As Topshop closes Spanish stores, analysts say price was a problem

By

Sandra Halliday

Published
Oct 23, 2017

The news that Topshop has closed its four stores in Spain adds further pressure to the once-seemingly-unstoppable fast fashion chain after the company’s franchised businesses in Australia and New Zealand also failed earlier this year.

And the brand’s problems in Spain have been further underlined by the success of home-grown Zara and its sister chains there. Inditex apparently has still not yet reached saturation point as far as new stores are concerned, despite its massive number of stores it has in the country.

Topshop has now closed its store in Barcelona, its only directly-owned location, as well as one each in Madrid, Marbella and Granada that it operated local partner Glasak. The news comes after the Spanish business made a loss in 2016, albeit only €400,456, after making a small profit in the previous year. Turnover last year fell over 8% to €6.01 million.

Topshop had been in Spain since 1999 but in its last accounts, as well as detailing its losses, Glasak also said the brand had not been connecting so well with he Spanish consumer of late. Anecdotal reports also suggest that it was seeing noticeably lower store footfall.

The closures are a world away from the confidence of a year ago. The Granada store opened only late last year and after Arcadia had renewed the Topshop deal with Glasak for a further 10 years shortly before that, the partners said they planned to open a raft of new locations.

PRICING PROBLEMS?

So what went wrong in Spain? That’s hard to say. In Australia, there were criticisms that the product - which was selected back in London - wasn’t right for the local market. While Spain shares temperatures with Australia, its closer proximity to the UK and its European outlook should have allowed the firm to sidestep such challenges.

Pricing is perhaps the answer as price really is important in that market. With wages still not having recovered to pre-financial crisis levels and a high level of unemployment among its young consumers, price is perhaps the driving factor in many Spanish fashion sales. And the modern consumer has so many more choices now for its affordable fashion than when Topshop originally launched in Spain.

Topshop’s product was priced slightly higher than direct competition Zara and H&M. And analysts also said its target young Spanish customer has been turning to pureplay e-tailers such as Asos, Missguided and Boohoo for on-trend product with a wider selection and those all-important lower price tags. Asos has invested large amounts in getting prices right for various international markets and has been prepared to sacrifice profits in order to drive sales.

The question is, with sales in Topshop’s domestic market also under pressure, can it recover and even re-enter the Spanish market at some point?

Its chances of success will rest very much in the hands of its still-new management team. Former Burberry exec Paul Price is now running Topshop and ex-fashion consultant David Hagglund is newly in creative control, which means we could expect some big changes from the retailer in the months ahead. Whether that will give it re-entry potential for Spain remains to be seen.