From bags to riches: the success of Radley handbags

At the end of 2007, Radley + Co, makers of distinctive handbags branded with a small Scottie dog, exchanged hands for £130m – only two years after it had been valued at £42m in its first private equity deal. Truly 'bags to riches'.

The advertising campaign was cited as a key contributor to this success. Fashion brands, until now, have been conspicuous by their absence from the IPA Effectiveness Awards. Fragmented markets, small media budgets and limited industry research data have tended to result in advertising being an 'act of faith', rather than rigorously evaluated.

But when private equity is invested in a brand to the tune of £42m, an act of faith is not good enough. This case shows that fashion advertising can have a huge financial payback, and that it can be measured rigorously. Along the way, we will discover a new kind of advertising effect, and a new method of evaluation.

HOW IT ALL BEGAN

In 1984, Lowell Harder, an Australian-born architect, opened a stall at Camden Market selling men's work-bags under the name Hidesign. Whether it was her architectural training, or something deeper in her nature, the bags were unusual; eccentric even. Her business grew, and by 1991 merged with Tula Group, (an established high-street handbag company) giving Lowell two brands to play with – Hidesign and Tula.

But, ever restless, Lowell felt that there was room for something new, colourful and surprising for women. In 1998, she launched a third brand, called Radley, and added a brightly coloured Scottie dog. The result was an immediate hit. Soon there were Scotties on every Radley bag.

In February 2006, Tula Group was acquired by Phoenix Equity Partners for £42 m. Phoenix considered the potential of its three handbag brands: Hidesign, Tula and Radley (see Figure 1).

It was clear the Radley brand had the greatest potential. It was the biggest, with sales of £23m; the most profitable, competing in the more expensive premium segment; by far the most distinctive in design terms; and already had a small, almost cultish following. The new company was renamed Radley + Co, and a bold business plan was agreed.

BUSINESS AND MARKETING OBJECTIVES FOR RADLEY BAGS

The new private equity ownership was looking for rapid and significant growth over the next three years: £57m of sales, up from £35m, and £11m profit up from £6m. The plan also called for opening Radley shops across the UK, developing profitable markets like sunglasses and footwear extension, and an overseas presence. The marketing plan was as follows:

• encourage more women to buy Radley bags

• build Radley's premium values, encouraging women to trade up to more expensive bags and increasing average pricing

• establish the brand's credentials in the industry, supporting extension into new merchandise areas and internationally.

Phoenix agreed an annual budget of £800k for its first Radley advertising campaign, and a full brand communications launch was needed for March 2007.

DEVELOPING THE ROLE FOR COMMUNICATIONS

Lowell is a maverick in the fashion industry. While she's in the industry, she doesn't necessarily like it. She believes in functionality, good design, quality and value. She dislikes selling to women by exploiting their insecurity. Why, she argues, can't a fashion company be on the side of women? She likes colour and whimsy – not serious, monochrome 'fashion'.

Her bags are truly unusual – from materials, to stitching, construction, colour and texture. The designs might seem classic – but open them up and the pink, polka-dot lining would seem to say 'this is no ordinary bag'.

Radley had built a loyal fan base of handbag devotees. Typically they were middle-aged, upmarket and from the north. They liked the quirky, colourful designs and sense of fun. For some, interest bordered on the obsessive. But other women didn't 'get' Radley: the brand was unusually polarising. It was also clear that this distinctiveness was both an opportunity and a problem.

Research confirmed that encouraging more women to buy Radley's bags was not going to be easy.

So not only did awareness of Radley bags need to be increased, but there were issues of desirability. It was functional, but not fashionable.

Radley had a particular weakness in the south east – probably because the brand here was more swamped by international and luxury competition. So, impressing fashion industry opinion formers – who were also in London and vital for the development of the brand – was a particular challenge as we would be moving into the cut and thrust of the glossy world of high fashion; the world of 'it bags'; celeb magazines chronicling Posh's latest Hermes, and daunting ad budgets.

To put this into perspective, Radley's total annual media budget of £800k was dwarfed by fashion market spend, which can top £8m in one month. In any given month of Radley spend, we could expect a share of voice of no more than 3%.

THE CREATIVE IDEA

At the end of November 2006 DDB presented the idea. It was: 'Truly Radley Deeply'.

We started with a manifesto. Lowell loved it and it has remained a touchstone at Radley ever since. This idea was unanimously endorsed by Radley's management.

It went on to be used for briefing the new city owners, staff, the PR agency and the design company.

This was the brand's point of view: but what about the ads? With our tiny budget we knew we had to be bold and different. The cliché of handbag industry ads is moody-looking model + product + big logo, but Lowell decided to avoid showing people and focus on the bags being colourful, surprising and real vs the serious world of 'heroin chic' The campaign idea unified the inspiration for the bag with the bag itself.

The Truly Radley Deeply idea was further brought to life by creating a journal celebrating the brand and its meaning. Numbered copies were given to all staff.

Not surprisingly, we decided to use women's glossies as the focus of the campaign; they offered us the right environment to talk to women and reached the opinion-forming fashion world.

But for Radley to have any chance of cutting through on such a small budget, we needed to be smart and take some risks: to secure front half positions in the all important women's international glossies (hard for an unknown advertiser); to create the impression we had a much bigger budget than we really did; to get the campaign noticed and talked about by the fashion press opinion formers who we needed to impress for Radley's future ambitions.

We believed that our best chance of negotiating with media buyers for these glossies would be for them to see the ads for themselves. So our media department took the unusual step of physically taking our ads round to show to magazine owners. This turned out to be an inspired move. They loved the ads. Titles originally unsure of taking Radley were converted.

We were also bold by paying more for prestigious positions in the front of magazines – usually reserved for long-term fashion house advertisers – and among major editorial sites, and running two double-page spreads in the same magazine at launch.

Easy enough for the agency to recommend. Harder for a client short on funds to justify. But Radley's management team was determined that the campaign should be launched with real impact.

Our new website was featured on all the ads, too (trulyradleydeeply.com).

THE RESULTS OF THE CAMPAIGN

Results were remarkable. Across 2007, Radley spent only £800k, including production on the new advertising (tiny in the fashion market), yet impact on the brand and business was startling. In some cases, so much so, we had to double-check results.

After only eight months, awareness of our advertising put us in the fashion handbag top five, level with Chanel, fashion's single biggest spender. Press advertising was responsible – 53% of women claimed to have seen the ads in magazines.

To increase Radley's profile, we needed to create a 'buzz' around Radley. This seemed to be happening. Visits to Radley's two websites (radley.co.uk and trulyradleydeeply.com) increased significantly from the very day that our advertising appeared. And opinion formers and the press soon got interested too. Press coverage had been fairly static, but when our ads broke, articles mentioning Radley increased, and by year end had doubled in number.

Radley became famous and desirable. When we asked women who would be their first-choice handbag designer, we saw a four-fold improvement. This was so remarkable that we had to recheck the data. Radley was now the nation's favourite handbag designer, trouncing Gucci and even Chloe – makers of the 2007 'it' bag, according to the press.

Radley had been a polarising brand. But now, something very good was happening. The number of women who felt that the brand was 'for people like me' increased, while the number disagreeing decreased. Not surprisingly, this led to strong growth in numbers of women saying they would like to buy a Radley handbag.

WE EXCEEDED ALL OUR TARGETS

With such extraordinary shifts in brand perceptions, you'd expect some pretty impressive business results. Radley's plan presumed that as value increased there would be some slowdown in volume. But volume sales of Radley handbags increased by 9% in 2007. Market share also increased to 12.5% by volume, making Radley now the brand leader; one in every eight handbags sold in Britain was now a Radley and this share growth was not explained by discounting or lowering pricing. Indeed the opposite took place. Radley was able to move its pricing up, and more women traded up to more expensive Radley bags.

Value sales therefore increased faster than volume, growing by 21% over the year before: result – Radley's contribution to company profit increased by 51%. In combination, this meant that Radley + Co would meet its three-year business objective a year earlier than planned.

Radley + Co underwent a remarkable transformation during 2007. In January, it was a small company operating out of a converted dairy in Dollis Hill. By Christmas, it was on the top floor of Greater London House and the number one player in the handbag market. Clearly this success was driven by the Radley brand. The other two brands, Tula and Hidesign, actually lost sales. The fact that Radley was advertised and grew, while the other two brands shrank, is suggestive, but not conclusive.

SHORT-TERM PAYBACK

We have estimated advertising payback in two ways: sales grew 2.4 times faster when we advertised; sales were already growing before we advertised, but as soon as the campaign started, rate of growth increased by a factor of 2.42. Given the evidence we have presented, it seems clear the main reason for this was advertising. Sales grew 2.4 times faster where our ads were concentrated. Sales in London/south-east grew 2.45 times faster than in the rest of the country. The only thing that can explain this is advertising – all other factors affected the different stores equally.

Our two methods lead to exactly the same conclusion: advertising increased the rate of growth by a factor of 2.4. From this, we can calculate immediate payback. We estimate that the advertising paid for itself 1.47 times over, giving a return on marketing investment (ROMI) of 47%.

This is an impressive payback, especially over such a short time span. But it is only part of the picture. There are several other ways in which advertising created value: women came to value the brand more and retail expansion became more feasible.

The brand became more extendible. Radley has already launched purses and luggage. Now the brand is stronger it can be extended into other categories and Radley has secured distribution abroad.

THE BIG PAYBACK – A NEW KIND OF AD EFFECT

If the market is efficient, the effects of advertising should all be reflected in the value of the company. When Phoenix bought the company in 2006, it had a three-year plan to transform the business. Our advertising helped it to achieve its targets in half that time. As a result, it was able to sell at the end of 2007.

And that's where the big payback came from. Phoenix acquired Radley + Co for £42m in February 2006. By November 2007, Exponent (another private equity group) paid £130m for it – regarded as one of the private equity deals of the year.

The value of the company had tripled, creating £88m worth of value in just 19 months. An extraordinary achievement, especially since by late 2007, the credit crisis was causing lesser deals to fail. It's instructive to examine where that value came from. Exponent's rationale for the increased valuation was based on two factors:

• it estimated that having a stronger brand doubled the potential for profit as the brand strength made those profits more secure,

• allowing it to use a higher profit multiple when calculating the company's value: to our knowledge, this advertising effect has never been properly identified or measured before.

We can use Exponent's calculations to estimate the total effect of the advertising, including the longer and broader effects. We knew that ads increased earnings by £375k in 2007. Exponent applied a multiple of ten to those earnings when valuing the company. Therefore the ads increased the value of the company by at least £3.75m. True payback will be even greater, since advertising also helped increased the multiple from seven to ten. Since we spent only £800k, this means the campaign paid for itself 5.7 times over, giving a ROMI of 470%.

A number of conclusions arise from this story of the unlikely alliance between the worlds of high fashion and high finance:

• 'small budgets' can produce remark ably big commercial effects – even when dwarfed by much larger com petitor budgets

• 'small budgets' can and should be as rigorously evaluated as large ones – even in sectors like the fashion industry, not known for rigorous communication evaluation

• in the hands of visionary management, great advertising both builds brands and directly increases the value of companies

• and we outline new evaluation learning; showing how ads have a double effect on company value – increasing profits and making those profits more secure.

A parting thought: perhaps we can all humbly learn something here from the recently much-maligned world of private equity. Free from the short-term demands of listed companies, private equity companies can, surprisingly, offer far more fertile ground in which brands can flourish securely over the long term. Far from being dismissive of brands and slashing support in the interests of short-term profit gains, Phoenix was smart enough to do the opposite, providing bold commitment and financial backing for its new brand Radley. And in turn, demanding a rigorous approach to analysing return on its investment.

ABOUT THE AUTHORS

Julian Calderara is Development Director of Touch DDB. [email protected]

Les Binet is European Director of DDB Matrix. [email protected]

Sarah Carter is Strategy Director of DDB London.

Figure 1: UK handbag market