What you can learn from Country Road’s downturn-beating growth strategies

It’s hard to imagine a retailer that has performed better in the last 12 months than fashion chain Country Road.

In a year when the downturn has smashed the up market end of the retail sector – shirt company Herringbone and footwear chain Steve Madden have both collapsed into administration in the last 12 months – Country Road is set to post profit before tax for 2008-09 of between $21.3 million and $21.8 million, a sharp rise from the $14 million profit recorded in 2007-08.

So how did they do it? And what can other companies learn from their success?

Chief executive Ian Moir says with a laugh that while he’d love to take credit for a brilliantly prepared downturn strategy, he can’t.

“I’d like to say we had the wonderful foresight to see it all coming and prepare appropriately, but it’s not true.”

Instead, Country Road had been working to reposition its brand and its product offering well before the downturn hit and Moir says the poor economic conditions have only underlined the strength of the model.

“We couldn’t have had a better focus,” Moir says. “I think we are seeing trading down to us and trading across to us because they see a great combination of fashion and price.”

Here are some of Country Road’s secrets:

Lower prices

Moir says Country Road has dropped its prices by an average of 30-40% across its product range, yet insists the chain has not engaged in deep discounting. “It’s not about discounting. There are so many retailers that are driving sales through discounting as it just doesn’t work long-term. The fashion has to be on the money, the quality has to be there and the price has to be right.”

While the state of the Australian dollar has helped Country Road drop prices, most of the cuts have been achieved through improved sourcing. Moir says the company has reduced the number of suppliers and mills that it deals with and become “more meaningful” to the remaining vendors. “We committed to larger orders and as a result have been able to get much better prices,” Moir says. Being able to pass on those savings in a downturn has given Country Road a big advantage.

Knowing its customers

At the heart of Coutnry Road’s sales success is a customer database of 850,000 people. “We spend all of our marketing money marketing to that base,” Moir says. Typical response rates are 12-14%, up to 50% for the company’s most loyal customers. Growing and maintaining a database of that size takes money and effort, but when you get the level of bang for your buck that Country Road does, it is worth it. “People really feel they are part of the club,” Moir says.

Repositioning the brand

Moir says market research Country Road performed around three years ago identified a major problem: while the Country Road brand had a strong reputation for quality, it was seen by many as too conservative. Moir immediately started trying to make the brand “younger” and more fashionable, thereby expanding the potential customer base and growing sales.

The “younger” move has had another benefit too – in the next few months, the company will launch a new brand, called Trenery, to cater for over 40s.

A healthy dose of pessimism

Moir likes to joke that his Scottish heritage means he’s always a bit conservative and despite recent signs that retail might be recovering, he remains extremely cautious about the prospect of more shoppers returning to the malls.

Most successful retailers in the last 12 months have displayed extremely disciplined stock management and Country Road isn’t about to increase stock levels just yet. Keeping inventory levels down helps to reduce costs, improve working capital and reduce the need for clearance sales. “We’ve run our stock very lean and we’ll continue to do that,” Moir says. “We’ll continue to plan for difficult times and take the upside if it comes.”