Why did Banana Republic fail to win over the UK?
Gap-owned Banana Republic announced this week that it is closing all of its UK stores "after a thorough evaluation" by the end of fiscal year 2016. It arrived in the UK with a shiny flagship on Regent Street in 2008 but perhaps the very limited roll-out of the fascia - in eight years it has only opened eight stores and only one outside of London, in Bath - was a sign that the Brits hadn't embraced the workwear specialist as enthusiastically as had been hoped.
The reasons for Banana Republic's failure to set the market here alight are many and varied, according to industry watchers, but appear to boil down to one thing - shoppers couldn't justify the price tag. For a start, it landed in the UK at the height of Primark-mania when British shoppers never felt as clever as when they were buying t-shirts for less than the price of their lunchtime sandwich (though the mood has since shifted somewhat on that score), so unless it offered up a very good reason for them to spend more on their clothing (excellent quality, fashionability and fit perhaps) then it wasn't likely to take off.
The Telegraph's retail correspondent Ashley Armstrong is quoted in his own publication saying: "Banana Republic arrived in the UK in 2008 with much fanfare on the eve of the financial crisis and unfortunately for the group its British debut was timed just as the British retail market changed forever." The British shopper had been turned into "bargain hunters" who either shopped at Primark or waited for sales, Armstrong said. And that addiction to sales and discounting is something retailers in the UK (and indeed in the US) are struggling to cope with to this day.
Its somewhat feeble footprint didn't help in the age of online either. It may seem perverse to say you need lots of shops if you want to compete online (particularly when brands like ASOS are rocketing after never having had one, though that business is targeting a very different customer), but when there's a Zara in every major shopping destination, it's bound to have more brand visibility, which will drive more customers to its website too.
Speaking of Zara, that business highlighted another weakness in Banana Republic's offer: fashionability. Its positioning in the workwear space is a bit problematic since the British workplace has been on a dress-down trend for the past decade to point where even in some of the most conservative sectors smart jeans will pass muster when it comes to the workplace dress-code. And even where that is not the case Banana Republic's offer was not sufficiently on trend when compared to other (largely European) retailers in its price bracket.
"The British high street is a highly competitive arena, arguably you can pick up those same work wear pieces at Zara, Massimo Dutti or Cos - for better value, and with more of a fashion-bent to them. Walking into Banana Republic felt like going back to the Nineties, but not in a good way," says the Telegraph's senior fashion news and features editor Victoria Moss, again in her own publication.
Verdict Retail analyst Honor Strachan agrees. "[It] launched with aplomb in 2008 on London’s Regent Street, with a beautiful flagship store signalling its intention to make a mark on the premium clothing market, rivalling the likes of Reiss, Ted Baker, Hobbs, Whistles and French Connection. While further store openings followed, as well as a transactional website which aided brand exposure, disappointingly, the brand failed to justify its premium price points, leaving consumers with little encouragement to shift their spend from rivals," Strachan said.
And when it comes to the product offer Strachan pulls no punches in her assessment. "Product must always be the core focus, but Banana Republic has underinvested and not listened to customer feedback. At the right price, its contemporary, classic styling should work in the UK – more trend-led and formal than Gap, but less European than Zara or Massimo Dutti, and better quality workwear than the midmarket. But the fit of product is all wrong. This immediately became apparent on entering the UK, with size 8 tailored work dresses fitting a size 12, and dresses in its petites range with sleeves a 10-year old would struggle to fit their arms through," she added.
This miscalculation on fit was, said Strachan, "disastrous". And the same could probably be said of its pricing and promotion strategy. Instead of reactionary discounting, which erodes consumer confidence, it could have taken a hit on margin and just reduced its prices overall to offer better value.
"This strategy [of frequent promotions] does not work in the UK and is detrimental to margins if price cuts are reactionary, desperate and unplanned. Gap’s global operating margin (including Banana Republic) dropped 3.7 percentage points to 9.6% in the two years to January 2016, and while not directly comparable, in the UK we saw operating margins across the clothing & footwear sector rise by an average 0.8 percentage points to 8.7% in the same period," she added.
But, before we get too down on Banana Republic, it isn't the only brand who has struggled to gain a foothold in the highly competitive UK market. And one is tempted to wonder if it ever really tried that hard, anyway. Strachan predicts that we should not be surprised if others (both international and domestic) brands decide the UK is just too tough and close their physical stores. They can still serve the market online after all (though as mentioned above those stores do help in this regard), which is what Banana Republic will continue to do.
As a sidenote, it will be interesting to see who takes over the Regent Street store. The London shopping street is increasingly turning into our own version of Fifth Avenue, with Polo Ralph Lauren, Kate Spade, Michael Kors and Coach all opening stores on the street this year. Will we see another plucky American brand step in and give this challenging market a go?