Pep&Co first look: checking out the store and its offer as the Kettering branch opens its doors

Last month I wrote about the impending arrival of new value fashion and homewares chain Pep&Co – and its first store, in Kettering, has now opened this morning.

As I noted before, a further 49 Pep&Co shops are set to open during July, August and September, starting with Cwmbran (where work already seemed well advanced when I passed by on 8 June) on 13 July.

Interestingly, three of the locations earmarked to date are in the North East:

• Middlesbrough, opening in August, is confirmed as the ex-Bank Fashion site at LSU1 in The Cleveland Centre
• The Sunderland branch (also scheduled for an August opening) is listed by Pep&Co as being at Unit 62 in the Bridges shopping centre – that places it in the ex-Peacocks and current Utopia unit, facing the Market Square, with ground-floor sales of 6,374 sq ft (among the largest of the Pep&Co locations to date)
• Jobs are also being advertised for a Hartlepool branch – which will be in the Middleton Grange shopping centre – though I understand that the location is still being finalised. While the ex-M&S site, vacated last month, is shown online as ‘under offer’, that location has a ground-floor sales area of 18,047 sq ft (plus the same again on the first floor, if required) so is very unlikely to be where Pep&Co is headed. Most of the other empty units in Middleton Grange are 1,000 to 2,000 sq ft, so it would be reasonably easy to knock a couple of those together to create the space that Pep&Co requires.

I hope to take an official look at one or more of the North East stores as they open. For now, however, we only have the Kettering branch to visit. So what’s it like? Well, I headed down there last week, along with a clutch of other retail commentators, journalists and analysts, to meet the key people behind Pep&Co and draw some initial conclusions.

The location

I’d never been to Kettering before, but it’s a reasonably handsome town, with a particularly impressive (and recently revamped) Market Place, featuring some of the best quality public realm I’ve seen anywhere outside Sheffield.

Walking up Gold Street, past key competitors (Peacocks and M&Co) and, of course, the old Woolworths (now B&M, after a stint as QD Stores), the covered and TK Maxx-anchored Newlands Centre – where Pep&Co is – rather spoils the run of attractive streetscape.

It’s not a pretty building, but it’s well-occupied by both shops and shoppers, even if the rare presence of an old Poundland fascia points to a lack of attention from some of its current tenants. The Newlands, incidentally, is one of 21 UK shopping centres owned by Ellandi, including the Blaydon Shopping Centre and Stockton’s Castlegate here in the North East.

The store

The Newlands unit itself is, like many Pep&Co sites, an ex-Internacionale (though occupied most recently by a local independent, Shout, which has now relocated), and at 4,802 sq ft it sits squarely within the 4,000-6,000 sq ft bracket that Pep&Co is targeting.

Alongside some of the centre’s rather tired fascias and shopfronts, the clean and bright Pep&Co frontage – with white and green lettering on a black background – makes a good first impression.

There are 7,000 SKUs instore – though merchandising wasn’t quite complete at the time of the visit – and this will be the same throughout the estate, irrespective of store size. It will just mean that a larger store, like Sunderland, can be slightly less densely merchandised, or feature a few more of any one product. Of those SKUs, womenswear, covering sizes 8 to 22, is 45% of the business and childrenswear 30%.

Notably, Pep&Co has avoided the usual technique of outfit building in its womenswear displays, organising instead by product and price – “an easier way to shop”, Pep&Co’s people argue. Though rails predominate, wardrobe essentials are attractively laid out on tables. Homeware, at the back of the store, is a tight range built around a fragrance gondola and a selection of cushions and throws.

Talking to Cathy Haydon, Pep&Co’s Trading Director (and the former head of womenswear merchandising at M&S), she suggested that larger stores like Sunderland would be in a prime position to trade any new ranges in the future, such as a potential (but as yet unplanned) extension into menswear.

Among Retail Week readers, initial reactions to pictures of the store interior have included “underwhelming” and “disappointing”, and it’s true that there’s little here to excite shopfit-wise, with the exception of the shiny, logo-clad backdrop to the tills – a handy reference point when navigating the store.

However, to expect a glamorous interior is probably to miss the point of what Pep&Co is looking to achieve. Andy Bond, the former boss of Asda and now Pep&Co’s Chairman, talking to us in Kettering last week, was clear that Pep&Co is “a price-led family clothing business”, looking to do for fashion what stores like B&M have done for general merchandise.

The gap, MD Adrian Mountford argued, is therefore for a genuine value fashion clothing retailer in the types of (mostly smaller) town where B&M is successful; or, as Andy Bond put it, “a convenience store as well as a discount store”. Of course, both Bond and Mountford have a background in supermarkets – Mountford was director of Sainsbury’s Tu fashion brand – and much of the look and feel of Pep&Co would be familiar to anyone who’s visited the F&F department at Tesco in Gateshead, covered in my May 2013 blog and pictured below. The main difference is that Pep&Co, unlike Tesco, has lower fixtures that allow welcome views across the store.

So, does Pep&Co genuinely offer something different to what high-street rivals Store Twenty One, M&Co, Peacocks and the like are already doing? Based on what I’ve seen, I believe it does.

Product and price

Value players in other sectors – from Aldi to Poundland and B&M to Lidl – have found success by offering quality products at eyecatching prices in pleasant but unpretentious environments, and it’s clear that price is absolutely key to the Pep&Co offer, too.

Perhaps what wasn’t clear prior to the visit was quite how competitive Pep&Co’s prices would be, with 98% of kidswear (and 95% of the store) priced at £10 or less. 70% of the entire store is at £7 and under, the most expensive denim is £12, and the very top price instore is £25 for a pea jacket.

This positions Pep&Co very much in the price bracket of Primark or the supermarkets, and gives it an edge in terms of price – if not necessarily fashionability – over most of its high-street competitors. That’s fine, though – fast fashion has its place, but there’s always a need for stores that sell wardrobe staples, too. In devoting a higher than usual proportion to affordable childrenswear, Pep&Co also has the potential to plug the post-Woolworths gap in kids’ clothing that still, in many local retail centres, hasn’t been filled.

Based on the garments I looked at, the quality seemed good for the price – and this is hugely important, as there’s little place in the market these days for any business selling cheap rubbish to shoppers who are increasingly savvy and vocal.

So how has Pep&Co managed to be so strong on price? Clearly it helps that 80% of the product is own brand, sourced from 43 suppliers in eight countries (including eight in the UK), many of them previously known to the management team.

However, the apparently “bonkers” (in Andy Bond’s words) decision to open 50 stores in 50 days is also crucial. Mountford explained that Pep&Co needed at least 50 stores upfront to be able to buy in the volume that would allow it to offer the prices it wanted. Similarly, the need to buy the same range for all stores meant that they had to be opened in as short a timeframe as possible.

An alternative way to build that position, of course, would be through acquisition, and the business did come close to buying an existing 200-strong chain – whose identity is not hard to guess – last year, only for it to fall through at the last minute. That deal, had it proceeded, would have given the company at least 80 viable locations to launch with, though in retrospect, Mountford felt that Pep&Co had been better off going through the organic route – building its own team and its own systems – despite the obvious challenges of creating a whole new infrastructure and business from scratch.

The future

Andy Bond was clear that while South African retailer and New Look owner Christo Wiese is backing the business through his Pepkor vehicle, Pep&Co – and its parent investment company Pepkor UK – has no involvement from Wiese, and is completely separate from anything he may be doing with New Look.

Still, commenting as an outsider looking in, it might be an interesting future development for Pep&Co to trial brand-awareness-raising concessions in some larger New Look stores – particularly in more significant retail centres like Newcastle, where the size of the city makes a standalone Pep&Co highly unlikely.

In terms of stores, both Bond and Mountford were clear that the priority is to assess what works and doesn’t work with the initial 50 – so, implying that expansion may take a pause for breath until after the all-important Christmas season is over, and the existing stores have had chance to bed in through a full season.

Bond was explicit, however, in stating that “50 is certainly not the ambition – the limit is more about acquisition than ambition.” Indeed, Pep&Co’s management visited 350 towns – some of which lacked suitable space, or space at the right price – in order to whittle the list down to the first 50. So, it’s surely a vote of confidence for Middlesbrough, Hartlepool and Sunderland that they all feature in this first tranche.

Ultimately, however, Bond suggested that a national Pep&Co chain could grow to 700 or 1,000 stores, with Mountford telling me that there was definitely potential for more branches to open in the North East.

And what about online? Ecommerce has tended to prove challenging in the value fashion space: New Look is a leader in click and collect; M&Co has seemingly made a go of it; Peacocks has gone back to it after its administration; Store Twenty One has opened, closed and reopened its online store; while Primark, apart from a brief dalliance with selling via ASOS, has steered clear of selling online all together.

Andy Bond, certainly, was candid about the likelihood of Pep&Co entering the online space, arguing that “it is unimaginable how you make an £8 or £9 basket size work online”. He suggested, though, that a click-and-collect operation is likely over time, and that in the meantime the business will make sure it has a “good online presence” with product information and promos as well as all the usual store contact and opening details.

I should note that Pep&Co is yet to post anything from its Twitter account, mind, though the Facebook page – launched earlier this week – is somewhat more active.

Verdict

In its six-year life, this blog has covered its fair share of short-lived new retailers – remember Alworths, UGO and ILVA, among others? Many fail, usually due to a mispriced or insufficiently differentiated offer, sometimes compounded by the people behind the venture lacking the means to deliver on their ambitions.

On these fronts, Pep&Co seems well placed. It has heavyweight financial backing, a top team with an impressive pedigree in both retail and fashion, and a product offer that does seem to give customers something new in terms of value and accessibility.

Sure, the store interior is nothing exceptional – but as long it’s clean, bright and able to accommodate a pushchair, mums are unlikely to object if they can pick up a decent t-shirt for their kids for £1.50.

It’s a model of store experience that has worked wonders for Poundland, and I certainly wouldn’t bet against Pep&Co achieving similar success.

My retail consultancy business, CannyInsights.com, provides bespoke place- and sector-specific market insight, including detailed coverage of the North East and nationwide. It also works with retailers to improve their stores, customer communications and market knowledge. For more information, visit www.cannyinsights.com, drop me an email, or give me a call on (0191) 461 0361.