Saturday, 3 November 2012

Innovative Entrepreneurs in Recession Britain

Last week the BBC reported on the continuing problem of high street retail shops going out of business around the UK. Business correspondent Emma Simpson explained:

Whole swathes of retail…are worth far less than they used to be, with landlords unable or unwilling to invest, yet loath to sell and write off their debt. Many landlords are also slow to cut the rents they demand in order to attract new tenants, because they have to earn a minimum rental income to keep up with their debt payments.[1]

Because neither the landlords nor their creditor banks are willing to sell off these properties at a loss, they're often struggling on with idle or dilapidated retail space.  To investigate the full extent of the problem, the British Retail Consortium, the British council of Shopping Centres, the British Property Federation and the Local Government Association as well as Lloyds, RBS and the Booksellers Association have set up the Distressed Retail Property Taskforce to research the issues and come up with some concrete solutions. The DRPT's remit is “to address issues of physical degeneration, falling footfall, reduced investment and associated social decline in towns and cities across the country.”[2]

Chairman of the task force, Mark Williams, warned that it wasn’t just a problem of the economic cycle, but that the high streets "are going through a structural recalibration, rather than an economic cycle from which we will emerge over time.”[3]  The situation is more dire for some towns than for others, but according to research for the British Council of Shopping Centres, one in every five shopping centres across the UK is in breach of its loan agreements and therefore potential at risk of administration.[4] This amounts to more than £10bn worth of real estate.  Mark Williams explained, “the negative knock-on effect on the wider area is physical degeneration and social decline.”[5]  According to a snapshot of 500 UK town centres by PricewaterhouseCoopers and Local Data Company (LDC), there have been more than 3,600 chain shop closures in the first half of 2012, most from the insolvencies of Peacocks, JJB Sports and Clinton Cards.  In their place have opened bookmakers, pawnbroker, payday loan stores and charity shops.[6]

According to data compiled by the LDC, the proportion of shops lying empty has increased in every region in Britain except London between January and June for a national average of 14.6% of shops remaining empty due largely to lower consumer spending, higher online sales and retail space expansion.  LDC’s findings were based on visits to 145,000 shops in the first half of the year. They found that retail parks had the lowest overall vacancy rate at 8.1%.[7]  Though the criteria for establishing town centre boundaries has been criticised, many of the findings are instructive.

As a complement to Mary Portas’s report on high street, the Government’s report, Understanding High Street Performance highlights the pressures currently faced by town centres and retailers. These include rents, rates and material costs which have risen significantly while at the same time facing tough competition from supermarkets and online retailers and diminished demand due to the recession. Between 200 and 2009, the UK lost 15,000 town centre stores – which means that one of every six shops lies vacant.[8]

It is unlikely that the regeneration of the British high street will come about without some innovative changes in terms of their function, so that high streets will become destinations that include not only retail but provide for public open spaces, leisure and residential use.  And the retailers themselves will need to offer innovative products and services to attract an increasingly demanding clientele.  According to Tym & Partners, a planning and economic consultancy who was commissioned by Richmond Borough to undertake an economic assessment of the area:

A clear picture is emerging of a network of large dominant superstores, and corresponding decline/diversification in the traditional smaller centre.  This means that to succeed secondary or smaller centres must distinguish themselves from the larger destinations by providing an offer that cannot easily be found elsewhere to attract footfall and increase turnover.  This might include the provision of specialist or niche shops, the provision of an enhanced customer service (i.e. home delivery) and generally contributing to a pleasant shopping experience (i.e. convenient parking, a pleasant environment and a range of different town centre uses).

Despite the fact that I’m very blessed to be able to live in such a lovely area as Kew, I’ve nevertheless noticed a large number of shops which have gone out of business with nothing taking their places for months on end.  However, there have recently been a few rays of light in the gloomy high street recession.  I went to visit as many of these as I could find in the Richmond and Kew area to find out what these entrepreneurs are doing: what innovative products and/or services they’re providing, what obstacles they faced in setting up, whether they sought or received any assistance and their hopes for the future.   The message I heard from the entrepreneurs I spoke to, reiterated by academics, artists and businesses is that it is possible to fill these empty shops – public or private, permanent or temporary – in order to make the high street healthy again.  Ian Golding, customer experience specialist, believes a prosperous high street will be one which offers consumers a positive, memorable experience, one that includes these three components:

  • Functional:  Does it do what people want it to do?
  •  Accessible:  How easy is it for people to do what they want to do?
  • Emotional:  How does it make people feel?[9]     

He believes that the only way to help address the issues facing the British High Street is for “the key stakeholders to start working together – central and local government; local people –unless the high street can start to complete from a functional and accessible perspective, the only emotional element of the experience that the consumer will remember is not likely to be positive.”[10]

Despite the economic gloom and severe challenges facing high street businesses, there are some courageous and innovative entrepreneurs out there risking a great deal to bring their dreams to fruition.  Dan Thompson, specialist in start-ups and entrepreneurship at Stanford University, says that in order to succeed in one's retail endeavour, “you only need one thing: bloody-mindedness…It’s knowing you’ve got an idea and you want to make it happen and going out and doing it.”[11] This is the fearless attitude I sensed from all the shop owners I spoke with over the past few weeks.

1  Start-Up Britain

On Sat the 13th of October I had a look round the pop-up shop across the street from Richmond station on Kew Road.  What caught my attention was the high quality photos in the window showcasing the six temporary stalls within.  These included a display of posh chocolates, organic makeup, men’s clothing, silver jewellery, large-sized women’s shoes and hand-designed speciality greeting cards.  The entrepreneurs who’d brought their wares to the shop were all very welcoming and allowed me to take photos of their goodies and have a short chat – not easy to do on a busy shopping day. 

The shop is part of Start-Up Britain, a project which encourages small start-up businessmen and women to market and sell their products for two weeks on a rolling basis in a prominent high street location.  These small retailers already run online businesses, but none has the financial means to take on a shop of their own.   Start-up Britain offers a co-working, co-funded space for these brand-makers to test-drive the products in a new way to a new audience.  In so doing, they can get immediate feedback on the goods themselves, their packaging, marketing and price. 

According to Star-up Tracker, the initiative’s statistic monitor, there have been 22,105 start-ups during October and 391,957 in 2012.  The data come from Companies House and have been interpreted for the tracker by the Made Simple Group. 

It’s inspiring and exciting to see this sort of experimentation going on during the recession, particularly when solid growth is not anticipated on the horizon in the near term.  It’s interesting to note that perhaps given the socio-economic profile of the area, the start-ups were all products pitched at the higher end of the gift market. 

I noticed two other initiatives on the Start-up Britain website: Start-up loans and Start-up spaces.  The former is an initiative with BIS making up to £2500 available to any young person wanting to start a business.  The latter is a scheme which allows start-ups and small businesses to search enterprise hubs, co-working spaces and other office providers in the UK.

2  Mary’s Living & Giving Shop

My next stop was Mary Portas’s Living & Giving Shop, located in the southwest corner of Richmond Green, an arguably idyllic setting.  It’s surprising to discover that this is actually a charity shop as it looks nothing like those you see on most high streets.  This place has the look and feel of a very trendy high-end boutique, oozing charm and sophistication, whilst being sympathetic to the local park setting.  

The lovely staff are volunteers who were extremely helpful, enthusiastic and candid.  They explained that 80% of the profits of the shop are donated to the Save the Children charity and that many donations were directly from designers.  They also said that, despite a brisk business when they opened during the summer, the footfall on a rainy day, being off the high-street on a drizzly day was a distinct disadvantage.

The Living & Giving shop is Mary Portas’s concept of a charity vehicle for Save the Children.  She says it’s not just a shop, ‘but a place to inspire, share, create, meet and discover.  She even goes to far as to say it’s a philosophy and a ‘fantastic way to contribute to the community, help some of the world’s most vulnerable children and bag a designer bargain at the same time!”  A flyer I was given was an invitation to a Glitz & Glamour night to include shopping, free makeovers and hand massage, champagne and ‘sweet treats.’

In addition to the Richmond Green location, her shops are also in Primrose Hill, Westbourne Grove, Edinburgh and Chelsea.  I can’t help but wonder that if it’s Mary Portas’s goal to revive the high street, then she’s chosen the very poshest high streets in the country – places that really don’t need nearly as much reviving as those in less well-healed areas.  I think it’s commendable to open run these shops for charity, only I wonder about the message she’s sending out about high street revival in places that need it most.

3  The Petal Pusher

On the 17th of October I had the chance to speak to the co-owner of The Petal Pusher in Sandycombe Road in Kew.  Rachel Haynie generously gave me some of her time to share with me the story of how the shop that she and her husband, Omar Gharbi, dreamt up and brought into being. 

The Petal Pusher is a unique concept to Kew; it combines a high quality café with sandwiches and cakes with a floristry.  The pair are quintessential entrepreneurs – they have both experience in the sectors and honed their skills in London  - Omar in a celebrity chef-run kitchen and Rachel in a professional project management role as well as running her own flower stall in the Richmond area.

The atmosphere of the café/shop is warm, calm and intimate and the flowers at the rear give a lovely fragrance.  There’s even a small “den” featuring a small burning fire and couches.  The décor is stylish but not stark.

Rachel described how it all came about; that they’d had a dream of creating a retail establishment that would combine high-quality food and a florist.  They chose the spot in terrace of shops in Sandycombe Road because it was available.  They’ve funded the entire project themselves, without recourse to bank financing or overdrafts.  This, she said, has made every decision considered, from the chairs to the penny-farthing above the door outside the café. 

We talked at some length about customers and the challenge of selecting the best prices for their offerings.  It’s important, Rachel said, to take into account the prices charged by others in Kew for similar products, as well as the type of customers that have tended to come by already, the customers which they hope to attract in future and what margins will be sustainable, both in the short and medium-term.  It sounded that all of these factors needed to be carefully analysed before coming up with an optimal pricing strategy.

The Petal Pusher has plans to provide additional services and events, such as flower and table arranging classes, wreath making, a German Christmas market as well as Christmas events for children.  I thought that this is what entrepreneurship is all about; thinking of new ways to provide goods and services that customers can enjoy, experience and learn from.

4  Art House Hairdressing

The owner of the new Art House Hair Studio, Rosemarie, allowed me to view the new spaces included in her salon and chat a bit about her business early on a Tuesday morning.  Rosemarie opens her shop at 8.30am, or whenever it’s convenient for her clients – that’s what I call customer service.  It’s a lovely place in an excellent spot; a corner shop on Sandycombe Road, decorated in contemporary style but sympathetic to the Victorian architecture and surrounding residential area. 

Rosemarie is from Australia but has set up salons and worked on cruise ships all over the world, so she’s brought a wealth of experience with her to the venture.  She’d initially considered a Richmond address, but told me that rents and rates were excessive there and that she’s glad she settled in Kew instead, particularly due to the large traffic of pedestrians and buggies down the road.  She has two chairs on the ground floor of the salon at present, explaining that any more would have made it difficult for prams to park.  Again, her consideration for the details for of a client’s needs is admirable.

Rosemarie took me downstairs to a renovated space, part of which she plans to rent to a beauty therapist (for waxing and nails) and a larger area which will become part art gallery (hence the name) and lounge for clients waiting for haircolour to develop.  This is her innovative edge – I’ve never yet seen this combination of salon and culture combined in an elegant and funky space; quite unique to this area I think.  With her business colleague, Brooke, Rosemarie hosted a champagne open house on the 28th of October, offering free hair consultations as well as the opportunity to view the work of the artist Robin Sinclair.  The attendance was over 200 and was a great success.  Brilliant.

I asked Rosemarie whether there had been any impediments to starting up her business and if she’d received any help in doing so.  As a matter of pride, she said, she hadn’t sought or had any help in setting up her business and wasn’t aware of what assistance might be available.  Hairdressing, she said, was pretty recession-proof; though people might not go for a Nicky Clarke appointment, they still needed to have their hair cut and what she was offering was a stylish experience at an affordable price. 

The impediments she faced in pulling her concept together were contractors and utilities, some of whom had failed to provide her with services they’d promised on time. She opened the ground floor salon in July, prior to the entire shop being completed in the hopes that it would begin to generate interest, excitement and income whilst she worked on the lounge/gallery/beauty room.  In all my walks passed, I've never seen the shop without a client.

5  Zita Elze

Brazilian-born Zita Elze is a Chelsea Flower Show award-winning floral designer who has expanded her Kew-based floristry business to include wedding services, floral decor for venues & events, prop hire and an international flower school.  She is considered to be a breath of fresh air in the traditional British floristry industry, coming from a background in interior design and artistic book-binding.  She had little actual floristry training, but considers this to have been an advantage as her approach is unique.  Zita emphasises her objective of incorporating artistry and beauty in all her work.

One of Zita’s most innovative ideas has been to create a range of wedding gowns and accessories made entirely from fresh flowers, leaves and grasses.  The bodice of the wedding gowns appears like a 'living embroidery', composed of tiny rosebuds, seed heads and other delicate plant material, while the skirt of the dress is made from dried skeleton leaves or grasses.  The gowns (called Zita Elze Living Embroidery Bridal Collection) were originally designed for shows and exhibits, but their success has prompted the first order by a real bride and a dress will be made bespoke a few days before the wedding next summer.  The same technique is used on parasols and tall glass vases.  This and other techniques - with strong emphasis on inspiration and creativity - are used in her Design Academy which offers a range of classes from an intensive four week course for professionals to single day or evening classes for amateurs.  A range of informal Christmas classes will run through December for local enthusiasts wishing to try their hand at festive floral decorations.

It was noticeable that during the recession, as more and more 'for let' signs have gone up on Sandycombe Road where Zita Elze is located, she has three shop fronts, including a prop hire shop for events and the Design School as well as her stunning flower shop.   Zita Elze's shops sit close to the heart of Kew; stylish, botanical and understated, just as the village of which she's now become an integral part.

This small shop, located along the same parade of shops as Zita Elze, specialises in quilting fabrics, patterns and kits, tapestry and embroidery.  What caught my attention is that, though this is a traditional haberdashery, it also offers classes in quilting and patchwork, for both beginners and more advanced students. I see this as a wonderful combination of a throwback to a traditional British craft with an innovative teaching service.

7  Kew Village Community Market

The Kew Village Market happens the first Sunday of every month for four hours in the centre of the village where the parade is closed to traffic.  It is a local market that is “run by the community for the benefit of the community.”    It is composed of a mixture of between 30 and 35 food and craft stalls and a couple of charity ones.  Run by a group of local volunteers, the stalls are charged per market day and also a license fee to the council.  The market has both a Facebook and Twitter presence which is contemporary and completely in keeping with the traditional feel of Kew itself. 

During 2011, the market donated of £5,500 from profits to a variety of local charities.  It also allows local musicians to provide entertainment, usually young secondary-school aged performing artists.

Categories of goods on sale at the Kew Village Community Market include specialty food (baking, chocolates, nuts, cheeses, savouries, butchers, beer, sweets and sorbet), skin care, jewellery, ceramics, art & cards, photography, toys & gifts and home accessories.

Some traders have shops located elsewhere, using the Kew Market as an additional sales venue and marketing opportunity.  Others are just starting out, giving their products and brands a test drive.  Still others are traders whose businesses aren't large enough or profitable enough yet to warrant a shop premise.  And some are niche entrepreneurs who want to stay that way.  But what unites the entrepreneurs of the Kew Village Market is that they all sell goods that are of very high quality.  Sometimes bespoke, often handmade, these are the types of  products which make great gifts: they're contemporary and elegant and show that the people who make them care deeply about the goods they make and serving the people who buy them.  

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The health of UK retail has been worsening over the course over the past two years, as demonstrated by the KPMG/Ipsos Retail Think Tank's Retail Health Index (RHI):

The calculation of the RHI involves, firstly, a quantitative assessment of the impact on retail health of demand, margins and costs every quarter for that just completed and a forecast for the one ahead.   A score is arrived at using both objective and subjective judgements based upon hard datasets and softer qualitative material.     These scores are submitted by RTT members[12], collated and aggregated for the Retail Think Tank's quarterly meeting.  The framework follows the example of the Bank of England Agents' scoring system on economic intelligence provided to the Monetary Policy Committee.  The aggregate scores are combined to form the RHI which is reviewed at the quarterly meeting and are occasionally revised after debate if members feel it is appropriate.  The index base of 100 was set on 1 April 2006.  The definitions of factors used to assess the index are the following:

  • Demand: From a retro-perspective, retail sales, volumes and prices are the primary indicators.  For future prospects, economic factors such as interest rates, employment levels and house prices as well as consumer confidence, footfall and preferences are used.
  • Margin (gross): Sales less cost of sales; the buying margin less markdowns and shrinkage.  Cost of sales include product purchase costs, associated costs of indirect taxes, duty and discounts.
  • Costs: All other costs associated with the retail operations, including freight and logistics, marketing, property and people.[13]

In my talks with all these entrepreneurs I was reminded of one of the main findings of Scott Shane in his book The Illusions of Entrepreneurship of 2008: in his research, Shane found that most entrepreneurs begin their own businesses in low-tech sectors such as retail; they haven't plans to grow and their businesses generate less than $100,000 per year in revenue.  Furthermore, he found that entrepreneurs tend to start businesses in sectors in which they’ve worked before and understand, and that these tend to be in highly competitive industries.  In the US, Shane found that entrepreneurs typically do not come up with an innovative idea or possess an extraordinary dream; they don’t desire to make a lot of many, become famous or better their communities or improve the world.  Rather, they simply don’t want to work for someone else.  They also start-up with their own savings or have personal borrowings, tending not to use venture capital.

I have to say that the start-up business owners that I spoke with in Kew and Richmond, do not appear to resonate so much with this US trend, in that they certainly have tried to offer an innovative mix of products and services.  I also think that Shane’s findings with regard to entrepreneurial productivity might be a bit dated as many of the businesses I spoke to have an online presence for sales or a Facebook and/or twitter presence for marketing and communication.

In the UK, independent retailers account for 67% of all high street spaces.  Matthew Hopkinson of LDC said, "it is these businesses that sit at the heart of the economic, social and community issues that the country faces."[14]  Even in the leafy Richmond borough, it's difficult to start up a business which will endure difficult trading conditions.  I applaud the innovative entrepreneurs of my neighbourhood whose vision, drive and commitment are helping to keep alive the health and prosperity of our community.

[1] Emma Simpson, "High Street taskforce aims to rejuvenate retail," BBC News, 29 October 2012.
[2] Tiffany Holland, “Taskforce launched to tackle struggling town centres,” Retail Week, 3 July 2012.
[3] Emma Simpson, "High Street taskforce," 29 October 2012.
[4] Emma Simpson, “The Battle to revitalise shopping centres,” BBC News, 3 July 2012.
[5] Tiffany Holland, "Taskforce launched," 3 July 2012.
[6] Charlie Cooper, "Goodbye toys and cards.  Hello loans and bookies," The Independent, 18 October 2012.
[7] "Empty shop rate rises across Britain as spending drops," BBC News, 4 September 2012.
[8] Will Dean, “The pop-up paradigm: They may not last for long but temporary shops are here to stay,” The Independent, 26 January 2012.
[9] Ian Golding, “I’m not paying to park! Why the British high street might be struggling,” Independent Retail, Oct 18, 2012.
[10] ibid.
[11] Will Dean, "The pop-up paradigm,"26 January 2012.
[12] Nick Bubb, Independent Retail Analyst, Dr. Tim Denison, Ipsos Retail Performance, Helen Dickinson of KPMG, Neil Saunders of Conlumino, Richard Lowe of Barclays Retail & Wholesale Sectors, Vicky Redwood or Capital Economics and Mark Teale of CB Richard Ellis.
[13] Retail Think Tank, "Health of UK retail will worsen to record levels."
[14] Local Data Company press release, "Independent's Day H1 2012 - Growth in Independent sector slows significantly in first half of 2012 across town centres across Great Britain," 9 October 2012.

1 comment:

  1. What a great article - extremely thorough and informative. Thank you.