With its dark furniture, high-tech gadgets and model jet plane, Philip Green's London office feels a lot like the work area of an investment banker or hedge fund manager. On the wall behind his enormous desk, there's even a photograph of Wall Street antihero Gordon Gekko. But on this May morning, a daytime-TV segment flickering on his sleek, flat-screened television betrays his role as a master of an entirely different universe: women's fashion.
Green, the billionaire owner of the Arcadia Group, which controls a clutch of U.K. clothing chains like Miss Selfridge and Wallis, is watching a spot about the latest fashion collection to hit Topshop, the jewel in Arcadia's crown. The much-ballyhooed line inspired by Kate Moss the supermodel's own wardrobe formed the basis of the designs went on sale the previous night at the chain's flagship store in London. Basking in the nonstop Moss-fueled coverage, Green can't help but smile: "You couldn't dream for a better start," he says. And on May 9, the hype hopped the Atlantic when Barneys, one of New York City's toniest department stores, opened a boutique selling Moss's striped blazers, skinny jeans and hot pants. After four hours, the boutique sold out; even the mannequins were stripped of their dresses.
Moss's new line is only the latest in Topshop's recent successes among "fast-fashion" retailers, which specialize in almost constantly updating collections of cool clothing at prices so low the clothes are almost disposable. Over the past nine years, Topshop has carved an enviable niche atop this hypercompetitive sector in Britain by appealing to a broader demographic than its competitors, by getting its new designs quickly to market and in a category where inexpensive too often equals cheap by emphasizing quality. Topshop's combination of fashion and value has "changed the way we dress," says Lauretta Roberts, editor of Drapers, the British fashion-business bible. That mix has also made it a hit not just with the masses but with celebrities and fashion bigwigs as well. No American fashion editor's trip to the U.K. is complete, for example, without a pilgrimage to Topshop.
The Topshop formula is proving not just popular, but profitable, too. The chain made around $200 million in pretax earnings last year on revenues of approximately $1.14 billion. That's about half the total profits and a third of sales at the privately owned Arcadia Group. It wasn't always this way. As recently as the late 1990s, says Nick Bubb, a retail analyst at Pali International in London, profits were as little as one-tenth last year's haul.
How did Topshop turn it around? By heading (relatively) upscale. Tired of its reputation for tackiness and losing out to budget chains in the '90s, Topshop's managers decided to stop competing just on price. "The decision was made to create a fashion authority," says Mary Homer, a joint managing director of Topshop who's been at the retailer for 20 years. (Green, a retail entrepreneur with years of experience in various types of businesses, acquired Arcadia in 2002, and helped execute the strategy already under way.) The company now employs 22 of its own designers, up from around a dozen in 2002, and they aim to create new looks just as deftly as they copy those from the catwalks.
Getting new fashions into stores even faster than before also became a central part of Topshop's revival. While traditional clothing retailers might take six weeks to get a design to sales floors, Topshop's trucks are delivering new duds to its outlets usually just two weeks after suppliers have received the order. The result: Topshop debuts hundreds of new pieces in its London flagship outlet every week. And if the emphasis on speed and stylishness means Topshop's togs are a bit more expensive, then so be it. That's a premium the chain's customers have come to expect and are willing to pay for. "If we can get it in four weeks in the U.K., we'll buy it at four weeks in the U.K. rather than buying it cheaper" elsewhere over a longer time frame, says Karyn Fenn, Topshop's other joint managing director.
With 300 stores in the U.K and 100 international outlets (all of them franchises) in Asia, Europe and Latin America, Topshop is looking to expand its reach further overseas. "There's no lack of demand," Green says. Even after opening its biggest international store in Stockholm, he says, Scandinavia still holds tremendous potential. But to grow much larger, Topshop will have to make some radical changes. Today, no matter where its smock dresses or miniskirts are stitched together or where they're destined everything passes through the U.K. "The existing franchising model and supply chain would not work for significant global expansion and will need to be adapted," Green says. To construct an efficient, decentralized distribution system is a logistics puzzle management is now attempting to solve.