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Berghaus
Many famous UK outdoor brands have been expanding worldwide in recent years, using a solid UK or European base to develop the business into growing economies like Korea, or more established but untapped areas like Japan . Berghaus has been steadily spreading its wings worldwide, and despite humble beginnings in a Newcastle shop, its growth shows no signs of slowing yet.
SGB: Where did Berghaus start out?
Richard Cotter: Berghaus started 42 years ago in the North East, with a retailer in Newcastle . In those days the outdoor industry was a real cottage industry. The guys running the shop would source what was available but that was with minimal UK-based product, so they started to make fleeces and then rucksacks and then gradually, through time, driven by product innovation, the branded side of the business became far bigger than the retail side so they realised they needed a name for the brand. They chose Berghaus, which roughly translated from German is 'mountain hut'.
SGB: The brand is expanding further - what is driving your growth?
RC: What has fueled the expansion is not that we've outgrown the UK but that the world outdoor market is changing. There are two fundamental changes that are now in motion. The first is that we are just starting to see now what I would call global brands. Typically what you would have seen in outdoor is very strong domestic brands, so in each market, especially in Europe you would find a Berghaus equivalent in every major European market and they've developed over a similar time scale and background and are pretty much the same in scale. Then you have the American market where, because of its scale, there are probably three brands. And finally in Asia there are two or three but they are probably not as old as some of the European brands. Now you are starting to see the brands trying to trade into new markets, for example the European to America. In Asia it is slightly different as we are seeing an outdoor market develop.
The second driver of it is that that the user base is starting to mushroom; the days of outdoor consumers being stereotypical and having the right kit to go trekking for the day to the Lakes... those users are still there and we supply them, but you only have to go out on the weekend and you will see a broad nucleus of people doing all kinds of different activities and they are all kinds of ages, doing it with the family or on their own. It can be recreational or adrenaline based, it can be serious or for fun, or both! There is a massive interest in participation in outdoor activity and they all want to buy outdoor products and that is happening all over the world.
With those two dynamics if you want to be a major player you have to have a clearly defined global strategy. If you don't you will retreat into the domestic market and I think a lot of the British brands were guilty of that a few years ago. This is British brands in general, not just outdoor, and they no longer exist now as competitors from other countries were faster, better, cheaper and more innovative. So while we enjoy the pre-eminent position in the UK market it's not likely to stay like that forever if we do not look after it.
SGB: Is it logistically difficult to move into so many countries, so many markets at the same time?
RC: Actually the management of production of stock is not the biggest problem. The suitability of individual product for different markets is the key thing you've got to get right because every market has different tastes. If you take the UK market, the biggest part of that is resort based, activity centre based. We also have a damp climate so the user or product requirement in terms of the look and the performance is different to Italy, where the cut of the garment needs to be different, the colour and the properties different - if it's raining in Italy they don't go out, because tomorrow they know it will be sunny. Now if we make a leap to the Japanese market, which is hugely fashion orientated, 60 per cent of the product will never see a hill, it's a lifestyle purchase. For example, camouflage print is the most popular jacket over there right now and has been for a few years.
So the biggest issue is how do you tailor your product offer to deliver for local taste and local demand? Then you have the logistical requirement of how do I schedule my manufacturing because you could have, for example, one jacket for the British market which is navy GORE-TEX, but which then has to be cut on an Asian block, in green camouflage, for Japan .
SGB: How do you find what each market wants?
RC: We talk to people, to the retailers. Having a high quality partner is an absolute must in each market. We work very hard to make sure we have got high quality partners and that is accelerating our penetration into the market. Basically the function aspect is not that different for any of the markets; they're all looking for high performance outdoor garments. We are known for this, we are one of the world leaders in high specification outdoor garments. Construction is one of our strong suits, so the challenge if to get the style and cut right, and the colouring trims right. What we've had to do is to develop a global line which means more products and more categories.
SGB: How do you select those partners?
RC: For a long time the outdoor industry grew on 'users' running the component parts of the industry, whether they were brands or retailers or third party trading partners. Now the industry has come to a tipping point where it transcends the 'users' sector and it becomes a consumer sector, you have to really have some pretty strong business disciplines now to be able to compete in a very different market.
Fundamentally the user base is still there as we are driven by people going out on a hill, so when we go into a market, what we are looking for is an optimal balance between the core understanding of our world, that is that world that we all participate in, and for that to be complemented by strength in the key business disciplines. Generally if we can't find both of those we won't go ahead with a potential partner.
We benefit from being part of the Pentland Group, which has offices all over the world. So if you take Asia as a focus for us right now, the main Asian office is in Hong Kong . They have offices in Dongwan, Chenzin, Vietnam, India and Thailand . We can tap into this resource, which means that by the end of this year we can have six full-time business development staff based in Asia with specific focuses on different markets or different disciplines and there is a complete support network out there for them. We have got the HR people to handle the recruitment process and offices for them and we are very fortunate that we can tap into that.
SGB: What's the biggest retail market for you globally?
RC: The UK is the biggest market for us and it will remain so, and we will sustain it. I think the most interesting market we are expanding into is Asia, Korea for example, which may be the fifth biggest market in the world. If you look at Korea and see how big it is it highlights how big China is going to be.
Two things need to happen. One is that we need to stimulate participation and that is happening, it's just a question of how fast. If you go to Seoul you will see them pour off the hill in all the great outdoor gear. The terrain they have in China, for example the mountains for skiing, is just amazing. There's also rock climbing and mountain climbing, everything you want to do outdoors is there. The second factor that will drive that is how quickly their economy can develop. If you look at their GDP it's about $8000 per head in China .
SGB: What other countries are key for you? Which are your target markets?
RC: We have short-, medium- and long-term horizons for our target markets, which are our target markets for the next 12 to 18 months, then two to four years, and post four years. In every market in the world we are categorising them as a horizon one, two and so-forth market; so South East Asia is horizon three simply because of the climate, because of the terrain we don't think the participation levels in core outdoor activity will expand for a reasonable amount of time - if ever - as the climate may preclude it. They are likely to become travel destinations for recreational walking. Whereas you could look at a market like Russia, it's cold, got rugged terrain, it has a rapidly growing economy, they have a disposable income, it's going to grow so that would be a higher priority for us.
SGB: With expanding into other countries, could your commitment to the UK suffer?
RC: There is no change in our level of attention to the UK market. We are as focused now on the UK market as we were five years ago and we will be equally focused in five years.
