Richard Hyman: Home is an expensive distraction for fashion retailers

Every man and his dog have added a home offer to their core proposition of late, particularly fashion retailers.

Over the past 18 months, River Island, Asos, Oasis and Matches have all launched a homewares collection, while H&M has opened a Regent Street flagship store devoted to the category.

So many retailers seem to think that because they are good at selling apparel, adding a home offer is an easy diversification that will yield straightforward incremental sales and profits.

Home is an umbrella for many quite disparate product sectors. There is a separate sector for each room of the house, spanning textiles, glassware, furniture and furnishings.

None have much, if anything, in common. Each requires totally separate buying and merchandising teams because their sourcing and supply chains are totally distinct.

In other words, home is a highly fragmented, complex series of loosely related markets. In order to have any chance of success, retailers need to build authority and relevance in each.

Having an apparel brand that resonates is not automatically transferable to another market – why would it be?

Hard to make money

In terms of trading economics, home is extremely challenging. It adds complexity to a business and is disproportionately costly to run.

As a result, very few fashion retailers with home offers make any money from them.

It is worth looking at two major fashion brands with home offers. Zara Home is well established but Inditex gives little detail away about performance, combining its numbers with the main fashion chain.

However, it is worth noting that return on capital for its most successful chain Zara is markedly lower than for its other chains. I suspect this is the Zara Home brand dragging its big sister down.

A much more recent entrant with standalone stores is H&M. It began selling a very limited home offer online in 2009.

Ranges have expanded gradually but last year it took the plunge and opened standalone stores in five European countries – the first in the UK was a 6,000 sq ft Westfield London store, followed by the 7,500 sq ft Regent Street flagship in April.

The launch of the H&M Home standalone business is just one of a raft of different new brands concertinaed into a very short timeframe. It’s as if H&M is suddenly trying to catch up with the variety and diversity of Inditex.

A gradually tightening noose

In spite of all the activity, decent returns remain elusive. I have already discussed costs and complexity; another issue is average transaction value.

Small home items that might be bought spontaneously carry low ticket prices. Bigger ticket items are more of a considered purchase and don’t require very expensive prime space.

So this is a real problem for businesses like fashion chains and department stores with very high occupancy costs.

Looking at the demand side of the equation, a stagnant housing market has done nothing to help stimulate sales.

Beyond this, home markets have enjoyed mixed fortunes over recent years. Some areas have proven far more resilient than others with bigger ticket sectors generally doing better than furnishings and homewares.

With a very nervous economy, the outlook is not about to change soon.

For a growing portion of the industry, the diversification and product proliferation of the past is increasingly like a noose gradually tightening.

A growing number have struggling core businesses, so peripheral areas get even less attention and, of course, investment.

Home is certainly not where the heart is for most of these players.