Sunday, March 30, 2014

We’ll take Karen Millen upmarket – all the way to newly rich Mongolia

As boomng fashion chain Karen Millen heads upmarket with new stores for New York’s Fifth Avenue and London’s Knightsbridge, it comes as a surprise to hear chief executive Mike Shearwood also talk enthusiastically about a launch in Ulan Bator, the capital of Mongolia.

It seems an odd choice, but Shearwood is convinced the newly wealthy women of Asia are a key market.

‘I had no idea where Ulan Bator was until one of my team came up with a proposal to open a shop there,’ he admits.

But he believes Mongolia fits well with the strategy of targeting the world’s shopping elite.

‘In emerging markets there is a growing number of independent women with access to money – and they want to wear brands like ours. In any country with natural resources in abundance, there’s newly generated wealth,’ he says.

The edge of the Gobi Desert marks an extraordinary new direction in the history of Karen Millen, but it is a firm that has never failed to beat the odds. Its founders, Karen Millen and Kevin Stanford, set up the firm in 1981 with a loan of just £100, selling shirts to friends. A shop in Maidstone, Kent, followed and in 20 years it had become a household name.

Then in 2004 it was taken over by voracious Icelandic retail group Baugur and ended up mired in that country’s economic meltdown.

But while foreign expansion is key to the firm’s plans, Shearwood, 51, who helped spearhead the launch of the highly successful Zara in the UK, is also looking closer to home.

Next month in Knightsbridge he will open its biggest ever store as part of a plan to raise its profile in the UK and establish it as a design house and not just another retailer.

‘We’re a fashion house and we need to make sure people in the UK see that. We don’t buy in products like high street retailers. Everything here starts with a pen and a blank piece of paper,’ Shearwood says. He believes it is a distinction overseas shoppers appreciate even if many British shoppers don’t – yet.

About 18 months ago, after a split from its parent group Aurora Fashions, Shearwood and his team began repositioning the brand in the UK. ‘Our fabrics are primarily Italian. We use European yarns, Italian leather, the lace is from a mill in Calais that also supplies Stella McCartney. We don’t buy in prints, we hand draw and paint our own using a print house on Lake Como,’ he explains. ‘We’ve always had that, but perhaps we haven’t communicated it well.’

The shop in Knightsbridge is located between Harvey Nichols and Harrods in a site previously occupied by Benetton.

It is three times the size of Karen Millen’s current biggest store in Regent Street.

‘We chose the location to represent us in the UK as it is heavily shopped by international customers. They come here and want to see the true evocation of the brand and we’ve never really been able to give them that until now,’ Shearwood says.

Only weeks after it opens, a second flagship store will open in New York. The stores are part of a plan to seal its reputation as what fashion experts call a ‘bridge’ brand – not quite as luxurious as Burberry and Gucci, but more exclusive than its current high street rivals Ted Baker, Reiss and Whistles.

Shearwood says: ‘We only make 150 or 200 pieces of a lot of our products. If you divide that by the number of stores worldwide – about 440 – you can see we have some very exclusive product. But any excess stock from overseas was brought back and sold in the UK.’

In effect the UK became a convenient place to clear stock. He adds: ‘We’ve looked hard at this and we’ve set out to ensure there is more control here in our domestic market.’

In autumn, Shearwood pressed the button on his new strategy. The firm cut the number of markdowns by 70 per cent. The strategy coincided with an outbreak of what many saw as panic discounting by high street fashion chains over Christmas. It appears to have helped Karen Millen emphasise its exclusive status.

Last year profit was £13 million, but before Shearwood has a chance to tell me if this has dropped with the changes, finance director Andrew Ware, who is listening attentively, quickly intervenes.

‘There has been a lot of investment over the past year,’ he says, indicating this is all the firm will say at the moment until the numbers are digested by the board. It is perhaps inevitable the UK has become the poor relation.

Shearwood says 70 per cent of the firm’s £300 million sales are overseas.

It trades in 66 countries and was among the first British fashion brands in Russia – still its second-biggest market.

When not abroad surveying the global business, Shearwood’s evenings are spent meeting overseas partners or commuting back to the Midlands, his wife and family.

The rest of his spare time of late has been spent going to the Alps, where he finds keeping pace with his daughter and five sons skiing black runs grows more challenging with each winter.

In the long run, Karen Millen’s 90 per cent shareholder, Icelandic bank Kaupthing, will almost certainly sell or list the firm. But Shearwood says that is not a short-term prospect.

In the meantime there is a question mark over some of its 48 UK stores and 40 concessions.

‘We probably have too many locations to retain the level of exclusivity we desire. So we’ll look to slowly reduce that and get a balance between shops and online,’ he says. But he insists the new flagship stores are not just about prestige.

‘We’re not in a position to have vanity stores. Our pockets aren’t deep enough. They all have to work and they all have to make money.’

Including the one in Ulan Bator.

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