January 13, 2006

gardeur fashion man Hiltrop talks food retail

Klaus C. Hiltrop, gardeur ag (photo: Ludwig Heimrath)
Klaus Hiltrop: "Customers want a story" (photo: Ludwig Heimrath)
Sometimes it is worth looking over the fence of one's own industry in order to gain cross sector insight. When food retailers meet, all too often it is only to commit intellectual incest.

For this reason, we asked Klaus C. Hiltrop, sales & marketing director at Mönchengladbach-based fashion company gardeur ag, how he views food retailing.

Hiltrop (57) has been active in the fashion industry since the 1970's and is an eloquent commentator on retailing and brands. The charismatic manager was one of the first to predict the demise of Marks & Spencer when it came to Germany in 1996. He was bitterly disappointed after a visit to their first store on the Schildergasse in Cologne.

Klaus Hiltrop is also no friend of the factory or designer outlet centre. He sees this distribution channel as a dangerous dilution to brands.

As a fashion manager who has always lived by the power of labels, his comments on retail brands are therefore doubly instructive.

"Both industries could
learn from each other"

Herr Hiltrop, how do you feel as a fashion man when you shop at a German food retailer?

It's interesting that you talk about 'feelings'. Emotions are the things which influence occasional shoppers. There are parallels between the fashion and food trades.

For us, the principle of 'freshness' is also of great importance, whether that be shop lighting or the newness of the latest offer.

You live in Würzburg where there used to be a large Wal-Mart store. Did you enjoy shopping there?
Not at all, there was no atmosphere in the store, and the goods were not presented in an attractive way. But what generally puzzles me about German food retailing is that hardly anyone seems to try to position themselves in any other way than claiming that they are the cheapest.

So no positive examples?
I can only think of the regional superstore operator Tegut. As a consumer I trust their ecological credentials. I very much appreciate their organic offer in, for example, the bakery and produce departments.

As a brand manufacturer, how do you rate the way German food retailers market themselves?
Their conception of marketing seems to begin and end with pages and pages of special offers. A marketing statement based exclusively on price doesn't exactly encourage the consumer to explore the assortment. As all the food retailers seem to be on a price trip, every offer looks very much the same. Perhaps, however, a housewife on a low budget would see this differently.

How much marketing potential lies dormant in retail brands?
Couples with two incomes are usually under time pressure. Money is time, which is something food retailers could make much more out of. Surely, food retailers could offer such cash-rich and time-poor customer segments something more than just low prices?

Customers like a good story line, and brands are very good at telling stories. Why don't retailers let them do so?

One could almost view the price fights among German food retailers as a conspiracy not to earn money. Have you experienced this sort of thing in the fashion trade?
Here I think you can apply the following saying; 'Those who complain about the competition are really only complaining about their own lack of ideas.' The fashion trade also went through its own set of 'rebate wars' like a bout of measles.

In the end, however, everyone found that all the margin destruction hadn't changed market share and that everyone had lost. It just ended in a field day for new operators with different concepts.

I mean the so-called 'vertical' concepts which are totally focussed on a particular customer segment and who control their own value-added chain.

How can 'classical' suppliers and retailers survive?
Only by changing the way they interact with the customer and by making fundamental changes as to who is responsible for what. Those who make such changes have been surprised at their unexpectedly high growth and productivity gains.

In German food retailing too much shop space chases too few customers. Is it the same in fashion?
Yes, but in both industries the amount of shop space doesn't say anything about its quality. In a country like Germany, where consumers have a tremendous amount of spending power, they are still open to radically new sales concepts which really meet their needs. Again, the saying pertains: 'The even better is the enemy of the just good.'

In terms of urban geography, the food and fashion trades seem to favour different locations. Fashion is generally found in department stores and specialist shops on the inner city high streets and food retailers are increasingly found in big box stores on greenfield sites. Who is in the right place?
You can't generalise, particularly as both trades are becoming increasingly intermixed. Remember that there are many driving forces behind consumption and consumer choice. But even in fashion retail, there are some interesting experiments, for instance, where specialist fashion stores have located themselves next to big box hypermarkets on greenfield sites.

But do they make any money?
They certainly profit from the more advantageous profit structures at those sites. Lower personnel costs and store rentals certainly help the profit equation. These sites also give fashion retailers the space to present their assortments.Here again, however, whether in food or fashion, half the trick is presentation.

 How do things look in the fashion trade on the inner city high street?

At least as far as the bigger cities are concerned, nearly all the small and medium-sized enterprises have left inner city areas. The only ones who have survived are the multiples and 'vertical' operators, with their streamlined organisational structures, perfect mastery of the value-added chain and clearly-defined customer target groups.

Closing hours are still limited in Germany; to what extent do they hurt your business?
I don't think you can underestimate them as a killer factor. Particularly retailers in medium-sized cities have come under considerable pressure from shopping centres with extended opening hours. These shopping centres are now a real alternative to shopping in town on Saturdays.

Does it worry you that three food multiples are also among the top 10 textiles retailers in Germany?
Mere size is no guarantee that you are going to survive, as department store operator Karstadt has learned to its cost. That said, the concentration in German retailing has increased concentration among suppliers more than in the fashion trade. Clothes suppliers in Germany have remained small to medium-sized enterprises.

On the other hand, German clothes suppliers don't just serve the local market, they often also supply European markets and sometimes even world markets. They are therefore harder to blackmail than food manufacturers.

Do you think concentration a good or a bad thing?
I worry about the loss of creativity and plurality on the supply side of the market when there is heavy concentration within any industry. It reduces choice for all concerned.

How much more potential do you think that Aldi, Lidl/Kaufland and Tchibo have in clothing textiles?
I think that the main sales concepts, at least as they stand today, all passed their zenith a long time ago. These retailers have had to learn that textiles are also products with short sell-by dates. Customers are becoming increasingly choosy regarding the level of fashion as well as the range and competency of the assortment. This imposes definite limitations on any attempts to create a mass consumer business.

German department stores have been in trouble for years. To what extent do you think that shop-in-shop concepts offer a solution to structural problems in the sector?
It has now become very fashionable to pronounce the demise of the German department store. But gardeur's successful cooperation with both Kaufhof and Karstadt has led us to arrive at a very different conclusion. Both companies enjoy considerable customer footfall. Where these companies were prepared to invest, they have succeeded in making their offer more homogeneous and more lifestyle-oriented.

Do you set any pre-conditions when you enter into a shop-in-shop agreement with a retailer?
We insist when we take over retail space that we are allowed to provide the customer with adequate service and depth of assortment. We are very happy with the high return achieved per square metre sales space. We believe that this could serve as a model for further co-operation between retailers and suppliers.

We also believe that shop-in-shop agreements provide the consumer with more knowledgeable service which increases customer loyalty. The shop-in-shop concept is an important interface with the consumer. Our mutual goal must be to clearly exceed customer expectations.

But, if one thinks the shop-in-shop concept through to its logical conclusion, doesn't it mean that the department store operator has failed at his job?
I think you can interpret this in a different way. I really respect retailing when it is done well. That is one of the reasons why gardeur never tried to be a retailer. I am convinced that all you need to do is to change who does what. The retailer brings vital knowledge of the consumer into the overall success equation. This is essential for targeting the customer.

We invite our best shop-in-shop partners twice a year to form a panel at our head office. The insights we gain through this have lead to an extraordinary increase in sales.

What is the role of the retailer in any shop-in-shop cooperation?
The retailer must be responsible for creating the right framework on site. The retailer must provide us with a flow of customers, and we are then responsible for our assortment. We have mutual business plans which set out the goals we wish to achieve. When two partners work in this way, it doubles their strength and benefits the consumer. It is also the right response to the challenge thrown down by the 'vertical' operators.

Asda in the UK has been moderately successful with its 'George' fashion own label. Can retailers really make a success out of own label?
The vertical operators have proved that fashion own labels can be successful if the retailer is prepared to learn with the customer. However, this is not easy on the textiles market. Brands not only possess emotion and customer loyalty, they also have a higher level of fashion, freshness and speed, which governs today's market.

Presumably, as a brand manufacturer you view all retail brands with a considerable degree of mistrust?
Our existence depends on the brand. A lot can go wrong in our trade which doesn't suddenly come right when you change the label. But consumers have learned that you can't equate the real cost of clothing to the original price you paid for it.

The ultimate value lies in the joy you experience wearing clothes right up until the moment when you have to throw them away. Here we have a good set of cards.

Can one combine fashion with food at a self-service retailer?
Various combinations have been tested. Some have bought batches of top brands and then sold them cheaply at sensationally low prices; others have developed an own label concept; and others again have tried to capture mega-selling items and to sell them on at lower margins.

As these ideas have been tried and tested over the years, they have lost a great deal of their original charm. Viewed on a longer time scale, retailers have made the unpleasant discovery how costly it is to try and market unwanted items. When retailers go into the exact figures, they soon sober up because what they might have gained short-term in increased customer footfall all too often ends in higher longer-term costs.

Seen from a supplier's point of view, what is the right balance between fashion providers and food multiples in shopping centres?
Both parties should certainly be interested in what the other one is doing. This is because customers who care about their appearance usually also care about the quality of food they eat.

We textiles people are very good at creating events in order to get our spoilt customers to come in and look at our goods. This creates a good chance to do some cross-marketing, whether that means cultivated wine tasting sessions or joint events.

How important is customer service?
High-class fashion assortments benefit from friendly service which can also explain their quality. Perhaps both industries could also learn from each other here. What might be the bag packer at the food till in the food retail store could be the style adviser in the fashion shop who protects customers from making the wrong purchase and who helps them to create the perfect outfit.

When Marks & Spencer arrived in 1996 its food assortment was very innovative for Germany. Why do you think they still failed so miserably?
In this world one should definitely avoid trying to export concepts which seem to work in your own country. It would seem that there still exist certain conditions specific to one's own local market which provide no guarantee that a market leader in one country will be an automatic international success.

Often, the decision to internationalise is made at the top of the market in one's own country. This frequently makes one blind to the fact that, in our trade, success is often only on loan.

Factory outlet centres and outlet shopping villages are relatively successful in the UK. How do you rate their chances in Germany?
Obviously, this distribution channel is expanding here in Germany too. Big international brands need a sales channel for their mistakes. As far as gardeur is concerned, we remain very sceptical. We feel responsible for the sales areas we manage for our current retail partners, and it simply wouldn't make any sense to try to compete with our own goods via a cheaper distribution channel.

Also, Germany is a country with short shopping distances and an exceptionally well-developed retail structure. Why try and co-finance big, expensive new shopping areas?


Lebensmittel Zeitung with its online sisters (photo: LZ)
Lebensmittel Zeitung with its online sisters
Read in German: 'Kunden mögen gute Storys' by international editor Mike Dawson on page 33 of
Lebensmittel Zeitung, no. 2, 13.01.2006

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