Tesco driving hypermarkets’ clothing sales

2010-08-11

Hypermarkets are the fourth biggest channel in terms of turnover value on the Polish clothing and footwear market. In fact, despite the recent economic slowdown, the clothing and footwear segment in the hypermarket branch grew, according to our estimates, by 5.7% in 2009 to be worth in total PLN 2.3bn.

The upward curve in sales in the large format retail channel (which includes individual sales in cash and carry type supermarkets) has mainly been possible thanks to the 20% growth achieved by the Tesco chain. The latter has stood out from its rivals on the market by developing its own basic brands: casual Cherokee line and somewhat higher positioned label F&F. In this way it has drawn closer to specialist clothing chains and its prices are similar to those offered by C&A.
In general, however, hypermarkets tend to sell lower price range clothing. These are predominantly non-brand items targeted at people for whom price is a key factor shaping their purchasing choices. As a consequence, hypermarket chains may be perceived in the same light as market places and second-hand stores whose target group is primarily customers from lower income brackets.



Six supermarket chains are currently active in Poland, Tesco, Real, Carrefour, Auchan, E.Leclerc and Kaufland, boasting a combined store count of 353 large-format outlets at the end of 2009. Total revenues from their operations exceeded PLN 35bn. Each of these retailers offered some kind of clothing assortment, although they have pursued varying sales strategies and adopted differing price positioning approaches.
Over the last few years a number of hypermarket chains have begun to build up their clothing ranges and competition in this area has stiffened. Some chains have even begun to promote their own clothing brands.

Private label clothing
The latest textile private label to appear in Poland is the Designers label, which was launched by the Real chain back in 2007. The collection includes women's, men's, children's and infant's clothing as well as underwear. It is positioned as a typical own brand in the average price segment, i.e. they are quality products but cheaper than traditional brand items. The chain intends to continue promoting the brand and expand its range to encompass further product categories and subcategories. Moreover, besides the Designers label Real also offers textiles under the TiP brand, which covers inexpensive items with a fast shelf life. The retailer has no plans to launch another brand.
Two years ago Carrefour also decided to bolster its own clothing brand. The French chain was the first retailer to launch a textile brand in Poland, under the name Tex. That was in 2004 and since that time the brand has gradually expanded in scope. in 2008 Carrefour began to focus intensely on developing the brand – it started stocking a special collection imported from distribution centres in Spain and France. This is a quality-based collection available at prices comparable to or 20-30% cheaper than specialist brands from the mainstream segment, such as, for example, Reserved. Unfortunately, higher average prices did not translate into increased turnover for the Tex clothing label . As a consequence, Carrefour has significantly downscaled the collection and opted instead to focus on promoting its cheaper, but more profitable assortment.
The Auchan chain has likewise chosen to sell a wider clothing range at lower prices, although it does not have its own separate brand.

Tesco going head to head with the specialists
Tesco, on the other hand, has adopted a fundamentally different philosophy. It has chosen to position its brand a notch higher than other hypermarket chains, at a level approximate to that of specialist “category killers” like the H&M and Reserved chains. In 2006 Tesco became the first chain in Poland to operate as a licensed retailer for clothing from the Cherokee label, which is produced by the American concern of the same name. A year later, i.e. in 2007, Tesco decided to launch its own brand in its Polish stores – F&F. While its Cherokee brand is comprised of casual type clothing, F&F includes, besides day-to-day clothing, more elegant apparel, evening wear, underwear and accessories. Both brands are being heavily promoted, including via image-building television advertising, which makes Tesco an exception among hypermarket chains present in Poland.
Tesco's strategy is clearly paying dividends, for, as reports published by the firm show, in the last financial year sales from the clothing collection surged by more than 20% in like-for-like terms (i.e in stores that have been in operation for more than a year). Tesco has managed to gain significant shares on the clothing market in Poland and has emerged as one of the market leaders. Furthermore, with a price positioning strategy that parallels that of popular specialist brands Tesco's aim appears to be compete with precisely these labels.
However, developing its hypermarket assortment is not the only objective on Tesco's agenda. According to the latest reports, the retailer also intends to launch an independent clothing store under the F&F banner in Prague. The outlet will open in the Palladium shopping centre. For the time being the Prague venture remains a pilot project, and its success will determine whether further stores of this type open in the future, including in other countries. Tesco opted for the Czech Republic as the country where the store would make its debut on account of the high brand awareness that the F&F label enjoys in that country – Tesco is the biggest clothing retailer in the Czech Republic.
Earlier reports suggested that Tesco wanted to open its first flagship store under the F&F brand in London's West End. The shop will welcome its first customers in October.
In addition, Tesco is also keen to develop internet clothing shopping on the British market. The company argues that sales growth is currently impeded by store size. Approximately 60% of its assortment is today unavailable in 80% of its stores. Hence online sales should significantly boost the availability of Tesco clothing.

The growing prominence of clothing assortments shows that supermarket chains are eager to take advantage of Poland's burgeoning clothing market. So far this trend has been most visible in hypermarket format , but as Tesco's efforts on other markets show retailers in Poland may decide to branch out into completely new channels.

More information on the clothing and footwear market is available in the latest PMR report. „Clothing and footwear retail market in Poland 2010. Market analysis and development forecast for 2010–2012”.

Patrycja Nalepa
Senior Retail Analyst
PMR Publications