London Beckons as Polish Clothes Retailer Admits Past Mistakes

(Bloomberg) -- As Poland’s biggest clothing retailer steps up efforts to conquer Europe with its first London store, co-founder Marek Piechocki is determined not to repeat mistakes of the past.

Changes in LPP SA’s design studio are already paying off, boosting sales of the company’s flagship Reserved brand in the second quarter, said Piechocki, 56, who is also chief executive officer and the biggest shareholder. LPP intends to double the workforce at its Gdansk headquarters, recruiting about 500 IT specialists to expand online sales. It also plans to move some production to Poland from Asia to be more nimble in responding to European customers’ tastes by unveiling new collections several times a year.

London Beckons as Polish Clothes Retailer Admits Past Mistakes

September’s Oxford Street opening will mark a new chapter for the company Piechocki started 26 years ago with Jerzy Lubianiec, after the stock, which gained an average 49 percent a year since its 2001 debut, faltered in 2013 when workers making its garments perished in a factory collapse in Bangladesh. Rising costs at western European outlets and growing competition from online fashion retailers added to its woes as shoppers turned their backs on the Reserved trademark.

“We had been too engaged in expansion, and we couldn’t see that the collection we wanted to sell was simply awful,” Piechocki told reporters in Gdansk on June 20. “Increased salaries and more jobs may cost the company some money, but I believe it will be well-spent, and investing in people is an investment that will eventually pay us back.”

‘Family Company’

Piechocki, who rarely talks to journalists, describes LPP as a “family company” and has said he intends to eventually pass his stake to his four children.

LPP, which began as a supplier of cheap textiles to local supermarkets, started to develop its own brands in 1998 to benefit from growing demand for the latest fashions among Poles. The takeover of a competitor, the rapid opening of new stores and expansion to other central European markets while keeping costs low by manufacturing in Asia allowed it to emerge as a regional leader.

“We made mistakes, but we still have a chance to build a globally recognized company and break the perception that Polish products are inferior,” Piechocki said.

LPP’s long-term objective is ambitious: to be among the five biggest European fashion retailers and mentioned in the same company as Inditex SA, Hennes & Mauritz AB and Marks & Spencer Group PLC. The London opening, featuring a specially designed collection, is part of that plan, along with a wider e-commerce reach that will enable sales in new markets, beyond its existing 1,671 shops in 18 countries.

The share price reflects high expectations, with LPP trading at 31 times 12-month forward earnings, the most expensive of any member of Warsaw’s benchmark WIG20 index. That’s even after the stock retreated 32 percent from its peak. Piechocki has helped retain investors by increasing dividends by an average 10 percent a year, while suggesting the company may buy back shares in future.

Taking the next step on its growth path will be harder for LPP, said Lukasz Wachelko, an analyst at Wood & Co. brokerage.

“LPP, which pioneered fashion-store expansion in central Europe, now faces a global switch to the e-commerce clothing business, which is redefining who the market leaders are,” Wachelko said by phone. “That is a big challenge for a talented imitator of Western brands, and a big test for the company’s high valuation.”