High Class, Low Price

England's Topshop became one of the world's hottest retailers by giving its budget fashions an air of exclusivity.

By Elizabeth Esfahani, Business 2.0 Magazine

(Business 2.0 Magazine) -- The din of frantic bargain-hunting resounds within Topshop's 90,000-square-foot flagship store in London, as Saturday shoppers dodge one another's elbows to snatch up the latest deals on wedge heels and party dresses.

Each woman knows that if something catches her eye, she must grab it immediately, because in a few hours several racks will be replenished with entirely new merchandise. Of the 30,000 or so shoppers who visit daily, at least half will buy something.

"It's mad," admits Topshop brand director Jane Shepherdson. "The stock goes straight in and out the door."

Inciting frenzied desperation is precisely Topshop's goal, Shepherdson says. But on any given day, there could also be a celebrity - perhaps Kate Moss or Gwen Stefani -trying on clothes in the store's soundproof VIP room.

In the world of "fast fashion" from the likes of H&M and Old Navy, British chain Topshop is singular in its ability to mass-produce moderately priced garments while getting mentioned in fashion magazines. Under Shepherdson's watch, Topshop is striking that elusive balance between discount retailer (its expensive items rarely go for more than $200) and luxury brand, offering cutting-edge fashions and high-end services to woo exclusive customers.

"It's the same as buying something from a designer, only you haven't paid masses of money," says Maureen Hinton, a senior retail analyst at U.K.-based Verdict Research.

Less than a decade ago, the 42-year-old chain was more commonly known as Topflop. "It was young teenage cheap," Shepherdson says.

Now she has transformed the brand into a retail powerhouse. With 290 stores in the United Kingdom and Ireland, Topshop rang up nearly $200 million in profit last year on sales of roughly $1 billion. The flagship store alone averages an astounding $2,000 in annual sales per square foot. (By comparison, Gap stores average about $400 per square foot.)

When Shepherdson took the job in 1998, she says, "we made a stand that we would be the fashion authority." Unlike competitors such as H&M and Zara, which typically imitate runway styles, the company began sponsoring shows from up-and-coming designers and recruiting local artisans to sell their wares. Though they make up just a small percentage of sales, the partnerships lend Topshop cachet and help recruit top talent to its 19-person design team.

Next, Shepherdson increased the size of the flagship store, located in London's bustling Oxford Circus, by 50 percent. Today designers and buyers use the store as a lab, testing creations in batches as small as 20 pieces.

With three deliveries daily, merchandise changes so often that customers return weekly to see what's new. Because not everyone has the time or energy to tolerate Topshop's unhinged shopping experience, Shepherdson has added a number of free services to attract high-end shoppers.

At many stores, customers can reserve time with personal stylists, who will select outfits and even bring them to the shopper's home to try on. There's also Topshop Express, which lets buyers have purchases delivered by Vespa in less than three hours. "A customer will spend 500 pounds when she only planned to spend 35," Shepherdson says.

The challenge now is to replicate the formula worldwide. CEO Philip Green, the British billionaire who runs Topshop's $3.4 billion parent company, Arcadia Group, has made no secret of his expansion plans, but the subject makes Shepherdson nervous.

"With most global brands, there's a formula," she says. "But with Topshop, there's too much personal involvement."

She envisions flagships in major cities, where designs and merchandising could be tailored to local tastes. Regarding a rumored U.S. debut, Shepherdson says it is a while off: "We'll do it in a different way."

Topshop's "Miami" party, held at the flagship last summer, confirmed Shepherdson's rebel spirit. At the extravagant fete - one of many held each year - women shopped and sipped mojitos to the beat of a Cuban band, offering a tangible taste of Shepherdson's belief that to attract big spenders, Topshop must pay attention to the little touches.

"It may be expensive, but you can find ways to do it," she says. "That's when the money flies in."

Elizabeth Esfahani is a writer in LondonTop of page

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Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer.

Morningstar: © 2014 Morningstar, Inc. All Rights Reserved.

Factset: FactSet Research Systems Inc. 2014. All rights reserved.

Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved.

Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor’s Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2014 and/or its affiliates.