Financial Mail

PROMISES

In China, New Look already has 110 stores in smaller cities, and its grand plan is to open up 2,000 stores in that country

- Stephen Cranston cranstons@fm.co.za

for the Chinese market. It’s a savvy move, and Kristianse­n points out that China has 20 times more people than the UK, which is why he has ambitions to open 2,000 stores.

In Europe, New Look has much less lofty goals. Three stores were launched in France and Poland last year and two were closed in Germany.

Speaking of New Look’s recent dismal results, Kristianse­n admitted that the company, while facing a tough market in the wake of Brexit, had also messed up. These own goals included misreading the weather, stocking too many summer items in a chilly April and too much autumn stock in a warm August. It also had insufficie­nt stock of ripped denim jeans, which were in high demand throughout the year.

To rub salt into the wound, it was caught with excess merchandis­e on its shelves, as it planned for 3.5% growth that never happened. In fact, it went backwards.

Today’s New Look, its public relations department will tell you, is all about selfexpres­sion and being first to new fashions.

Kristianse­n says New Look’s products are up to 80% cheaper than fashion brands such as River Island, 40% less than a midmarket brand such as Next and in line with H&M, its most direct competitor. Primark, an unashamed discounter, is often cheaper, but it doesn’t have the range of clothes that New Look does.

Kristianse­n says New Look aims to have clothes going from the design stage to the shelf in less than 13 weeks. In some cases, it takes just two weeks.

As an example, he says New

Look met the year’s fad for kimonos, bringing them into stores in a little over three weeks. And they cost £25 compared to £80 at Zara.

Last year, however, the problems on the shop floor put pressure on New Look’s margins. Practicall­y every week last year, there were markdowns — something which could have been handled better. Suppliers could be squeezed a bit more, to compensate for a weak pound as more than 80% of product is sourced from the top 20 suppliers.

The good news is that Christo Wiese, who owns 40% of Brait, has no plans to jettison the retailer any time soon.

Kristianse­n has deep respect for Wiese who, he says, “gets” retail. More importantl­y, Wiese doesn’t think short-term, even after a traumatic few months, he says.

Other Brait companies are also looking East. Virgin Active says it has a “clear rollout pipeline” in the Asia-pacific region — principall­y Singapore, Bangkok and Australia. It has seven clubs in Asia. Last year it opened two in Bangkok and one in Singapore.

It’s a no-brainer, since Virgin Active’s earnings before interest tax, depreciati­on and amortisati­on grew 427% in Asia-pacific — far faster than the 18% growth in Europe or 5% in Southern Africa.

Virgin Active CEO Matthew Bucknall says many of the gym chain’s practices across the globe trace their roots to SA. Famously, Virgin Active was started in SA when Nelson Mandela asked Virgin founder Richard Branson to rescue the troubled Health & Racquet Club. Bucknall says many of the ideas in the SA business were exported to the UK.

Virgin has avoided the cutthroat US market, where a chain such as New York-based Equinox is a steely competitor.

In Europe, the market is equally competitiv­e. Last year, Virgin sold 36 UK clubs outside central London and, in May, it sold 14 racquet clubs to the tennis pro David Lloyd. Instead, it is betting on the top end of the market in Europe, where it has launched its Collection gyms — which are similar to the top-of-the-range clubs in Melrose Arch, V&A Silo and Alice Lane in SA.

In SA, the strategy is almost the opposite, as it sets about opening low-cost Virgin Red gyms. In 2015, Branson visited the Virgin Red at the Jabulani Mall and seemed impressed.

SA still remains core to the business, with 700,000 members — against 375,000 in Europe (including the UK) and 37,000 in Asia-pacific. While SA may seem a mature market, there were 13 new clubs in 2016, and another three early this year.

As a business, the charm is that it provides highly predictabl­e annuity income.

Bucknall says he is not complacent about competitor­s, such as Planet Fitness and Viva. But with Virgin’s ties to medical aid loyalty programmes such as Discovery Vitality and Momentum Multiply, he’s betting Virgin can remain fitter than the rest of the pack.

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