Sunday, 23 November 2014

Store closures of 20% en route to store-level assortment, and more?

The emerging sense that UK multiples are sitting on redundant space representing around 20% of their estates means that large store disposals will have to begin, in order to convince the City that the capital base is being brought in line with current market demand.  This in turn will impact how suppliers manage their major customers, in terms of reward for risk and investment.

Moving to store-level profitability
Obviously, the multiples will reassess their estates via store-by-store re-evaluation to identify which of the larger outlets fail to produce an acceptable level of profit, ideally using ROCE, the driver of share price.

A starting point would be to highlight every store that is delivering less that the corporate average ROCE, and since the corporate ROCE is in fact an average of good and bad, eliminating the under-performers would automatically raise the corporate ROCE.

Selling off redundant space
Next step would be to attempt to sell the redundant stores.  This will not be an easy task, given the rationale re viability of alternative use in our recent blog.

In extreme cases, this means lowering the price (thereby possibly challenging the book-value of the remaining stores in the estate) to a point where a sale is possible.  Any such write-down below book-value then causes a hit on the P&L, thereby resulting in a reduction in profits.

More importantly, the simultaneous issue of ‘for sale’ notices by the multiples could depress all UK store values.

In fact, given most retailers’ gut-response to slowing sales, we might be on the verge of the first price war in retail property history, possibly opening the door to BOGOFs, multi-buys and even loyalty-points!

Moving to store-level autonomy
Seriously, this new focus on store profit margin and ROCE has to lead to the treatment of each outlet as an individual market.  Specifically, a 70,000 sq. ft. store, with say 400 staff and an annual sales turnover of £100m, means that the store’s CEO is in fact in charge of a medium-sized UK business, and is likely to demand equivalent autonomies at operational level, complete with Balance Sheet and P&L.  In practice, this means having the freedom to decide on an assortment that matches local need, rather than the blunt tailoring dictated by a head office 200 miles away.

What it means for suppliers
From a supplier point of view, this development spells the end of ‘national coverage and distribution’ and instead sees the introduction of ‘patchwork presence’ that matches real need for the brand at local level.  This will in turn calls into doubt the cost-effectiveness of ‘national’ and even regional advertising compared with the 1:1 pinpointing of social marketing…

Impact on how we market brands
In terms of brands, our repeat-sale ‘relationship’ with the consumer becomes a series of SKU-by-SKU sales, available to buy wherever, whenever, however the savvy consumer chooses, with no channel off limits.  In practice, this means regarding each successful 'sale' as a springboard to the next, with every tin they open containing more than they expect - not 25% empty to help disguise a price increase that fools no one - least of all a savvy consumer, already trained by the banks and politicians to trust no one, and helped by the most sophisticated price-comparison kits ever available, costing a fraction of the saving on the first purchase.

In effect, the consumer is giving us all a second and possibly final chance to get it right...

...and all because of a creeping realisation that the UK is over-shopped and currently unfit for purpose. 

Monday, 17 November 2014

Supermarkets facing big store closure - Why the big deal?

Mark Price's predictions of big store closures in The Sunday Telegraph should be no surprise to NAMs that know their ROCEs.

Essentially, retailer share prices are driven by the rewards they generate for risk. In other words, if a retail (or any other) business fails to generate an adequate pre-tax Net Profit on the Capital Employed in the business, then the ROCE will fall, and with it, the share price.

This means that in the case of large space outlets, say 100,000+ sq. ft., it is vital that sales/sq. ft. of at least £1,000 p.a. are generated, otherwise that outlet will dilute the group's performance.

As NamNews readers will know, the structural changes taking place in retail, such as consumers buying less and shopping more often means that the cost of driving out-of-town becomes an increasingly expensive issue, and not just for cash-strapped shoppers. Moreover, given the economic uncertainties, and the increasing ease of buying online, shoppers have become increasingly attracted to discounters and convenience stores, closer to home.

As you know, retail is meant to be flexible, capable of responding to any change in consumer demand. 

Unfortunately, UK retailers made the mistake of building and holding large space retail units, where scale economies helped them to generate high net margins, as long as sales remained high. With the benefit of 20/20 hindsight, holding rather than selling and leasing back the store meant that it was put in the Balance Sheet as a capital item, part of the Capital Employed. This meant that high net margins were required in order to produce an adequate ROCE of 15% or more.

With falling sales in large outlets, resulting in the same overheads eating into the margin, the retailer is faced with the dilemma of finding alternative uses for some of the space - such as restaurants, entertainment, and leisure - the only proviso being that these alternative options generate at least £1,000+ per sq. ft. p/a.

Alternatively, suppliers can help by organising in-store theatre initiatives that drive sales to such an extent that the overall store's selling intensity is greater than £1,000 per sq.ft./annum.

Otherwise, the store closes, or is hopefully sold off to other businesses that can exceed the sales-to-space parameters of viable usage, in order that the remainder of the estate, with a smaller footprint, can generate a level of ROCE that the City rewards via share price increases.

Failing that, the retailer slowly goes out of business..., whilst suppliers become stronger...

Unfortunately, and fortunately, it is as simple as that.  

Friday, 14 November 2014

When an unexpected listing may benefit from a Drone defibrillator...

                                                                                                                              pic: EPA

Whilst many NAMs may be focused on Amazon’s latest trial of same-day drone drop-offs in Cambridge, a more useful application might be where speed of reaction can mean a difference between life and a death. Alec Momont at The Netherlands’ Delft University of Technology has unveiled an ambulance drone that can fly up to 100 km/hr to deliver a defibrillator to a patient in mere minutes…

The ambulance drone is a hexacopter painted in yellow. It can be dispatched to a location within 12 sq. km in about a minute. Upon landing, anyone able to help the victim will be talked through using the attached defibrillator by an operator. The drone has an on-board camera which allows the operator to talk to the victim and provide instructions to whomever is on the ground – essentially serving as a remote paramedic...

Given the $19k price-tag, and the stretched budgets of the emergency services, perhaps there is scope for some collaborative efforts by suppliers living within 12 sq. km of Cheshunt?

See a video that shows what the ambulance drone does - and how the project came to fruition - here

Hat-tip to Francisco and Rui for the pointer

Thursday, 13 November 2014

Retailers' share prices - a useful KPI for NAMs?

Tesco shares have collapsed by 43%, Morrisons is down 33% and Sainsbury’s share price has fallen by 30% during the past 12 months, as anyone that matters, knows...

Given that most key executives are remunerated in part with share options, it follows that optimising the share price has to be high on the agenda in the mults. This means that understanding share price drivers can add another dimension to a NAM's insight, and negotiating repertoire...

First, the professionals want to ensure that the value of all the cash, stock and property owned by the company is worth more than the current share price, i.e. Market capitalisation.

Second, they try to get an estimate of future earnings, in order to judge the likelihood of getting some part of what remains after the other creditors have been paid.

All of this can be driven by the retailer's ROCE, the ultimate measure of profitability, a KPI that can be directly driven by the NAM's bag of brands...

Still feeling that the share-dimension pits you against the experts overmuch?

If so, it should be kept in mind that most shareholders and their advisers study open domain data in arriving at their perception of what a share is worth. Their experience of retailers as businesses is usually confined to shopping in the aisle, whereas NAMs actually work in the engine room, negotiating with the guys that drive the business. This means that a stock market-literate NAM can possess a level of insight that far exceeds that of a NAM limited to ‘the five selling-points that make our brand unique’.

Incidentally, one way of adding some immediacy to a NAM’s share-price sensitivity is for a supplier to authorise the purchase of £100 of shares in the NAM’s retail account, on expenses. Nothing beats owning a piece of the customer to add focus…

However, the NAM should be forbidden from owning much more than £100 worth, to avoid any temptation to use Trade Investment or improved credit terms to add value to the share price (!)

Wednesday, 12 November 2014

Sainsbury's results - welcome to the real world of UK retail

Today’s interims reveal no surprises, and together with the Tesco, Morrisons and Co-op revelations, and given the relative transparency of Asda’s results and dialogue with the stockmarket (via Walmart), it can be assumed that everything is now out in the open, with the major players acknowledging that 'The grocery sector is undergoing structural change as customers shop more frequently, using online, convenience and discount channels more’.

True, the Tesco SFO investigation may eventually yield some additional output, but in the main this will be limited to more precise definitions of the elements of Commercial Income along with some amendments to accounting process and a switch to results-based reward that major retailers will ignore at their peril.

The UK version of capitalism is generally very forgiving, provided stakeholders can rely on the truth of what they are shown, and there is no reason to second-guess via the share price. Therefore a line will be drawn and all will move forward.

In other words both Coupe and Lewis are openly clearing the decks and making ready to do battle with the discounters and other retailers, on the premise that in a flat-line market, any growth comes at the expense of the competition… 

Share prices will inevitably follow…

From suppliers’ points of view, we are into a new era of transparency and demonstrable value-for-money, real-time.

Retailers are now into cost-cutting mode with aggressive sell-off of non-productive assets (and suppliers?) a key feature of the programme.

In future, everything will be measured, with a heavy emphasis on assessment in terms of demonstrable impact upon ROCE - the driver of share price.

This means that NAMs will need to re-calculate the cost of every element of the trade offering, especially Trade Investment, and will be expected to demonstrate the benefits of compliance via the impact on a retailer’s P&L and Balance Sheet.

In turn, given the challenges faced by the multiples, and their overt need for help, suppliers are in a once-only position to demand fair-share dealings in return.

For those that hesitate to grasp this unprecedented opportunity, this could well be the last trick they will miss…

Tuesday, 11 November 2014

The ultimate in H&B convenience, or another pharmacist missing an open goal…?


Think about the effort required to punch through an apathy-inducing media-flood, successfully engage with a consumer suffering from a minor ailment, unwilling to ‘trouble the doctor’, but still wanting medical advice, prepared to make a journey to a pharmacy, with little or no instore guidance on where to ask, suffer the potential embarrassment of describing symptoms to a ‘stranger’, and willing to accept advice that, in the circumstances, over-rides the normal price obstacle, and if successful, is more than likely to tell a friend….

In these unprecedented times, a consumer self-presenting in this manner at point-of-purchase and being ignored, eventually has to represent an opportunity for multiple retailers...

The resulting move from opportunity to threat is a real pity, especially when independent pharmacists have had at least thirty years to get it right… 

Friday, 7 November 2014

Dark-net lessons for Light-net suppliers?

According to a fascinating article in The Economist, business is thriving on the anonymous internet, despite the efforts of law enforcers.

In fact, following last year’s closing down of Silk Road, a drug-dealing site on the “dark net”, dozens of dark-net Amazons and eBays (also known as crypto-markets) have sprung up to fill the void. They are not only proving remarkably resilient but expanding their offerings and growing more sophisticated.

Major players include Agora (weed, powders, pills and guns), whilst Evolution sells stolen credit-card, debit-card and medical information, guns and fake IDs and university diplomas...

These players operate in a different league to ‘normal’ in-house scammers such as those rogue employees of legitimate online providers that substitute rocks for high-end products ordered online.

According to the article, the dark retailers are into consumer satisfaction and repeat-purchase, in that narcotics product quality is higher than street trades, largely thanks to an Amazon-like five-star customer-review system (!).  In a den of thieves, high ratings are sellers’ lifeblood. Reputation is crucial when clients know they cannot fall back on small-claims courts or arbitration….

According to James Martin, author of “Drugs on the Dark Net”, the big markets’ customer service and marketing strategies increasingly resemble those of legitimate retailers. They are quick to apologise for technical glitches. Two-for-one specials, loyalty discounts and promotional campaigns are common (on Smoke Weed Day, say). Other methods borrowed from the corporate world include mission statements, terms and conditions, and money-back guarantees..

The key issue for legitimate suppliers has to be the fact that when even the crooks are raising the standards in consumer-satisfaction, how vital it is that Light-net providers adopt a zero-tolerance approach to their own online offering… 

HT to Anette Rahbek for pointer to the Economist article   

Thursday, 6 November 2014

Phone- box conversions to mini-shops and cafes


                                                          pics: Brian Moore, Brighton

A Brighton-based charitable trust, Thinking Outside the Box supports homeless projects by giving a percentage of its earnings from the retail uses of converted phone boxes, according to the Bradford Telegraph and Argus.

It has the support of Miles Broe Architecture: "The K2 and K6 red phone boxes are iconic pieces of both engineering and architecture. The aim of this proposal is to redefine their usage to suit modern day needs and requirements without compromising their external appearance on the street scene."

The application is part of a scheme to convert a number of disused BT kiosks into small retail outlets, selling products such as ice cream and coffee.

Mr Broe said: "The formula is simple and Miles Broe Architecture brings their planning experience to bear on rolling out these proposals nationwide.

"Working with the charity Thinking Outside the Box, British Telecom and registered charities to safeguard many dilapidated and misused listed phone kiosks, the charity will provide training for jobs within the programme."

Projects were granted planning permission by Brighton and Hove City Council in September last year (see pic) followed by Plymouth and Nottingham, with planning permission currently awaiting approval in Bradford..

A possible sponsorship opportunity for the mults?

Wednesday, 5 November 2014

Your customer needs you, specifically...

Driven by the savvy consumer’s demand for personal attention, expressed in shopping behaviour, the retailer completes the consumer-shopper-retailer need-set in wanting 1:1 treatment.

Even if the retailer forgets, suppliers have to remember that their offer, tailored to the retailer’s business needs, has to have inbuilt characteristics designed specifically to meet shopping and consumption requirements.

A supplier cannot even get close, without starting with a deep understanding of what makes this, not any, consumer special.

In the ‘old days’ i.e. before 2008, we used to study the needs of the consumer with the aim of segregating ‘our’ consumer-base into six manageable consumer segments, in turn driving some token tailor-making of our consumer-offering. This we adapted to produce an acceptable bundle for ‘our’ retailer, leaving the retailer to look after the needs of ‘their shopper’, in the aisle, an area increasingly off-limits for suppliers.., often by a combination  of desire and design…

As you know, this has all changed… (if you don’t think so, give me a call…)

The savvy consumer now wants real-time, demonstrable value-for-money, and as a shopper in the aisle, uses mobile-access to comparisons at all levels in order to ensure they are not missing a better-tailored trick available elsewhere, and votes with their feet.

A successful retailer, despite unprecedented distractions, recognises this consumer-shopper as the real starting point for developing an offer-request that reflects the combined needs of consumer-shopper-retailer. Suppliers neglect this new appetite at their peril, obviously ensuring at the same time that this highly specific treatment of the retailer meets the financial needs of the supplier’s  business.

Thus the supplier has to tailor the offering on three levels, per consumer, and find ways of making it work financially.

Unfortunately, at the last count, statistics indicate the UK’s population currently stands at 63.7m people, your new KPI for tailor-making…

Tuesday, 4 November 2014

Can hugging products make you feel like buying them?

As more of us shop online, new research by Saïd Business School, University of Oxford University, underlines the importance of physical interaction with products and shows how making an affectionate gesture towards a product can increase our attachment for it, and our propensity to purchase.

The authors suggest that the mere execution of an affectionate gesture towards an object can generate an emotional attachment. This attachment is most clearly seen for those products with humanlike characteristics and is strongest in those people who feel lonely....

Some product manufacturers and marketers are already putting some of these ideas into practice, to encourage a greater emotional and sensory connection with their products and services.  For example Nokia has developed technology in its mobile phones that allow users to squeeze the phone to send ‘virtual hugs’, increasing the user’s bond with the product each time they do this. Even those smart phones which encourage swiping rather than tapping are building valuable bonds between the consumer and product.

Application for enhancement of the buyer-seller relationship
For those NAMs that like to build on good marketing ideas, and given the humanlike characteristics of most buyers, we have researched how the same hug-approach might be applied to improving buyer-seller relationships.

A recent article in The Observer points out that the male-on-male embrace is becoming increasingly common among politicians, and men in general. But for many it’s tricky to get right. The article gives intimate detail ref political applications but we felt that this hugger’s list might best suit our readership:

A hugger’s guide for NAMs

1. The classic 
Clearly signposted, mutual, pleasant. The hug of a friend you’ve just winched from a crevasse, or someone you met six pints ago who has laughed at your jokes.

2. Touching distance
Half-consensual, the archetypal political clinch. It says: ‘I’m fine with this in principle, but let’s be clear that nothing surprising’s going to happen after pudding.’

3. Red-carpet bromance
‘Love does not consist in gazing at each other, but in looking outward in the same direction,’ according to Antoine de Saint-Exupéry.

4. ‘Wassup bro’
With legs well set you vertically clasp hands and lean in for a manly rub. Warmly informal without being too intimate, but not one for grandfathers.

5. ‘Oh, right’
Innocuous handshake develops into an unwonted yank ’n’ pat. The most likely to occur in a buyer-seller environment, yet also the most likely to turn into a kiss.

Given this last reference to kissing, and wishing to generalise this kamtip in terms of gender, our additional research revealed the hidden complexities involved in kissing the buyer

Kissing the buyer: X, XXX or XXXXX?
Given the increasingly cross-cultural mix, even in buying offices, it is obviously important to try to comply with local ‘norms’ when deciding to add ‘puckering-up’ to your selling repertoire.

A great article in the Economist gives the detail (and 91 hilarious comments). For instance, at this stage it might be wise to avoid all invitations to transfer to your French affiliate given that social kissing in France is a cultural labyrinth.

This map, created by Radical Cartography, on the Jaunted website, shows how many times French people in different regions typically kiss one another when they greet.

When it comes to buying and selling, offering a cheek can become most fraught with danger.
Some rules of engagement are obvious: one would never peck on first introduction, for example, no matter where in the world you were. But it is also best not to appear too stuffy or aloof. So with continental contacts, you can probably relax into the informal greeting pretty quickly. On the other hand, Americans, apparently, would much prefer to go unkissed. 

British buyers and sellers, as ever, straddle the awkward transatlantic space, probably only think of kissing once they had been to lunch a few times, and then only if they had managed to talk about something other than work…

All in all, the Americans probably have the right idea. Everyone knows where they stand with a firm handshake, or even a hug?

Hat-tip to Anette R. for the pointer to The Economist

Sunday, 2 November 2014

Lidl’s giant step for UK discounting?

                                                                                                                              pic: Liverpool Echo

According to the Liverpool Echo, Lidl are to take over Liverpool's historic Lewis's Building, once one of the city’s landmark stores.

But having been empty for several years, it is now in line for a makeover by the chain. The ground floor will be taken up by Lidl, but much of the rest of it is still being developed as part of the Central Village apartments complex.

If Lidl are truly planning a move to large-space retailing, the issue will be whether a full-range offering, complete with overheads, will allow the discounter to operate the same low-cost business model, or will it have to compromise its pricing advantage over major mults?
(or is this the first move in opening a Kaufland Hypermarket in the UK by Lidl's sister company?) 

Watch this space, literally…

Friday, 31 October 2014

Halloween Pepsi-can dressed up as Coke went viral

Last year a Halloween themed Pepsi ad created by Advertising Agency Buzz in a Box, Brussels posted on Ads of the World's Facebook page went viral reaching over 300,000 people on Facebook alone in just a few hours. It also generated lots of retweets on Twitter and Google+ besides Ads of the World itself

A great illustration of how a gentle poke at a competitor can optimise social media.

However, the alleged response by Coca Cola was swift, equally humourous and must have amplified the initial impact, at least via Linkedin.

But the real genius of each advert lies in the ambiguity of the message, each advert causing readers to ponder on their possible meanings, with their combination adding to the 'confusion', thus stimulating the urge to share...

The result being that the category received much more reader attention, and pass-on value than more conventional adverts for such familiar brands might otherwise have achieved.

Incidentally, even if Coca Cola did not produce the response, perhaps they should have...

A heroically scary weekend, from the NamNews team!

Thursday, 30 October 2014

Tesco are not 'serious fraudsters'

Tesco is simply a train that moved too fast, causing some of the wheels to fall off.....

The real issue is the opportunity this high-profile case provides for the SFO to attempt to restore a reputation that has been tarnished by a series of high profile failures in recent years. This relatively clean case of naive manipulation by amateurs, gives the SFO the means of demonstrating its ability to investigate and penalise corporate wrongdoing, secure in the knowledge that Tesco, or its management, are unlikely to retaliate in the case of possible over-enthusiastic application of the letter-of-the-fraud investigation process, unlike a recent SFO investigation....

The disruptive impact on the day-to-day conduct of the Tesco business should not be underestimated, given that the recent Deloitte investigation, albeit a far less comprehensive project, allegedly involved more than six million documents with 18,000 invoices reviewed and 700 scruitinised in detail....

Apart from the inevitable parallel but internal reviews by other multiples, 'just-in-case', many suppliers are already conducting internal reviews to assess any possible impact on the integrity of their trade investment process. However, it has to be said that in the main, these reviews will hopefully be in private, the only issue being relationships with internal audit-control, with NAMs having to explain how sums were authorised and paid in advance, possibly 'on a nod' in terms of promises of a promotion in the following year, all with the benefit of 20/20 hindsight...

Regrettably, whilst the consumer ultimately benefits from lower shelf-prices, the SFO investigation output will also result in a media-fest pointing out the 59 ways in which brand-owners incentivise retailers to persuade the shopper to buy more...

Finally, unfortunately for Tesco, this is not just a UK issue.  Some Tesco shareholders live in the US, a country where people that feel they have been wronged, litigate, and Tesco shareholders will be no exception. Their approach will be in contrast with the UK, where in such cases it has been customary for the authorities to issue a reprimand, draw a line, and move on...

Any output from the SFO investigation will probably be used as a basis for shareholder class action in the US, in a search for compensation. In turn, any such result in the US courts will probably roll onto the UK stage, encouraging UK shareholders to seek similar compensation.

Overall there will be a change in supplier-retailer relationships, as all parties move to numbers-based assessment of cost and value, and the savvy consumer's demand for demonstrable value-for-money rolls back up the supply-chain.

Suppliers are now in a position to make or break Tesco, but it is imperative that any help given should not be unconditional...

In other words, Tesco and the SFO are presenting an unprecedented opportunity for suppliers to elevate the NAM-Customer relationship to a new level based upon fair-share dealings, where numbers count, and KPI achievement becomes the ultimate basis for retrospective performance-based reward...

All else is detail...

Wednesday, 29 October 2014

Aldi Ireland: joining the profit-dots in Aldi's UK latest Accounts

A recent article in The Irish Times indicates a possible approach to estimating the profitability of Aldi Stores in the Irish Republic.

Checking the latest accounts filed by Aldi Stores Ltd. at Companies House, it would appear that they include the UK & Ireland business of Aldi for the year ended 31st December 2013.

On Note 7, page 21 of the Aldi Stores Ltd. accounts, details are given of the tax charge for 2013:
  -   UK Corporation Tax at 23%         £51.7m
  -   Overseas tax                               £10.2m, (say €12.9m at current rates)

We have taken the corporation tax assumption that ‘Overseas Tax‘ refers to the Irish Republic, together with an estimate of Aldi Ireland turnover for 2013 and reached the following conclusions:

- Given Ireland's Corporation Tax rate of 12.5%, this implies a net profit before tax of €103m in 2013 for Aldi Ireland
- Taking €850m as an estimate of Aldi Ireland turnover for 2013, this results in a possible pre-tax net margin = 12.1% i.e. €103m/€850m  x 100

If we have joined the right dots correctly, the above guesstimate obviously raises issues ref general retail profit levels in Ireland, in what is deemed to be a highly competitive market.

Moreover, if the Tesco crisis fall-out spills over into Ireland, and combines with US/EU moves re Inverse Taxation, the resulting spotlights on the profitability of businesses operating in Ireland could eventually challenge supplier profitability.

You obviously know your sales and net profit margins on your business in the Irish Republic, and how they compare with the UK business....

The above analysis suggests that perhaps your forward projections re the Irish market contribution to your UK & Ireland business might benefit from a risk re-assessment?

You always miss 100% of the shots you don't try...

 From an idea by Wayne Gretzky, via Antti Ritvonen and Lars Poulsen