Selfridges: A masterclass in brick and mortar
Selfridges seems to keep weathering the storm in an age where people are fleeing from brick and mortar retail. The company continues to re-invent itself, addressing new target markets and ultimately appealing to multitudes of customers.
Company History
Built at what used to be the undesirable end of Oxford Street, Selfridges was in many ways a passion project of its namesake Harry Gordon Selfridge. Mr Selfridge, a budding entrepreneur from Chicago came to London in 1906; his initial observation was that although London was a commercial and cultural hub, its department stores could not rival what he saw in Paris or even Chicago — he made it his mission to change this.
He invested £400,000 (£49m in today’s money) and overcoming criticism from the British public and press (not much has changed has it?) the store was completed in 1909. The Selfridge store on Oxford Street is iconic and the building is Grade 2 listed, which is defined as a UK building or structure that is ‘of special interest, warranting every effort to preserve it’.
Selfridges now has 4 stores, all located in the UK however the Oxford Street store remains the most popular.
Business Model
Before jumping straight into revenue it's important to understand Selfridges business model. A typical retailer (think H&M etc) will manufacturer/source their items and sell them in their stores. Selfridges does not follow this model, it’s actually easier to think of the store as a mall (or shopping centre if you’re a Brit)— a one-building mall in central London.
Selfridges operates what is known as a concession model, which allows brands to own their own ‘store’ in the store. Essentially the company makes money by renting out these units to brands and allows them to run the own sections of the stores themselves.
However, unlike other malls, this model works really well for Selfridges because they invest in selling the shopping ‘experience’. In 2018, Selfridges spent £300m renovating their Oxford Street store which included the grand opening of a marble-floored accessories hall. In many ways, they make their customers feel like money so they spend money… or does this only work on me?
2019 was a difficult year in retail, we saw a lot of household names going into administration (Forever 21, Links of London) and those that didn’t, had to drastically reduce their workforce and store count. In 2019 while 143,000 jobs were lost and 16,000 shops closed, Selfridges seemed to grow, its revenue rose 6% to £1.85bn while competitors like John Lewis reported a 2.3% decline.
Pre-Covid Selfridges knew that while its physical stores were growing it still had to build an online presence. They invested in their website and mobile app also including the Chinese language to access this market (Bain predicts that by 2025 Chinese consumers will account for half of all luxury goods spending)
Revenue Drivers
The main revenue driver is traffic, the more people that enter the store the more people there are to buy products. Selfridges does this by enticing new and returning customers with grand displays in their windows and it’s also turned to hosting exclusive pop-ups with various brands.
The pop-up model has been a key driver in increasing traffic:
- Pop-ups usually last for a limited amount of time and people feel compelled to visit the store in that period to
- Collaborating with smaller brands with dedicated followers, some of these brands don’t have their own physical stores so their followers will visit Selfridges just for this purpose
- Streetwear drops i.e. the highly anticipated Air Diors were on sale at Selfridges for only 3 days!
Streetwear in itself is very central to Selfridges strategy at the moment, bringing in more streetwear focused luxury brands e.g. Fear of God, True Religion, Kenzo.
Strategy& published a report on the streetwear industry in 2019 with the following key takeaways:
- Most people who purchase streetwear are not wealthy (annual income <$40,000) however they spend an average of $100-$300 on a single item
- Consumers spend 5x more per month on streetwear than non-streetwear
This phenomenon can be seen in Selfridges, on weekends a large proportion of shoppers are under 25’s who will spend in excess of £100+ on a single item and leave with a bright yellow shopping bag.
This bag is Selfridges’ best marketing initiative. It’s unique, it hasn’t changed since 1990 and is immediately recognisable. (Pre-Covid) When you couldn’t manage to find your way through the masses of people on Oxford Street you’d still be able to spot a yellow Selfridges bag!
Cost Drivers
While its 2019 revenue was £1.85bn, the company’s operating profit was a mere £170m.
Selfridges ensures that its customers have great in-store experiences, this is at the cost of a 3,000 person workforce in 2019 the company spent £104m on employee costs alone.
Most of Selfridges’ costs are attributable to the upkeep of the store and the new stands they put up, they have to hire designers, construction teams for each new pop-up concept.
Unit Economics
Based on information gathered from realla.co.uk:
- The average price for a store in Oxford Street is £144 per square feet but can go up to £550 per square feet per month
- Let’s assume Selfridges is towards the higher end of this range based on its brand and ability to attract customers ~£550 per square feet per month
The average size of a stand in the London store is c.20 square feet, which translates as £11k in rent per day
The stores pay rent to and Selfridges manages employees and upkeep
Unique Business Strategy
Selfridges strategy can be summarised into the following 3 points:
- Ready to wear — from catwalk to the everyday person, really understanding retail/fashion trends
- Unique shopping experience — making customers feel like money so they spend money, other than clothes they have restaurants (plural), a Cinema, a Skating park and Tax Refund Lounge
- Bright yellow bag
Aside from this Selfridges are constantly reinventing themselves, creating new verticals within their business to attend to customers needs. They recently launched a clothes rental service where customers can rent 100 items from more than 40 brands for up to 20 days at a time. The model is almost identical to Rent The Runway and addresses the new retail trend of sustainable clothing.
HTMM Opinion
Selfridges has done a fantastic job at creating what I like to call the false illusion of exclusivity. All the items in the store are readily available however the experience makes you feel like you need to buy it at that moment. Being able to parade around Oxford Street with a bright yellow bag can be quite freeing at times.
The store is a gateway for the everyday person to access luxury—if you have the money to spend you’ll be treated fantastically and will be able to buy in the store. This is a trend that’s been emerging in luxury for the past decade, previously you had to be well connect and have money to access luxury brands and they only made small quantities of each product. Now, everyone can own the same designer bag — Gucci (to be covered later) is a brand that has mastered this ‘mass-market’ luxury model.
That being said, let's address the elephant in the room — COVID-19. The company is going to take a big hit this year due to the pandemic however they are well placed to recover. During the last year, they’ve beefed up their online service even providing next-day delivery for a £10 per month subscription.
When stores do eventually open (God please soon), people will be looking for premium shopping experiences to entice them to leave their homes and Selfridges can do all that and more!
