Short-sellers target Sainsbury's on Tesco fears

News in The Telegraph that short-sellers in the stock-market are betting that Sainsbury's share-price will fall as a result of Dave Lewis sacrificing Tesco margins to regain market share, offers a valuable insight-tool for NAMs wishing to anticipate additional pressures on the retail-buyer in the supplier-retailer relationship i.e. buyers are increasingly remunerated by share-options in their own company.

In short-selling Sainsbury's shares, the market believes that Tesco has more scope for cutting prices than Sainsbury's bottom line would allow.

As you know, short-selling is a process whereby stock-market traders bet that the share-price will fall by borrowing shares of a company, then selling  them 'short' at the current price. They then hope to buy them in the market at a lower price when it is time to fulfill the contract, thus making a profit on the deal...

The percentage of a company's shares 'on loan' in this way can be tracked (see Short Tracker) and the greater the percentage, the more shorting of the stock is going on, meaning that the market believes that the share-price will fall.

For instance, Short Tracker's details this morning on the top most-shorted retailers are as follows: (the % is the amount of a company's shares currently 'borrowed')
-  WH Smith        11.4%
-  HMV                 8.1%
-  Sainsbury's         8.0%
-  Ocado               5.6%
-  Morrisons          4.72%
-  Debenhams        3.13%

Another NAM tool to add to your repertoire!

Thanks to Richard for his persistence re this short-sell pointer.

NB. Should you be tempted to try some short-selling, it must be emphasised that the bet is on the price going down. If, for whatever reason (i.e. a sudden takeover bid) the share price rises, and the rise can be infinite, the short-seller is still legally liable for fulfillment of the contract, thereby losing the difference between the latest purchase price and the selling-price on the sell-contract.....!

NB. We wish to stress that we are in no way recommending dealing in shares, we are simply making observations re market activity in retail and other stocks in which our readers may be interested as part of the supplier-customer trading relationship.

The Happiness Formula

                                                                                                                       Source:: Andrew Sullivan

Happiness “doesn’t depend on how things are going,” says lead study author Robb Rutledge of University College London. “It depends on whether things are going better or worse than you had expected they would.”

In other words, everything depends upon setting the correct expectation level, then the numbers count...

Tesco share-price plunge - a new opportunity for NAMs?

News of yesterday’s plunge in Tesco’s share-price to a 10-year low of 243.8p represents an opportunity for those suppliers prepared to re-interpret their Tesco strategies in terms of having a direct impact on share-price improvement, surely a top-of-agenda item for both the share-optioned Tesco team and the incoming Dave Lewis.

If share price is driven by ROCE, in turn driven by net margin and rate of capital turnover, then a supplier-template for helping an increasingly receptive Tesco emerges…

Essentially, Tesco’s ROCE has dropped over the years to 8.2% and its Net Margin to 3.6%, whilst Walmart’s performance has remained at a steady ROCE 18.2% and Net Margin 5.2%, despite the global financial crisis and its aftermath.

Therefore, to restore its historic share-price, Tesco needs to raise its financial performance to Walmart levels

Suppliers can help in two areas: improving Tesco’s Net Margin and improving its capital rotation as follows:

Net Margin improvement:
Reducing Operational Costs
- Better delivery arrangements
- Easier, more economic process
- Less damaged or defective stock
- Easier handling
- More economic use of labour
- More economic use of space

Reducing Administration Costs
- EDI
- Less time spent on administration
- Fewer administration tasks
- Better payment terms
- Simpler stock and order systems

Capital rotation improvement: 
Sales Volume or Value Increase
- Driving traffic and basket size
- Increasing Tesco yield i.e. sales/sq ft
- Improving quality of yield i.e. trading up

Asset Reduction
- Less capital tied up in stocks
- Less space required to stock
- Faster throughput
- Better use of spare cash
- Better use of fitments and space
- Fewer staff required

In fact, everything you are already doing, but expressed as a direct contribution to Tesco's ROCE and thereby share-price enhancement...

This direct focus on issues for a  customer currently pre-occupied with share-price performance has to represent a new opportunity to demonstrate the value of your trade initiatives and support in a way that connects directly with the buyer’s needs and wants, like never before…

...and why not throw in the fact that every £10k you invest in Tesco is worth £277k in incremental sales, based on their 3.6% margin!

Walgreens to complete purchase of Alliance Boots in £5bn deal

Last evenings announcement by Walgreens that they have decided remain in the US and are expected to announce shortly their decision to complete their acquisition of Alliance Boots will impact your WBAD dealings.

Their decision not to move their headquarters to the EU (tax inversion) means the time-pressure is off re acquisition, meaning that they can avail of the 6 months acquisition-window beginning in February 2015.

Remaining in the US means that Walgreens-Boots will pay corporation tax on US earnings @ US rates of 36%, probably making them subject to pressure from some major shareholders.

It also means that WBAD will have the buying muscle of 3xAB turnover….

In other words, some new dots to connect in your dealings with WBAD…

Watch this space

Walmart playing catchup with Amazon? Seriously?

News that Walmart are introducing personalised web pages based upon shopping behaviour for personal shoppers, represents a major leap for the Global No 1, but in reality is a mere step for online....

In other words, Amazon have set some fundamental KPIs for any player hoping to be taken seriously in the online game:

• 1-Click: this smooth ordering process becomes addictive, especially compared with aspiring rivals. Walmart allegedly say they are reducing online ordering to 1 page.....
• Returns: regular users know that returning unwanted goods to Amazon is easier than ordering
• Delivery: try tracking your next Amazon order, and be astonished at the high numbers of deliveries by your driver and intense geographical density of their distribution, en route to your address...

Without matching these basic KPIs, other 'online' retailers are simply playing catchup, and I mean playing...

PS: For online rivals that match the KPIs, why not try Amazon's anticipatory shipping...?

Ethics in selling: why an ethical approach always made sense, even in precedented times!

In these unprecedented times, the savvy consumer/buyer is no longer willing to outsource their decision-making to marketers, salesmen or retailers.

In buying a product/service, they are choosing a mix of Product/Service, Price, Presentation and Place that represents good value for money. In making the choice, they are factoring in a combination of product performance and integrity of the seller.

Any short-changing by the seller automatically makes the price seem expensive - a bad deal - causing the consumer/buyer to refuse to buy, or even litigate in some cases…

More importantly, the praise/complain ratio kicks in, whereby a satisfied customer tells one  friend, whilst an unhappy customer tells ten…

Ethics, apart, it surely makes sense to manage expectation down to a point where the customer always receives more than expected, and willingly comes back for more….

Our contribution to a discussion led by Peter Ramsden on the Key Account Managers Group

Still think the global retailers are ignoring Amazon?

                                                                                       Pic: via Jayaram Vengayil, via Fabio Ferraro

Online delivery charges - a stumbling block or opportunity for mults?

Fully-costed home delivery by the mults costing £20 vs. a £4 delivery-charge raises some issues and opportunities for suppliers and retailers

If traditional retailers want to be online, home delivery has to be part of the package.

Whilst retailers may try to shift some of the cost-burden via promotion of click & collect, there will always be a proportion of consumers that want and can accommodate home delivery. In special cases retailers may be able to charge a commercial rate but in reality they are saddled with a £4 delivery charge.

As usual, the Amazonian elephant in the room is setting online standards.

Amazon somehow appear to be able to cover the cost of delivery – possibly a combination of scale  and geographical density resulting in drivers being able to cover costs via upwards of 100 deliveries/day – albeit apparently losing money on Prime deliveries.

This appears to suggest that high-density geographical/clustered marketing may offer a way forward for the mults, offering scope for tailored promotions by suppliers.

In other words, the mult’s potential online retail opportunity is too big to miss, so any medium term delivery-cost losses will need to be absorbed by the traditional business via route-to-consumer portfolio management in order to remain competitive.

However, in the long term this cross-financing strategy will dilute overall profitability unless it can be demonstrated that scale will eventually result in breakeven on a £4 delivery charge.

Meanwhile, supplier-partners might usefully explore joint-opportunities to introduce home-delivery promotions to help defray some of the real delivery charge…. 

Update: US Tax Inversion moves may speed up via existing law..

Further to Friday’s blog post below, it appears that Obama may not have to introduce new legislation to prevent current and future tax inversion moves by US multinationals.

In fact, according to an article in The Irish Times, Obama could invoke a 1969 tax law that would restrict foreign companies using inter-company loans and interest deductions to reduce their tax bills. This could remove the key advantages of US companies taking over foreign companies and transferring their tax addresses to a more advantageous tax environment.

In practice, this means that companies* in the acquisition-pipeline will need to radically accelerate the process in order to avoid restrictions.

In other words, the Walgreens – Boots acquisition is now in fast-forward mode… 

Ready?

* It is not clear whether  historic tax inversion companies will be impacted by the same legislation

American Tax Inversion and the NAM

NAMs need to keep in touch with the practice of US firms relocating their headquarters via acquisition of smaller players to countries such as Ireland where corporate tax rates are lower to avoid taxes in the US.

A major development took place yesterday via a speech by US president Barack Obama where he castigated American companies for “gaming the system” and signaled US determination to act against the process.

This is all part of a worldwide government and consumer backlash against tax avoidance by major companies.

These accelerating tax inversion moves affect the NAM role in three ways:

• Suppliers: If the NAM’s company - or a competitor – is in the process of making a tax inversion move, US growing resistance will become an increasing distraction to top management and thus the NAM day-job…
• Retailers: Possible acceleration of moves like Walgreens’ takeover of Alliance Boots, impacting the roles of both Boots NAMs and NAMs of competing retailers
• Consumers: The growing consumer backlash has already resulted in demonstrations against major companies such as Starbucks and may eventually affect the brands of those companies suspected of paying less than their fair share of tax…  

Action:
Best to keep in touch with developments, reassess your relative competitive appeal after each significant move and factor the result into your trade strategies, despite the distraction…

Poundshops joining the mainstream?

Given Poundland’s successful flotation in March 2014, it is perhaps time for NAMs to seriously consider Poundshops as part of UK mainstream retail.

As a start, compare the Poundland ratios vs. the Big Four latest results.

As can be seen above, they are already ahead with ROCE 15.6%, equal on Net Margin 3.7%, underperforming on Stockturn 11.1/annum, with modest Gearing 16.1%

All they - and other poundshops - need to keep in mind are the retail standards being maintained by Walmart (ROCE 18.2%, Net Margin 5.2%, Stockturn 10.6 and Gearing 51.4%)

All a NAM needs to keep in mind is the need to help them…!

The NAM as cash manager - how Working Capital works...

Given the pressures on sales and profits, major suppliers have turned to improved management of their working capital as a source of cash in the business.

According to the latest  EY 2014 Analysis of Working Capital Management, reported in The Grocer, the world's nine biggest food and drink companies, improved their 'cash-to-cash' days by 15% in 2013.

As manager of the supplier-retailer interface, the NAM is in a position that impacts, and is impacted materially by, improvements in the use of working capital.

Essentially, as can be seen in the diagram, working capital is a combination of Current Assets - Current Liabilities, and ideally should be kept as low as possible in order to improve the ROCE.

A NAM can influence the amount of working capital by better forecasting and promo-planning, resulting in lower stockholding, and negotiating better payment terms to reduce the DSOs, all without jeopardising the business. 

Finally, the full EY Report gives a 13-point Action checklist for optimising Working Capital (more detail here) and I have highlighted those affected by the NAM.

EY 13 initiatives to drive working capital excellence:

1. Further streamlining of manufacturing and supply chains
2. Closer collaboration with customers and suppliers, enabling enhanced demand and supply visibility, improved forecasting accuracy and better supply chain reliability
3. Better coordination between supply, planning, manufacturing, procurement and logistics functions and processes
4. Improvements in billing and cash collections
5. More effective management of payment terms for customers and suppliers, including renegotiation of terms
6. Intensification of spend consolidation and standardization
7. Implementation of a larger, more unified shared-services organization
8. Increased use of VMI practices, enabling better ordering, production and delivery planning and scheduling for the supplier, and reduced inventory levels and risk of stock-outs for the customer
9. Alignment of business processes and information systems up and down the value chain to share real-time and accurate supply and demand information
10. Increase use of financing solutions as a way to provide attractive and flexible alternatives to customers and suppliers
11. Active management of the trade-offs between cash, cost, service levels and risks (choosing, for example, between customer payment terms and sales price rebates, supplier payment terms and early payment discounts, or inventory levels for consignment stock arrangements and customer service levels) that are sometimes required with various WC strategies
12. Implementation of more robust supply chain risk management policies,
13. Tracking and monitoring WC metrics

By the way, if you need pointers on optimising Working Capital, check out your major customers where, being a cash business, shoppers pay them in cash, whilst the retailer pays suppliers in 40+ days... In other words, retailers use negative working capital i.e. at any time they can have as little as £10 available to pay every £100 they owe...

Dave Lewis - a Brand New Approach to Tesco?

Today’s news of Philip Clarke’s replacement by a 28-year Unilever veteran, coupled with a need for fundamental change means that Dave Lewis will bring branding, global and supplier insight to the mix…

• With no retailer/Tesco baggage, he can be more decisive in eliminating sacred cows that have failed to deliver in terms of assets, process, initiatives and job functions
• As an FMCG marketer, he will understand that a new brand loses money on the initial purchase, makes a little on the second and begins to generate real profit when the consumer returns spontaneously having received more than was expected, and even tells a friend… The only issue for suppliers is that the brand is now Tesco, so private label and the Tesco shopping experience will now receive the state-of-art brand-marketing treatment it may have lacked in the past…
• His big-company global experience should be an asset in coordinating local, regional and global strategies
• The 28 years’ experience as a supplier has to mean a raising of the bar in terms of depth of supplier-Tesco relationships, with each side bringing more mutual insight and fact-based financial rationale to the negotiating table....

But above all, Dave Lewis will have 12 months to demonstrate sustainable improvement in Return On Capital Employed - and thereby share price - in the full knowledge that suppler-collaboration can help…

Over to you, in anticipation…  

Coffee-break: Argentina - Germany Guardian Brick-by-Brick replay...

Source: The Guardian here

Amazon ponders Netflix-like service for ebooks

According to a Reuters' report, Amazon is considering a new e-book subscription service called "Kindle Unlimited," that aims to replicate popular video-streaming models for the digital books market.

An Amazon test-page spotted by tech blog Gigaom but since taken down, touted a service that for $9.99 a month, would grant unlimited access to more than 600,000 titles

More than enough insight for pro-active NAMs to think through and anticipate another breakthrough disruption by Amazon..?

In other words, in a spare moment, think about the most needs-based and boat-rocking innovation that could possibly be made in your category and conduct a what-if on Amazon finding a way...