Analysis: How is Ted Baker consistently delivering growth?

Ted Baker shareholders will be in good spirits today after strong Christmas sales followed momentum built from a third quarter in which sales soared 24.6%. The premium fashion brand continues to deliver, while rival brands such as French Connection have struggled against the continued difficult economic backdrop.

The strong performance has led analyst Espirito Santo to today upgrade forecasted pre-tax profit for the year to January 26, 2013 by 3.3% to £31m, which would deliver big growth against last year’s £24.2m pre-tax profit.

Mysterious yet eccentric chief executive and founder Ray Kelvin has previously attributed its consistent success to the quality and range of the retailer’s products. Ted Baker describes itself as “quintessentially British” and “quirky”, offering customers a clear design differentiation from other brands in its products, while each store is different, designed to fit the space.

With just 40 UK stores and 139 concessions, Ted Baker has driven profits through careful expansion and strong sales densities and will now set its sights on international growth.

Espirito Santo analyst Sanjay Vidyarthi said in a note in November that the mix of concession and standalone stores has enabled Ted Baker to be among “the highest sales densities of a broad UK peer group, combined with a greater degree of profit and loss flexibility due to 43% of its rents being turnover based.” This has helped protect it in difficult trading periods.

“We are in a strong position as a brand,” Kelvin tells Retail Week. “We only have shops in the right places and that has been absolutely key, we don’t have as many fixed occupancy costs [as other retailers].”

Espirito Santo believes the management of its distribution channels across wholesale, retail and product licensing has been key to its success against rival fashion brands.

The company’s position as a strong brand, rather than just a retailer, has allowed it to test the market across the world through concessions prior to store openings.

Ted Baker’s overseas expansion has been carefully thougt out so far, opening in landmark retail destinations such as Fifth Avenue in New York in last August, then Shanghai and Toronto, Canada in November.

“We are pleased with the Fifth Avenue store. It has been very important for the rest of the brand,” says Kelvin. “It does a lot for us all over the world if people have seen us on Fifth Avenue.”

The retailer has two more store openings in Shanghai on the agenda in 2013.

Christmas sales have vindicated the retailer’s strategy and Kelvin says its menswear category is outperforming the market, particularly with its knitwear and ‘phormal’ wear offer. Gifting, ladies small leather goods and ladies outerwear and dresses also performed particularly well in the festive period.

In addition, the retailer’s confidence in its product is demonstrated in its refusal to cut prices amid a hard fought December in which a number of retailers buckled and began their Sales before Christmas.

Kelvin says: “We didn’t discount before Christmas, we never do. People like to pay full price for Ted Baker. We respect the customer and they respect us because they are buying a fantastic quality product.”

Kelvin says investment in its online business will be a key priority in 2013. It is set to relaunch its website this month and in the second half of the year Ted Baker will launch its second overseas website to follow its first in the US. This will further increase its brand awareness and boost sales.

However, Kelvin will be careful not to become complacent as its competitors fight back in 2013. Following a series of profit warnings last year French Connection is currently working through a turnaround plan to get it back on track, while other fashion retailers have been careful to sharpen prices and stock levels to protect themselves as disposable incomes remain tight and confidence in the economy is low.

Analysts forecast growth at Ted Baker will continue to motor through 2013 and it would appear there are lessons to be learnt from the idiosyncratic.