petitor, Payless Shoes, and includes around 35 sites that Payless Shoes had previously occupied. Charlton believes the family-owned business is getting close to saturation point in Australia, with between 235 and 250 stores the likely cap. The immediate focus for Charlton is on bedding down the large number of new stores before potentially exploring opportunities in New Zealand or Asia. Spend-Less Shoes is one of the most successful privately-owned specialty chains in Australia, a lean operation with 30 head office staff and, depending on seasons, 30 to 50 staff in the Port Adelaide distribution centre. Charlton is hands-on, in touch with staff in every store, and working closely with his management team on buying, marketing, merchandising and particularly leasing. With a network of more than 200 stores, Charlton is mindful of the need to choose locations carefully and to strike lease deals that are realistic, noting that market share does not equal profit. High occupancy costs was one of the reasons Charlton believes Payless Shoes failed in Australia. Charlton said the parent company of Payless Shoes had misjudged the Australian market and had fallen for the trap of believing its dominant market position in the United States, American footwear brands and low prices would win over Australian customers. Charlton said the US retailer had not understood the competitiveness of the Australian market and had failed to rein in costs. Along with the battleship retailers such as Myer, Target and Big W, specialty retailers are facing increasingly more challenging retail conditions based on consumer sentiment, economic trends and competition from internet retailers and new global entrants to the market. The crucial advantages of specialty retailers are their retail concept and brand, potentially more motivated staff and the opportunity to keep re-inventing themselves or, at least, introducing new elements in their stores. The biggest dangers for specialty retailers are in being locked into outdated store networks, failing to train and motivate staff, failing to reinforce customer relationships and scrimping on marketing and merchandising. So many specialty retailers lock themselves into high rental deals and poor locations in a relentless quest for sales and market share. As Charlton says, market share doesn’t equal profits, and specialty retailers need to focus more on bottom line earnings than on expansion for expansion’s sake. One of the reasons the new global entrants are stealing sales from established retailers is the fact they are setting up shop in the centres that offer the best traffic flow today rather than centres that were hot spots a decade ago. The game plan for most of the global retailers coming into Australia is also based on a destination store strategy rather than a rollout of hundreds of stores. That makes their stores easier to manage, more nimble in effecting operational changes, less inclined to cannibalise sales and, in most instances, more productive in terms of sales per square metre and profitability. Keeping it in the family One of the interesting things about Spend-Less Shoes is that the chain is still run by the founder of the business. Charlton knows everything that makes his chain tick and continues to be hands-on, while working with a stable and experienced management team that have worked at Spend-Less Shoes for more than 15 years. The chain has tapped into the external experience of Charlton’s daughter, Jaimee, who joined the family business after working for the Cotton On Group, but retains a solid management base that many specialty chains lack. That management team has been crucial to the expansion of the chain and particularly to its ability to take over and integrate the 35 plus Payless Shoes sites. While Spend-Less Shoes has demonstrated that specialty retailing can survive and prosper against overseas competitors and the online vendor challenges, other chains have not been so fortunate. Where it went downhill Just as Charlton is focused on occupancy costs for stores, he attributes the success of Spend-Less Shoes, where many other retailers have come to grief, to debt and financial management. Charlton said the tight control in financial management has provided Spend-Less Shoes with the flexibility to expand and to respond to opportunities at short notice. Pumpkin Patch is one of the best examples of a chain with a good brand and concept that failed to control costs and arguably chose some poor locations for stores. Specialty fashion retailers have been under the greatest pressure from the entry of retailers such as H&M, Zara and Uniqlo, with Kit and Ace stores following other brands such as Marcs, Rhodes & Beckett, Herringbone and David Lawrence into administration last month. The upmarket technical cashmere clothing brand launched in Australia in 2014 and had seven stores in Victoria, New South Wales and Queensland when it called in Deloitte as administrators. Kit and Ace was founded by the family of the Lululemon retailer chain and was owned by a Canadian based parent company, Hold It All Inc. The failure of Kit and Ace is a timely reminder that not all of the international brands entering the Australian market will succeed, especially if they fail to appreciate the high rental and staffing costs in this country. All of the chain’s stores have been closed, with the administrator indicating that they were not viable, although the exit from Australia coincides with structural changes in the Canadian parent company. Another international brand struggling in the Australian market is Gap, which has drained the earnings of the listed Oroton Group and sent the price of the Australian retailer’s shares to a 20 year low. Oroton has struggled since the termination of the Polo Ralph Lauren licence and its short-lived relationship with Brooks Brothers. Oroton has been in discussions with the San Francisco-based Gap Inc about the joint venture and is being urged by investment analysts in Australia to terminate its deal and close the six Gap stores in Victoria and Sydney. Apart from the $3.5 million loss that is expected to be booked by the Gap stores this financial year, Oroton is also being squeezed in its core accessories business by online vendors and international retailers. What needs to be done For specialty retailers, competition is not likely to get any easier and in real terms, growth in retail sales for the past three years is running at around half what it was in the first 10 years of this century. To survive and prosper, specialty retailers will need to manage their store networks more prudently, quite possibly shedding some to the locations they opened in that decade of robust industry sales growth. They also need to develop their online presence to create sales but, just as importantly, to boost brand awareness and to develop stronger relationships with customers. It will also be crucial for specialty retailers to keep reinventing themselves and continually offering something new that underpins their differentiation from competitors. And those specialty retailers who chopped back staff training budgets might also want to reconsider that decision, because the competitive advantage that specialty retailers have over the mass merchandise retailers and online vendors is customer service.