With their long-term outlook, family businesses are having to dig in to survive the transformation affecting the retail sector, says Adam Fenwick. Department stores need to adapt, embrace new technology and reflect the needs and aspirations of their local community…
“What we are experiencing now is rapid structural change. It must have been like this during the first industrial revolution,” says Adam Fenwick, who we’re meeting at the London branch of the department store chain, in New Bond Street. He is a member of the fifth generation of the family, which has been active in the department store business since 1882. Although he stood down from an executive role in the family business in 2017, he remains a shareholder and continues to follow the retail sector closely. We are experiencing fascinating times, he says.
The genie is out of the bottle
“Digital technology has become an agent of change playing a key role in the disruption of established norms, institutions and cultural lifestyles. New opportunities are being presented across the socio-economic landscape and, unlike previous revolutions, this is being played out on a global stage. The genie is out of the bottle – for the retail sector there is no going back. Digitalization is the biggest revolution since the early days of shopping.”
A more than challenging context: how do you get people to come to your store in the days of ordering online? “Fortunately London remains a strong shopping city. Harrods and Selfridges are real tourist magnets, more than 60% of their turnover comes from foreign visitors. At Fenwick foreign visitor share is also growing. Department stores must be exceptional destinations. If they do that well, they can be successful. A local identity is also essential. John Lewis are particularly effective ensuring all their stores have a local flavour.”
Meeting at the escalators
The same John Lewis has an interesting model: it is a ‘partnership’, employees are co-owners, which brings along a higher level of engagement and customer care. And that’s one of the key ingredients that makes the difference in retail.
“At Fenwick, the level of engagement is high. With its nine branches, it is still a family business. This has important advantages: There is a sense of shared purpose, an eye for the long term. It’s about more than just coming to work. The family business model has historic roots in the service sector and retailing in particular.”
By the way, the local community also feels that ownership of the business. “You know, the escalator halls in the department store are a real meeting place, you always see groups of people talking. They meet at the store they have known since childhood. They know the people who work there, they have bought a sofa there… When you change things, they come to ask what is happening? Are you going to move the men’s department? And why are you doing that? Besides the church, the hospital and the football stadium, they also have Fenwick. If the locals feel that the department store belongs to them, then you succeed.”
Capital-intensive business
However, only a few families still play an active role in the department store sector. “In the UK you have the Weston family, who own Fortnum & Mason and another branch of the same family owning The Selfridges Group. And the Qatari Royal Family owns Harrods. But many families have sold their interests. The growth of online retailing poses significant challenges for the capital intensive department store business. In the past, family businesses would own and operate the department store, providing long-term stability by owning and investing in the property assets with a return on capital through the retail income and rising property values. As a growing share of retail sales has moved online, department stores’ retail income has been squeezed and retail property values have come under pressure.”
Why did Fenwick, as a family business, ultimately choose to appoint an external CEO? “Because we needed to find the skills to meet the challenges and exploit the opportunities presented by the new world of digital retailing. The family still has an important role to play as a shareholder, guarding the long-term vision and values of the brand. There are also family members who continue to work in the business and hopefully the next generation will get involved too.”
A visit to the toy department
What memories does Adam Fenwick have of his childhood? What was his favorite department in the store? “As a child, I remember the toy department in Newcastle. It was enchanting, magical and a real treat. We are still the dominant toy retailer in Newcastle because we run the department with scale and authority. I also adored being taken to see our famous Christmas window display, which featured a children’s Christmas tale. Today the windows are fully animated via digital technology and thousands of children come to see the spectacle, which kick starts the Christmas season. Back in those early days, department stores realized that they needed to provide experiences and entertainment in addition to products to attract customers to the store.”
Social interaction
What are Adam Fenwick’s favorite department stores? Where does he find inspiration? “Selfridges is hard to beat. They know how to create excitement, experiences. They deliver aspirational fulfillment. I admire the work that Vittorio Radice did there, he was a real impresario. I also have great respect for John Lewis, who apply such discipline and clarity to their retail offer. These are two of the most inspiring department store players in the UK. The industry leaders will point the way. This is a revolution that we have to go through. Some companies will disappear, others will join.”
What can colleagues learn from Fenwick? What idea was a key to success? What did Fenwick do differently from the other department stores? “The key difference in the Fenwick business and underpinning its success over the years was the strategic policy of retaining the buying function within each of its 9 stores. With these stores spread across the UK, the intention was to enable each store to focus its buying assortment specifically for its local market, thereby optimizing trading performance. Each store’s buying team was responsible for buying and selling its respective ranges. The buyers acquired a detailed knowledge of their local market and within the store there was constant communication between the buying and selling teams. Buyers routinely met the customers and there was a continued social interaction. The sales teams rather than referring issues to Head Office could discuss product assortments with their buyers in the store. It created a powerful sense of engagement throughout the store. Colleagues were being entrusted to make the right decisions on the front line. The deployment of digital technology and real time customer data has enabled ongoing refinement of this structure and buyers are now organized on a regional basis. However, the focus still remains on the individual product assortment of each store and maintaining, via the sales teams, strong social interaction with the local customer base.”
The online threat
“Department store retailers are only too aware that they cannot stand still in this transformed retail landscape. E-commerce will continue to drive structural change in the retail sector with more retail sales moving on-line. Online retail has replaced the historical convenience of visiting a department store and customers can now buy what they ‘need’ and what they ‘want’ at the click of a button and have their purchases conveniently delivered within hours.”
How can department stores remain relevant? “Department stores have always had to evolve since they were first established over 100 years ago. Their future existence will depend on remaining relevant to the needs of the digital customer. Harrods and Selfridges illustrate that there is still a place for flagship stores, which offer experiences, a variety of innovative eateries and a carefully curated product assortment and much more besides. This is no longer about competing just on product offer, but competing as a leisure destination.”
Huge ripple effects
What does the future hold? “We know that the future will involve even greater change as technology, such as 5G and artificial intelligence, drives more innovation, personalization and a revamping of lifestyles. The role of the store as a distributor of third party brands will need to change. Brands are now investing in their relationship with customers and selling directly online. Stores will need to differentiate by selling more of their own brands and maximizing customer loyalty.”
“The retail economy will not support the number of stores that exist today and store owners will need to cull their store estates and repurpose the space for other uses. Property asset values will come under further pressure as income yields decline and this will create a huge ripple effect across the wider economy, until alternative uses can be identified for redundant space.”
“It is why we are recruiting new skills both at a leadership level and throughout the organization, as well as supporting our existing colleagues with change management tools. Difficult decisions also need to be made determining the appropriate allocation of capital between our physical stores and the digital platform. Stores always need investment to maintain the fabric of the buildings and the product assortments within them, but technology also demands investment as it now plays a critical dual role in driving more customers to stores.”
Conclusion? “You can’t rule out possibilities and you can’t get sentimental. If the formula no longer works, then you have to adapt. Everything is changing so fast now. We have experienced five generations of retailing in our family business. We still believe in the power of our brand and the potential to grow it in the future.”
by Erik Van Heuven and Stefan Van Rompaey
– photo: RetailDetail –
A rich history
“The company was founded by my great-great-grandfather John James Fenwick, in Newcastle in 1882. He was an entrepreneur and visionary and in 1891 took the opportunity of acquiring a site on New Bond Street in London, which became the flagship store for the Fenwick brand.”
Fenwick, like all early stores, provided bespoke clothing for births, weddings and other social occasions, with customers arriving by appointment via horse and carriage. The business evolved over time but always ensuring it remained relevant to the needs of the customer. It needed luck too, with the Bond Street building narrowly avoiding a bomb in the Second World War.
Today in this part of London, the West End, you have a large concentration of department stores, with big names like Selfridges, Liberty, John Lewis, Debenhams and House of Fraser. So there is fierce competition, but it also provides vital critical mass to attract customers to the area.
“My father, John J. Fenwick, after a training at Harrods, spent his career as the fourth generation of the family in the business and led the company through significant expansion.”
Adam Fenwick was group Managing Director from 2005 to 2017, his cousin Mark was Chairman from 1997 to 2017. In that year, they both took a step back and the company appointed external management for the first time, with Richard Pennycook as Chairman and Robbie Feather as CEO.
The retail economy will not support the number of stores that exist today