Jul 16, 2008

Business - British Retailer invades America

(Fortune) -- Sir Philip Green spreads his arms wide inside the 40,000-square-foot space that will soon become the first U.S. location of his retailer Topshop. "This is awesome," he says, his voice echoing around the guts of the Lower Manhattan landmark building. Sunlight streams through the windows onto his broad face as his architects show him where the deejay booth will hang from the ceiling. "This is everything you would want in retail," he crows inside the cavernous space.
Suddenly the mood shifts as Green notices that the triple-height ceilings are airy, yes, but out of proportion. "When you come in, there's nothing worse than seeing a load of air," he says before lashing out at the real estate broker, who has been accompanying him on his inspection tour. He wonders aloud why construction has not yet begun, when the store's opening is scheduled for October. (It turns out that the permits haven't yet been received.) Clapping his hands over this reporter's ears, he shouts at the broker, "Get your f*@#ing act together, and get on this 24/7 - seriously!" If things aren't fixed, he points out, "we ain't going to make any money."
In today's tense retail environment, making the kind of money Green deems worthwhile is no easy feat. But it would be a mistake to bet against the former stock boy, who has used his unique abilities as a dealmaker, cost cutter, and retail turnaround artist to change British shopping. Today he is the CEO of two privately held retail companies - Bhs, formerly British Home Stores, and Topshop's parent, Arcadia Group. He is also Britain's ninth-richest man, worth roughly $8.6 billion. He socializes with Kate Moss and Simon Cowell, but he also knows how much each button costs on the dress you're wearing. "I love what Philip does," says Millard "Mickey" Drexler, CEO of J. Crew (
JCG). "He's constantly breaking the rules, has no fear about taking risks, and is a shrewd businessman and merchant." The jewel in his crown is Topshop, a chain of 310 stores and 116 international franchises whose brand generates as much excitement from its style-obsessed fan base as Virgin Airlines or Apple (AAPL, Fortune 500) does from loyal customers.
At age 56, Green could easily be relaxing in his Monte Carlo penthouse, playing tennis with Prince Albert, or planning more parties like his 55th-birthday bash, where he flew 100 pals to the Maldives for five days of champagne-soaked revelry and a concert by George Michael. Nowadays, though, he's motivated by the challenge of turning Topshop's store in New York into the first of several in the U.S. "I always wanted to [do business] in America," he says, "and now, bluntly, I can afford to." Green is betting that Topshop, with its singular mix of English street fashion, reasonable prices, and fun services, will make it big. A higher-end, quirkier version of fast-fashion chains such as H&M or Zara, with party clothes, accessories, and daywear, Topshop offers middle-market consumers the chance to dress like their fashion idols - many of whom shop there too.
Yet American markets can be tricky for pond-hopping merchants. While IKEA and the Body Shop found a niche, Laura Ashley burned hot, then faded fast. Marks & Spencer bought Brooks Brothers in 1988 for $750 million and sold it for $225 million 13 years later. "The classic mistake is [assuming] a cultural affinity that isn't quite there," says Nicholas Alexander, a professor at the business school of Aberystwyth University in Wales.
Green, an expert at bucking conventional wisdom, pooh-poohs all that, saying that Topshop will succeed because it offers something fresh at good prices in tough times. "You've got to be quite brave, haven't you?" he admits. "But we've got a reason to be."
'A world of make-believe'
Like Green, Topshop is a throwback to an era when retailers took their cues as much from P.T. Barnum as Jack Welch. Walk into Topshop's flagship store on Oxford Street in London and you feel as if you've fallen into what Green calls "a world of make-believe." There's a salon offering blowouts for 21 pounds (about $42), a manicure station, a Willy Wonka-esque sweetshop, and a concierge who can get you Jonas Brothers tickets. Bouncing around with armloads of clothes are style advisors, professional stylists who, for no charge, will spend two hours helping literally anyone update their look.
Which is how I ended up standing in my knickers, as the English say, in a private room with a zebra-skin rug and a rackful of clothes that don't exactly scream working mommy: Am I really going to wear a skintight gray pencil skirt with extra material in the derrière? Jessica Wright, my 26-year-old style advisor, who is wearing a tiny black skirt and towering heels, couldn't have been more encouraging. (She even lets me peek at some microscopic items selected for pop star Ginger Spice.) "It's fine if you say, 'It's disgusting!'" she says of my new wardrobe. "We're just trying to show [customers] the brand and then adapt it for that person."
With Jessica's help I do end up buying a tight pair of jeans (that will sell in the U.S. for $80), a few peasant blouses, and a black dress (also $80). The merchandise works, but given the current weakness of the dollar, Topshop is not the bargain it was a few years ago: A billowy white pleated shirt similar to the one I bought for $64 retails for $35 at H&M and $59 at Banana Republic, where the cotton is thicker. But then again, you don't get style advisors at H&M. Or anything like Topshop-to-Go - a Tupperware party for fashionistas in which a style advisor shows up at your home with outfits for as many as ten people - or Topshop Express, a delivery-by-Vespa service for fashion "emergencies." "What they bring is that unique sense of British wit and audacity," says Andy Bateman, CEO of the New York office of Interbrand. "I think they're going to hit it out of the park."

Topshop, which Green acquired in 2002, wasn't always so bold. It started in 1964 inside a Sheffield department store. For most of its history the chain - along with Topman, the men's brand that launched in 1978 - catered mostly to teenagers. But in 1998, Jane Shepherdson, a onetime buyer, became brand director. She helped make Topshop a destination, partnering with new designers to make it, in her words, "the world's fashion authority." The epicenter of it all was the now 90,000-square-foot flagship on London's Oxford Street, where assortments change at least weekly. (Gap (GPS, Fortune 500) changes monthly.)
But after clashing with Green, Shepherdson left at the end of 2006. When asked about the breakup, Green gets oddly quiet. "Sometimes you need change," he says, his face clouding over. Shepherdson, for her part, thinks Topshop will do well in the U.S., though the dollar's swoon makes the brand pricier, she notes. "It is a difficult time with the exchange rate."
Topshop is only one of the six brands that make up Arcadia, but it is by far the profit driver; with Topman it contributed an estimated $300 million in profits and $1.6 billion in sales to Arcadia's total 2007 profits of about $700 million on $3.6 billion in sales. Sales per square foot average $1,000 for the chain and $3,000 at the flagship. Since he took over, Green has expanded the chain by about 100 stores and franchises; he plans to open at least one or two more New York locations in the next few years.
Brash and quirky
Topshop is the Arcadia brand most like Green himself - brash and quirky. He has never owned a computer. He doesn't like his staff to use calculators in front of him. (They should be able to do the math in their head, as he can.) Short, round, and intense, Green walks around holding two 1980s-era gray Nokia phones - one for incoming, one for outgoing. He also likes to prove that he still has a merchant's touch, taking me to the headquarters of Bhs, his department store chain with $1.6 billion in sales, where the 2008 Christmas gift selection is on display. Pointing to a DVD, The 100 Greatest Moments in Snooker, Green says he knew instantly that it would be a hit: "I bought a quarter of a million cold. And we sold a quarter of a million. It was our No. 1 item." (No matter that snooker knowledge won't play in Peoria.)
Green is notoriously demanding to work for, say several retail experts, noting his tendency to meddle, curse, and assess later. But his most loyal executives see something very different: a generous boss who cares passionately about the business and lets you "get on with it." "What he responds badly to is if you waffle," says Mike Goring, Arcadia's retail director. "He can smell that. The penalties come if the person hasn't got a view." "I haven't got time for hours and hours of analysis," Green says of his management style. "I encourage people to make a decision."
Indeed, Green has always been in a hurry. A high school dropout, he grew up around business: His father, Simon, owned an electrical retailer before succumbing to a heart attack when Green was 11. His mother, Alma, owned gas stations and real estate. His first job was in the stockroom of a London shoe importer where, he says, his photographic memory allowed him to pull any shoe immediately. From there Green became a blue jeans trader in London. Although he could rummage through barrels of clothing for the stuff that would sell, he had an even better head for the business side and began to take over the stock of struggling retailers. Green was early to realize the importance of the supply chain and traveled to Asia for the first time in 1973, becoming famous for squeezing more out of manufacturers than others did. "He's a guy who goes directly to the factory," says Bruce Rockowitz, president of Asian supplier and retailer Li & Fung. "He'll just work until he gets the price and the product right."
By the early 1990s, Green's turnaround expertise had earned him the respect of a group of financiers - not the old guard but new, aggressive ones - who backed him in a series of acquisitions, including a failed bid for Marks & Spencer in 2004 that riveted the country. "He's one of the smartest men I've ever met," says Bob Wigley, Merrill Lynch's (
MER, Fortune 500) chairman for Europe, the Middle East, and Africa. "That spans not just his retail talent but also his eye for a deal."
In 2002 he purchased the publicly held Arcadia Group, which he put ten million pounds of his own cash into - along with another 800 million pounds from HBOS bank. "Everyone thought we'd overpaid," he says of the buyout. "But I managed to turn ten million into 1.3 billion pounds." Green is referring to the whopping "dividend" he awarded himself in 2005, three years after paying himself 440 million pounds from Bhs. The Arcadia payout made headlines for being the biggest ever - surpassing the 1.1 billion pounds steel magnate Lakshmi Mittal had granted himself a year earlier. But because Green's assets are held in the name of his wife, Tina, a full-time resident of Monaco, he didn't have to pay income taxes on the dividend. (None of this cleverness derailed his 2006 knighthood.)
Every Friday, Green commutes home to Tina and their two teenagers on his Gulfstream G550. A serious gambler, he loves soccer and his toys, including a black Bentley, an $80 million, 207-foot yacht named Lionheart, and a solid-gold Monopoly set featuring his acquisitions - a birthday present from his wife. During the week, he lives in Mayfair, where he gets up at 6:30 A.M. to walk the treadmill and review the previous day's numbers.
It is Green's social life, not his work ethic, that has made him tabloid fodder. For his son Brandon's bar mitzvah in 2005 he had a synagogue built on the grounds of France's Grand-Hotel du Cap-Ferrat and hired Andrea Bocelli and Beyoncé to sing. For his own 50th-birthday party in 2002, 200 guests were jetted into Cyprus for a toga party (Green played Nero) at which Rod Stewart and Tom Jones performed.
That said, it's not unusual for Green to give money away. He has donated $20 million to help create, with other retailers and the British government, the Fashion Retail Academy, which helps train teenagers for careers in the industry. And it was a charity auction - in which he paid $120,000 for a kiss with Moss - that led to his most significant deal of late. Green gave away the kiss but got something better when the two later met at a party: a commitment from the bad-girl supermodel to develop her first clothing line. "I just kind of said, sort of in the moment, 'We should do something,'" Moss says. "Every-body I know shops there, and it's refreshing not to spend thousands of dollars. He said, 'If you're serious, come to the office.' I got his idea straight away."
Topshop is hardly the first retailer to link up with a celebrity - H&M had Madonna first, and Macy's (
M, Fortune 500) has since launched lines from the likes of Usher and Jessica Simpson - but Moss has just shown her sixth collection, and Green says sales are up 50% since its May 2007 debut. Green used the Moss line as a prelaunch brand builder in New York, offering it at Barneys. The move paid off in hype; market research shows that 17% of New Yorkers already know the Topshop name.
It may not be an ideal time to open in the U.S., but Green isn't concerned. He's prepared to spend more than $100 million to again prove he knows exactly what he's doing. "In terms of the big, big, big, big picture," he says, "it's not about the actual cost. This is my brand. If I had listened to all the times people told me not to do something, where would I be?" All he has to worry about now is a high ceiling and an ever fickle American public.

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