Retail Week on the Road: Northwest

Stockport-based Pets at Home is not like most retailers. For one thing, says commercial director Peter Pritchard, the pets specialist welcomes bad weather. “We love wet days, we become like a free zoo, people can browse, and they’re not forced to buy anything,” he says.

Secondly, while it is aimed, of course, at the pet owner rather than the pet, the retailer can genuinely count animals among its customers, or at least as the decision makers. “You’d be surprised how often the dog chooses the shopping and chooses the treat,” says Pritchard, describing how dogs race over to certain parts of the store.

The retailer will also turn down sales. If shoppers come in looking to buy a pet, they are assessed for their suitability.

If they are deemed unfit for pet ownership, they are refused. “We want to make sure you have the right environment and make sure you’re in a position to look after that pet,” says Pritchard. “Our biggest customer complaint is when we say no.”

Pets at Home also offers pets for adoption, rehousing 63,000 animals each year, and the money goes to charity. The space devoted to this in store is not insignificant, yet it makes the business no money. Surely that’s an inefficient use of space, so why do it? “It’s a big investment but it’s the right thing for us to do,” explains Pritchard. “We believe in responsible pet ownership, it fits with our ethos.” With private equity giant KKR as an owner, it might seem like an unusual strategy. But Pritchard insists: “For us pet welfare comes before everything else.”

That is also reflected in the free nutritional consultation for pets. Products are recommended but there’s never a hard sell, says Pritchard. “People value the advice, but they know when they’re being sold to,” he explains. The strategy, he says, engenders loyalty.

Another way the specialist differs from other retailers is in problematic store cleanliness issues. Inevitably, urine is a problem. “Wee on the floor is one of our biggest issues – you’ve got to be fast onto that one,” jokes Pritchard. But while puddles on the floor are a problem for Pets at Home, unlike most retailers, poo might even present an opportunity.

The subject, and particularly its disposal, featured heavily in the retailer’s latest Innovation Open Day, to which “anyone can come along” according to Pritchard, including customers and colleagues as well as suppliers. “It’s Dragons’ Den but in a nice way,” laughs Pritchard, who had run an Innovation Open Day the day before Retail Week visited. “Eleven out of the 12 ideas were fantastic,” he beams.

Pets at Home is constantly on the hunt for innovative products. “One of the things we’re most proud of is that you won’t find many of our products anywhere else,” explains Pritchard.

“We have lots of people looking for innovation, trawling the world.”

Tellingly, he created the position of innovation buyer last year. “They have no remit, they’re just looking for ideas where no one else looks,” says Pritchard.

Products spawned include the Thundershirt, one of Pritchard’s personal favourites. Most dogs are nervous animals that suffer from anxiety, explains Pritchard. The Thundershirt is designed to relieve anxiety by, essentially, giving the dog a squeeze. It is a tightly wrapped jersey that sits on the dog and reduces anxiety by up to 80%, according to tests. “It’s fantastic. Dogs are sensitive animals.

I found it in Florida and brought it back to the UK last year,” he says.

Pritchard darts about the store picking out more favourites, including Tropiclean, which helps dog owners with the tricky teeth-cleaning process, and the Furminator, which reduces animal shedding.

People and pets

The tenet of ‘unique products at great prices’ is a key to Pets at Home’s strategy; its people are another.

Most (92%) of the retailer’s staff are pet owners. Pritchard, who has a 17-year-old cat called Stirling, says Pets at Home does not rule out candidates if they don’t have pets but does demand an interest in animals. “We need a balance between people who love pets and people who love people,” he says. “We ask for a love of animals, but we also want good retailers who can look after the customer.”

Pets at Home, which employs 5,400 staff, has a reputation as a desirable place to work – this year it took second place in The Sunday Times 25 Best Big Companies to work for, beaten by fellow retailer Iceland.

“Being a great place to work is fundamental to the success of the business,” says Pritchard, who is proud of the retailer’s 20% staff turnover rate. “We get hundreds of applications for jobs when a store opens.”

On being recruited, new staff are trained to an expert level. “Our staff are so knowledgeable it’s scary,” says Pritchard.

KKR’s buy-out of Pets at Home for £955m in 2010 makes the retailer one of the most successful and highly valued in the Northwest, where 32 of its more than 300 stores are located. Even so, it still has lots of expansion potential in the UK, says Pritchard.

“Our growth opportunities are still great, there’s lots of opportunity in the UK with online, local stores and superstores,” says Pritchard. The retailer’s vets and groomers businesses also represents an opportunity for growth. At the moment, it has 90 of the former and 60 of the latter.

“We’re still continuing to inform and tell people who we are. We’re still a relatively young business,” points out Pritchard.

Pets at Home opened its first shop in Chester in 1991 and it has come a long way since then, and looks likely to prove an astute acquisition for KKR when it comes to an exit in the coming years, particularly if the rain keeps falling.

Manchester

Just a few miles down the road from Pets’ base is Manchester proper. The in-town Manchester Arndale shopping scheme was busy during the visit, not just with shoppers but retail activity too.

Apple is in a temporary unit at the moment as it prepares to upsize in the centre – a good sign of the development’s performance.

Graham Barr, head of the northern high street retail agency at CBRE, says Arndale is performing well and “trying to improve” its mix – Hollister, Guess and Kurt Geiger recently took stores.

Footfall in the city centre remains strong, he adds, although the aspirational offer is spread out across the city. The trendier brands are to be found on King Street, New Cathedral Street and Spinning Fields – an upmarket luxury shopping quarter opened in 2010.

It is the mighty Trafford Centre that seems particularly able to keep the shoppers coming in, according to Barr. “The Trafford Centre has stolen a march over the city centre with new openings,” he says. “It’s a very dominant regional centre. All our clients trade extremely well.”

After London, says Barr, Manchester is often the next port of call for retailers.

But what about its rival neighbour, Liverpool? Barr says that despite Liverpool One opening in 2008, Manchester still has the edge. He concedes that the scheme has closed the gap though. “Liverpool One stopped a lot of leakage to Manchester,” he says. “It’s brought in retailers that wouldn’t have gone there before.”

Liverpool One

That is evident when arriving at the development. Liverpool One has brought big brands such as Apple and Desigual to the city centre, which before the opening of the development had a rather lacklustre retail offer, according to Alison Clegg, Liverpool asset manager for Grosvenor Fund Management, which owns Liverpool One. She says this meant that locals travelled to Manchester if they wanted a spot of retail therapy.

But that has changed. Clegg says that from a retail perspective Liverpool is more compact than Manchester and that works in its favour. “We’re dragging more people away from Manchester at the moment,” she says.

Liverpool One has worked hard at its mix, attracting international brands as well as new formats. Amazon lockers will soon be installed in the centre, which has one of just two House of Fraser click-and-collect stores, and in November it will become home to the first Harvey Nichols Beauty Bazaar, which Clegg describes as “so Liverpool”.

Locals love to shop, says Clegg. “It’s a ‘fashion-first’ shopping culture in Liverpool, they live for the weekend and shop for the weekend,” she says. That is evident when visiting – Paradise Street and Peter’s Lane were busy with shoppers, despite pouring rain.

Liverpool One has benefited from that love of shopping. The city has a 4.1 million-strong catchment area and a higher proportion of wealthier shoppers than Manchester, its great rival in retail as well as football.

Liverpool is a young city with a lot of students – 72,000 – 60% of whom stay on after graduating. So the centre aims to bring in youthful brands including Urban Outfitters and Hollister.

The city has benefited from a resurgence in recent years as it challenged its reputation as the smaller and less appealing rival to Manchester. Liverpool was the Capital of Culture in 2008 and new galleries, museums, restaurants and conference centres have opened. A dock for cruise liners is also up and running, attracting ships with 3,000 passengers that Clegg hopes will stop in at Liverpool One.

The city seems to be thriving, but it cannot escape the ravages of the recession. A few of Liverpool One’s stores have shut in recent years. Just last month its Home Quarter, which housed more than 20 homewares brands, closed after disappointing sales and the Zavvi store, vacated when it went bust in 2008, remains empty. Clegg says all-in-all however, the recession “has been managed well”.

Pulling in big-name brands is key, and it was a coup for Liverpool One when it opened the largest Topshop after the retailer’s flagship Oxford Street store, measuring 65,000 sq ft.

And although it won’t be in Liverpool One itself because of a lack of space, US fashion giant Forever 21 will be opening on the corner of nearby Church Street, which Clegg hopes will be a “great focal point” for the city and drive footfall to the shopping scheme.

She says that since opening, the centre has “met expectations” and played a part in Liverpool surging up Experian’s top retail destination rank from 13th to 5th.

The Hut

Northwich lies south of Manchester and Liverpool and did not exactly have a reputation as a hotbed of retail talent. Until now, that is. Ambitious online retailer The Hut is located on an out-of-the-way and nondescript office park in the town.

But inside its inconspicuous headquarters a group of young entrepreneurs is building a business that has attracted investment from retail luminaries including former Tesco boss Sir Terry Leahy, former Tesco and Debenhams director Terry Green and former Marks & Spencer boss Sir Stuart Rose, who is also a non-executive on the board, which is chaired by retail veteran Angus Monro.

Despite the weight of retail experience, The Hut does not class itself as simply a retailer. “We have a split personality – we’re a tech business and we’re a retailer,” explains Steven Whitehead, group commercial director. “And we have to be a master of both.” It has proven expert so far, with group sales soaring 70% to £143m in 2011.

The Hut launched in 2004 and last year was eyeing a float before pulling the process because of volatile market conditions. But an IPO remains the preferred route for The Hut. “We’re 80% more ready and 100% better as a business than we were a year ago,” says Whitehead.

The Hut, which operates 15 online stores, is youthful and fast moving. Each website, such as Mybag and Lookfantastic, has a buyer, a merchandiser and marketer. “They’re running their own businesses, that’s what creates the culture,” says Whitehead.

While the overall goal is a common one – to increase The Hut’s sales and profits – there is healthy competition between the brands, and very few places to hide if you’ve had a bad day at the office. For instance, an email is sent round daily detailing the progress of each website. “We’re very transparent,” says Whitehead.

Everyone in the company can see how much their colleagues are paid – even chief executive Matt Moulding. The hope is that it will drive staff to up their game to match their colleagues’ salaries.

To inspire people to go that extra mile, The Hut runs competitions such as the 5k Challenge, for which employees submit ideas for cost savings or revenue generation. Ideas adopted win the employee £5,000.

Moulding shares an office with several other directors, who all have desks facing inwards towards each other. Staff are encouraged to walk in and pitch an idea. “You can go in with ideas and never get told no, you’ll be told to go away and think about it some more,” says Whitehead.

An enduring challenge for a growing entrepreneurial business is how to keep that enterprising spirit. “If you still feel like a start-up then that’s the biggest safeguard,” says Whitehead, referring to The Hut’s recent launches into new categories, which include clothing and beauty. “We still feel like a start-up even though we’ve been around since 2004.”

The Hut may not be the most well-known retail brand in the UK, but it boasts 6 million customers across its brands. All trading decisions are driven by real-time data – if an item is not selling well the retailer can quickly try things such as tweaking the price.

The business uses Google, its eBay shop and its own customer data to inform decisions.

Daily deals are key to the business. The retailer offers a core range and has long-term supplier relationships – when suppliers have surplus stock issues, for instance, The Hut takes on that product to offer deals to its customers, providing daily newness. When a buyer completes a deal, the products can be on the site 90 minutes later. “We can offer them a 6 million-strong database. We’re helping the brands,” says Whitehead.

The Hut differs from online giant Amazon by running specialist websites rather than one department store-style offer, he adds, and the products are “retailed in the right way by an expert”.

Customer service is another differentiator. The Hut’s beauty site Lookfantastic, for example, employs beauticians in its customer service team, while Myprotein’s team hires nutritionist experts.

To keep improving the business, The Hut insists on what it calls ‘agile development’ – it enhances the platform on which the whole business sits every Wednesday, making tweaks to improve the customer experience.

With a strong platform and a customer base that is growing, Whitehead says bolt-on acquisitions are fairly easy to integrate and develop. “There are plenty more to come,” he says. “We’ve looked at 250 businesses in one form or another. Our platform allows us to be a disruption in the market.”

Future acquisitions will fit into one of three of its divisions – consumer, prestige and lifestyle. The retailer focuses on non-perishable product, so steers clear of food, and high fashion.

“When we launch into new categories we do it in a big way. We’ll do two or three acquisitions, and then the brands say ‘I’m on board’,” says Whitehead. Lifestyle is a good example. It acquired Myprotein last year and is just about to launch Myvitamins.

With the exception of Zavvi, which The Hut acquired in 2009, and Iwantoneofthose.com, The Hut’s brands are not the best known among British consumers. But chief marketing officer Andrew Booth insists that it is more important to get to the top of Google searches when shoppers search for a product. “On a Monday morning, we have 350,000 people looking on our sites, we have no problem with traffic,” says Whitehead.

And later this year, when the group launches a ‘joined-up’ checkout, customers can even search for a hair dryer on Zavvi and be recommended a product from sister brand HQHair.com.

A third of the business is international – with product largely shipped to Western Europe and China – but Whitehead says there is lots more growth left in the UK, including through its web services division that provides technology services, such as loyalty reward schemes, for organisations including the Daily Mail.

Since its launch, The Hut has morphed into an entirely different business. When it was founded, it ran white-label websites for retailers such as Argos and WHSmith. At one point that business represented 90% of turnover. Now it accounts for just 5%, after the retailer launched its own websites. “It gave us learnings and working capital but the asset is in owning the brand and the customer,” says Whitehead.

The Hut’s shareholders – Balderton Capital, Artemis, William Currie Group and the retail veterans mentioned – are demanding, according to Whitehead. But they are also supportive. “We’ve bought five or six businesses in two years and changed our business model. That would blow the minds of most PE houses. And they’ve supported us through three rounds of investment,” he says.

While retailers such as Pets at Home and The Hut are thriving in the Northwest, and cities such as Manchester and Liverpool continue to be the go-to place for expansion in the region, it is easy to forget the more blighted spots. CBRE’s Barr highlights secondary markets such as Warrington and Preston, which have been hit hard by the recession.

But even they are now seeing small green shoots, says Barr. Overall, the region is “very good, retailers perform strongly”, he says. Not even the volatile weather can put a dampener on that.

• Next week, Alex Lawson heads to the Midlands. Click here to view previous reports.