Kurt Geiger – a shining example of a sole trader

As one of a handful of niche-market shoe retailers, the designer brand is thriving
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The Independent Online

Shoes, shoes, glorious shoes. How we love them.

Five hundred million pairs are sold in the UK each year. It's a £5.6bn business, and every woman has, on average, 25 pairs lined up in her closet.

But the stores where women – and men – buy their shoes and boots are changing. Even in these straitened times, the footwear business is no longer about selling practical, long-lasting items, it's about fashion, style and trends – even more so than the clothing business.

A handful of UK shoe brands have carved themselves a reputation and a niche which allows them to survive and prosper while many of the high street's footwear giants have fallen by the wayside.

Kurt Geiger is one of the top businesses in this flourishing corner of the market, with turnover topping £162m in the last financial year to January 2010. It sells 10 pairs a minute of shoes such as the £210 Erica leopard-print, or the Scene feather boot (pictured inset), a snip at £390.

By cleverly reinventing itself, the chain is now striding out on the high street amid a renaissance for the sector, and is joined by other rapidly expanding chains, such as Schuh, Office, Dune, and the smaller brand Irregular Choice.

But they all face massive competition from the clothing chains and supermarkets that are storming into the sector. New Look and Primark are top of the market in women's footwear by volume, and New Look is now opening standalone footwear stores – it sells more women's shoes than any other retailer in the UK.

It is this competition from the clothing retailers, which first hit the high street more than a decade ago, that struck out names such as Saxone, Dolcis, Shellys and Ravel. The sector giants, such as Barratts and Stead & Simpson, had to shut hundreds of shops as part of restructuring processes, leaving very few pure shoe retailers alive and kicking.

Sarah Peters, retail analyst at Verdict Research, explains: "The way we shop for shoes over the past five years has changed. Now fashion retailers such as New Look and River Island have increased their store space, allowing for larger footwear sections. The clothing retailers have begun to get better at translating what they do in clothing to footwear."

She adds: "It is the middle-of-the-road footwear retailers that haven't worked. The higher end is doing well and the value end is also holding its own. Those who have succeeded are those who have targeted one kind of customer."

Kurt Geiger has taken advantage of the polarisation. It has plans to open in Russia, Turkey and Malaysia, and it wants to grow its menswear collection. Interestingly, it says, 56 per cent of men's shoes are bought by women.

Ms Peters explains its success: "Many footwear specialists have struggled in the face of competition and we have seen names disappear from the high street. But Kurt Geiger has been a success story. It is a very design-based brand and they have an excellent idea of what their customer wants and who their customer is. They tailor-make designs for their customers. Kurt Geiger's success is to do with having distinct handwriting in the design."

The company's buying and creative director, Rebecca Farrar-Hockley, agrees: "A core principle of Kurt Geiger, and a large part of our success, is original design. We have a team of 62 buyers, designers and merchandisers creating more than 250 new designs every month. We create fashionable shoes with a very strong design element, complemented by a high-end retail offering. Over the past 10 years demand for designer shoes has increased year on year, and with shoes being an integral part of fashion trends we can only see this demand for well-designed footwear continuing to increase."

Recent statistics from Verdict research found the footwear market grew by 2.3 per cent in 2010 to £5.6bn. But Verdict estimated that the clothing specialists represented around 34.4 per cent of the market, up from 27 per cent in 2005.

Helen Dickinson, head of retail at KPMG, said: "Footwear has outperformed clothing and it is certainly a growing market. For instance, at Christmas the cold weather meant boots were selling much better than a lot of clothing.

"The success of footwear is also due to lifestyle choices. Shoes have become a lifestyle choice – they are a status symbol. Now nearly everyone has heard of Jimmy Choo or Manolo Blahnik. The designer shoe brands have meant the average shopper is now willing to spend more on footwear as a status symbol."

Nor has the footwear sector slipped under the radar of private equity and venture-capitalist investors.

Last month Silverfleet Capital, the European private equity firm, completed its second retail deal within two months with the acquisition of Office, the footwear business, from Tom Hunter's West Coast Capital. The price of the 75-store business was rumoured to be £130m to £140m – around seven times earnings.

Kurt Geiger has the advantage of having two parts to its business. David McCorquodale, corporate finance partner and retail expert at KPMG, explains: "The two distinct models within Kurt Geiger – the management of top-end brands within department stores, which it does very well – plus the way they have differentiated their own brands, which has set it apart from other retailers, makes it attractive to any future potential buyer."

The price paid for Office caused some retail experts to suggest that Kurt Geiger owner Graphite Capital may want to hold on to the chain a bit longer before it sells out.

Graphite Capital paid around £95m for the business in 2008 and may see the international growth as a reason to hold on for another year.

But the footwear market is by no means foolproof and the sale of Jones the Bootmaker is still ongoing since BDO was hired to sell it last August.

Graphite will be hoping that the appetite for expensive shoes will be replicated in the new overseas markets targeted by Kurt Geiger, and that Russian, Turkish and Malaysian women and men will fill their own closets with designer shoes – vastly expanding the brand's, er, footprint.

Stepping Out

The luxury shoe firm was founded in 1965 when entrepreneur Kurt Geiger arrived in the UK from Austria. He opened his first stores on Sloane Street and Bond Street in London.

In 1985 the brand was bought by House of Fraser, and in 1994 Harrods took ownership, following House of Fraser's listing. The chief executive, Neil Clifford, led the £46m management buyout, with Barclays Private Equity, from the Harrods group in 2005. He subsequently led the secondary £95m buy-out in partnership with Graphite Capital in 2008.

Mr Clifford joined the business in 1995, while Ms Farrar-Hockley joined in 2002.

Kurt Geiger has 63 standalone stores worldwide, and 112 concessions, including sites in Harrods, Selfridges, Printemps in France and La Rinascente in Italy. It also sells online. Alongside its own brands – Kurt Geiger, KG and Carvela – it also manages shoe ranges in department stores for luxury brands such as Jimmy Choo.

New UK openings are planned this year, among them Portobello Road in west London, and the Trafford Centre in Manchester. Expansion is planned in Russia, Turkey and Malaysia over the next five years which will see the number of Kurt Geiger branches outside the UK almost triple from 19 to 50 worldwide by 2016.