next few years, multi-channel - giving our customers more ways to shop and flexible delivery - will be a key part of our growth strategy for George. We have some exciting initiatives launching this year and next so watch this space. As you know, we already operate In Store Collect - it too has had an impact on sales with more than 50% of online orders for instore delivery coming from George customers. It is proving very popular in those areas with a new Asda Supermarket [former Netto store] as there is free instore delivery on online orders which means customers have the full George range at their fingertips. Instore collects at the newly-converted Asda Supermarkets are more than 75% George. What, in your opinion, is the outlook for the value sector in the UK? There could be more consolidation. Part of the challenge now is for those businesses that are heavily laden with debt. I think there may be consolidation but will have to wait and see. However, overall I see a really positive outlook. I am looking forward to trading this year. We started the year with momentum, making market share gains in every area of our business and our understanding is that customers are not looking for gimmicks. For the George brand, we want to lose the words for a. What really rankles me is that journalists and media say oh, you ve got a good range of womenswear for a grocer - we need to lose that. I want people to come to us and say you ve got a great range of womenswear, period. They are already saying that for kidswear and that is our objective for womenswear and menswear. What really rankles me is that journalists and media say oh, you ve got a good range of womenswear for a grocer - we need to lose the words for a. 6 Planet Retail