Google, Amazon, Apple and Facebook - the new big four in retail...

We shop on phones, compare on Google and ask our Twitter-mates what they think. Even more importantly, we also have the ability to complain to 100 friends when a supplier/retailer misses our expectation…
This revolution in shopping behaviour is causing traditional retailers and suppliers to play catchup with multichannel marketing, or else…

Whilst historical purchase data reveals what we bought, social media reveals why and indicates the future. Think about it, we have been waiting 30 years for this insight…now we have it, are we doing enough?

The real opportunity
In fact, do we accept that the real  breakthrough hinges on the willingness and ability of the retailer to respond accordingly. For suppliers, the key issue is whether it is easier for traditional retailers to remodel the business based upon shopper-need, or for the new big four to fulfil the shopping transaction, profitably.

When I break from writing this KamBlog post to accept delivery of the Amazon book I ordered yesterday, at a 15% discount, while hesitating to drive to the nearest Tesco for a bottle of breakfast milk, somehow the answer suggests itself…

Just the first layer?
The multichannel e-commerce combination is obviously making it easier to buy, but I believe that as suppliers we are simply skimming off the first layer…

The real pay-off will result from re-engineering the entire brand offering to better meet consumer-shopper need, arriving at a minimal compromise between what a consumer is trying to tell us they require and our ability to provide the solution, better than the available competition.. In other words, building trust by delivering more than it says on the tin…always.

What this means for NAMs
This process includes adjusting our channel strategies to optimise their strengths, via NAMs that have the imagination to see that the accounts with real career-potential are the new retailers in emerging e-channels.
Sure, making real change in uncertain times is an uphill struggle, especially having to negotiate more with your own colleagues than with the customer.

However, given that we learn more from risk, mistakes, uncertainty and overcoming resistance (a buying signal?), numbers-based NAMs that are prepared to swim against the tide somehow move faster...

Discount stores boom as upmarket shoppers brag...

The economic quagmire has provided the perfect breeding ground for general merchandise discounters, who have expanded aggressively – more than filling the void created by the collapse of Woolworths in 2008. Analysts at the IGD predict the value retail sector will be worth £8bn by 2015.

Classless appeal
But the key to discounter success is their classless appeal. Mature NAMs will remember their first visits to Aldi Berlin in the early 1990s, and their bemusement at the shopper transport parked outside – ranging from students bikes to state-of-art Mercedes. As we all knew at the time, this could never happen in the UK….

City paying heed
The growing might of chains such as Poundland, Wilkinsons and Home Bargains means the City is starting to take notice. Stockbrokers Shore Capital believes discount retail is the fastest growing area of the whole market, with the strongest performers potential candidates for stock exchange listings or takeovers by quoted chains further down the line.

The forward working environment 
Given their arrival at critical mass in a flat-line economy, we reckon that discounters are merely at the start of a five year opportunity to gain share in the UK. NAMs need to second-guess the politicians: they have been telling us about imminent recovery for the past five years.
Having thus established politicians' credibility, with little change to EU/global economic conditions, is it likely that we can expect any real uplift in the next 5 years…?

Competition hots up...
The competitive landscape ranges from single-price chains such as Poundland and 99p Stores to general discounters such as Home Bargains and B&M Stores. But the rapid expansion of what were once regional, often family-run, companies means the retailers are now treading on each other's toes.

A zero-sum future?
This means that market will operate on a zero-sum basis with any share gains at the expense of not only other retailers but also of other discounters.
In other words suppliers have to prepare discounter strategies that are in harmony with  overall trade strategies, taking care to avoid inadvertent compromise or conflict.

This means that suppliers need to factor discounters more aggressively into their organisational structures and trade strategies, ‘permanently’…

Permanently? Bear in mind that the other characteristic is that discounters thrive in a downturn, but rarely surrender any gains in market share in a rebound… 

Marks & Spencer - an inevitable takeover?

Yesterday’s news of a possible bid for M&S obviously had an impact on the share price. However, the key issues for NAMs have to be
- the likelihood of takeover
- by whom
- impact on the business

Likelihood of takeover:
Apart from the usual indicators (ROCE, Net Margin and Stockturn where M&S is more or less in line with the big four) a key measure has to be the Market Capitalisation/sales relationship i.e. cost to buy the company vs. its sales.
                   
MktCap/Sales (latest figs, the higher the better, in terms of value of the company)
- Walmart         58.5%
- Tesco             42.1%
- JS                  27.3%
- Morrisons       38.5%
- M&S              60.3%

At £6bn MktCap it can be seen that M&S would be relatively more expensive to buy than Walmart, in terms of sales generation.

Possible players:
Essentially three options: another retailer, a Private Equity Fund or a Sovereign Wealth Fund

• A retailer: unlikely (competition rules, difficulty in improving fundamental ratios) insufficient synergies
• Private Equity Fund, unlikely given the need for 5year exit via re-flotation, difficulty in sell-off of real estate assets in this timeframe/climate to liquidate debt, no obvious improvements in key ratios possible vs. the competition
• A Sovereign Wealth Fund (a Government Agency like Mid-East or China), likely as a long term investment, a much slower burn vs. prevailing money-rates in the market, via existing management until they are found wanting…

Impact on the business:
A more stable supplier-retailer environment, with an emphasis on steady financial performance, long term, with access to money for investment in ideas/acquisition/global expansion in the business.

Base requirement for NAMs to calculate cost and value of supplier package to the new M&S, a good basis also for their dealings with competing retailers…

M&S docs:

Latest Annual Report 

5 year record 

The 'Per 100' comparison - upfront clarity & brand equity?

Now that we have all settled into an acceptance and appreciation of the advantages of decimal measurement (1971, 41 years ! ) and some are no longer stopping at traffic-lights, perhaps it is time for retailers and suppliers to aim for clarification rather than confusion in communicating price and value to shoppers?

Revealing pricing...
Expressing the shelf-price per 100g/100ml along with the SKU price would surely add clarity to the (deliberate?) confusion caused by random use of Kg/g in shelf-label unit pricing, BOGOFs, extra-value packs, and especially the use of shrinking-packs to disguise price-rises….

Converting the savvy consumer
Most of us have acknowledged the emergence of the savvy consumer, a person who is determined never to outsource their purchasing decision-making to marketers and retailers ever again, and yet we continue to serve up pricing indicators that at least cause confusion if not suspicion in shoppers who think for themselves, like never before…
Moreover, these same shoppers, with no credibility-baggage, are now equipped like never before with the means of ‘telling a 100 friends’, in complaining about a product.

Evaluating the real brand
Sure, the ‘per 100’ comparison forces the brand to rely upon Performance, Presentation and Place in a like-with-like Price evaluation with the available competition, causing the shopper-consumer to fall back on the brand equity we have taken so much trouble to build and sustain over the years.

If the brand is that good, it should be able to stand the heat…

The doubling rule - why Amazon will outgrow Walmart, soon...!

The doubling rule, or Rule-of-70, provides a simple way to calculate the approximate number of years it takes for the level of a variable growing at a constant rate to double in size.
This rule states N = 70/rate-of-growth, where N is the number of years it takes to double.
More detailed maths treatment here
The same rule can be extended to the Rule-of-110  (trebling size) and the Rule-of-140 (quadrupling size).

Amazon example:
Given Amazon’s CAGR (Compound Annual Growth Rate) of 26%, the Rule-of-140 shows that based on its current sales of $48bn, its sales will be $192bn in 5.4 years.
By comparison, Walmart’s 2012 sales were $444bn, with a CAGR of 3.1%...
Amazing Amazon catchup here 

Exponential growth really explained…
For more about how exponential growth and the Rule-of-70 can explain and impact every aspect of your life, upside and downside, we urge you to invest 10 minutes in watching the above vid. (4.5m views to date...)

Nothing will seem the same again…ever.

Increasing network productivity now, before you need it

In a flat-line economy, NAMs are faced with a dilemma: can networking be a ‘natural’ instinctive process, or does it require method in order to be mutually productive?
Unfortunately, reaching high levels of network productivity can take more years than are available, especially in unprecedented times.

Instinctive networking: 
Before the uncertainties arising from the global financial crisis, networking for NAMs and other functions was a casual, ad hoc process conducted offline in spare time, with little concern or need for measurable output.

High output networking:
Now, with many ‘networkees’ fighting for survival, and flooded with incoming overtures, networking entry-barriers are high, making response-achievement even more difficult.
We believe that a systematic, focused approach can help you now, before you need it.

See our free 3-page guide here 

Tesco's virtual store, the end of QR?

Tesco’s virtual store at Gatwick is proving popular*
A subtle point to note on the video is the fact that Tesco are using barcodes for product scan-identification rather than QR codes….
Could Tesco be ahead of the QR game?.

The premature demise of QR codes
According to US blog: The Shelf Edge the QR code is dead.
'The problem is that few marketers understood, or understand, how to use these codes; they were a novelty at best, but one that in practice offered little real value to consumers. It was this lack of value that contributed to the codes’ demise'.

Opportunities or Threats in the UK?
Given their relative novelty in the UK, perhaps QR codes should be used more imaginatively by linking users to a mobile-optimised sites that offer real value?

In other words, someone needs to think through the fundamentals of consumer need, and optimise the technology to match, while there is some life remaining in QR codes?

* See video onsite usage and commentary by passengers on here.

Roy of the Rovers - a lesson in fair play?

Last week’s demise of The Dandy brought to mind another childhood source of entertainment and insight, Roy of the Rovers.
Like most other 10 year olds, each week I eagerly awaited the arrival of The Tiger comic, featuring the life and times of Melchester’s star player.

Fair Play?
However, on one shocking occasion, a rival player, in full view of the reader, but out-of-sight of the referee, actually flicked the ball with his hand to enhance his shot. This unlawful move so outraged me I rapidly scanned the rest of the strip in vain for evidence that the move had been noted as the subject of a penalty, at least..
My sense of injustice was such that for the next five weeks I was on the newsagent’s door-step by opening time, awaiting delivery of the latest edition to check whether the authorities had taken any action..

Gradually it dawned on me that perhaps football, life and even business itself was not always fair.

I then began to wonder if there were other potential career-enhancing insights available via Roy’s storyline?

A source of continuous education…?
Unlike more gently-reared modern players, Roy enjoyed a 39 year playing career, until the loss of his foot in a helicopter crash in 1993. To keep the strip exciting, Melchester was almost every year either competing for major honours or struggling against relegation to a lower division, allowing repeating opportunities for readers to develop their numeracy skills, especially in calculating the odds in each scenario.

Planning & focus?
The strip followed the structure of the football season, thus providing  great awareness of deadlines, the need for planning and teamwork, but especially the ability to optimise output within the time constraints of a match, against rivals intent upon minimising the impact of such endeavours.

Global reach?
Geographical insight was enhanced via the team’s foreign travel. In the several months each year when there was no UK football the most common summer storyline saw Melchester touring a fictional country in an exotic part of the world, often South America, where they would invariably be kidnapped and held to ransom.

Negotiation against the odds?
During the first ten years of his playing career, Roy was kidnapped at least five times. This obviously enhanced readers’ negotiation and financial skills, helping them to distinguish cost and value of experience and longevity in a high-output career…

Career application?
Given the benefits of this source of inspiration and early induction, readers that later chose a NAM career appeared to arrive ready-made, exhibiting the ability to demonstrate "real 'Roy of the Rovers' stuff", displaying great skill, or results that went against the odds, in their dealings with the UK trade….

And often without the benefit of much formal training, curiously enough…

Pop-down shops – where train-dodging vendors and shoppers move fast, or else…

                                                                                 vid: Daily Mail
This open air Thai market needs quick wits - because eight times a day a train comes crashing through.
Just seconds before it is a bustling open-air marketplace with stallholders and shoppers haggling over the price of produce.
Then vendors pull back awnings and produce off the railway track, and afterwards restore their ‘pop-up’ shops, as if nothing has happened...

Getting away?
For NAMs who like an active holiday, Maeklong Market is in Samut Songkhram, Thailand, around 37 miles west of Bangkok. (Best book one-way, just in case...)

UK application?
Apart from some regulatory issues, Health & Safety would figure highly, not because of lack of stall-holder flexibility, but mainly due to unreliability of train timings…
Have a hyper-reactive weekend, from the Namnews Team!

Tesco catchup in the UK - a need for context?

Yesterday’s news of Tesco’s improved 3.4% sales growth is encouraging but needs to be kept in context:
- UK refocus: The company has completely refocused on the UK market, and has been spending appropriately (£1bn) since January
- Inflation: With food inflation running at 3.2%, Tesco is only slightly ahead
- Market growth: With the overall food market growing at 3.9%, Tesco is slightly behind
- Competition: Rivals are growing faster (Asda +6.2%, JS +4.6%)
- Fundamental ratios:
            -  where Tesco are:     ROCE12.3%, Net Margin5.9%, Stockturn 17.9 times, Gearing 55.8%
- Fundamental ratios:
            -  where Tesco need to be: ROCE 15%, Net Margin 5.0%, Stockturn 25 times, Gearing 30%
- Outside help: At 3.4% growth rate, a tightly-run Tesco will need considerable supplier support to improve these ratios, and hold UK market share
-      ..especially if they decide to take the nuclear pricing option 

Bearing in mind that ‘It ain't over till the fat lady sings…’, Tesco cannot afford to optimise overseas opportunities until this UK issue is resolved

In other words, Tesco needs to deliver on the fundamental key ratios and hold 31% market share, with growth matching that of the market, before being able to ‘park’ the UK….

As a supplier, it is now time to decide the extent to which you are prepared to offer a little help…

Living above the shop – optimising incremental space in retail

Houses and gardens have been built on top of the eight-storey Jiutian International Plaza in the densely populated Chinese city of Zhuzhou, where residential space is scarce at ground level.

In Brazil, false ceilings within reach of shoppers are used to merchandise Easter-eggs  with shoppers helping themselves (and paying!) during trips in the run-up to Easter.

Making chewing gum more Six-siting 
On a more mundane but equally creative level, unfazed by a dual-siting tradition, Adams gum were able to secure six separate sitings of their medicated chewing gum in Loblaws of Canada  by creating incremental space via blister-packs on walls and columns throughout the store near dental, confectionery, medicine, kids lunch and strong-tasting food categories, each site separately coded to check ROI per location.

In other words, when pressed for space in retail, creating incremental space can be the answer…

Application in the High Street
In the same way, incremental restoration of the living space above the shop could be a way of reviving UK high streets (see High Street revival recipe )

The online space-threat
However, for the truely creative thinker, the real use/threat of incremental space in retail has to be the growth of online in a flat-line market means that with a 13% share and growing at 14%, physical retail space in the UK is already 13% over capacity….
This means that retailers have to be increasingly open to ideas for optimisation of existing and incremental space by imaginative NAMs…

Couldn’t work here?
Perhaps these initiatives need to be forced a little, in these unprecedented times? 

An Amazonian window?

Yesterday’s news that Ocado is in risk of breaching its bank covenants, coupled with its fall in share price, could represent a takeover opportunity for Amazon

Loan covenant definition:
A condition with which the borrower must comply in order to adhere to the terms in the loan agreement. If the borrower does not act in accordance with the covenants, the loan can be considered in default and the lender has the right to demand payment (usually in full).

Minimum financial ratios
The borrower is required to maintain a certain level in key financial ratios such as:
- Minimum quick and current ratios (solvency & liquidity)
- Minimum Return on Assets and Return on Equity (profitability)
- Minimum equity, minimum working capital and maximum debt to worth (leverage)

Market impatience
Given that Ocado is forecast  to make a loss of 1.5% in 2012 and 2013, it is unlikely that in the current climate, the markets will be prepared to tolerate any further delay in achieving acceptable levels of profitability.
Moreover, a leading retail analyst has warned that online grocer Ocado is in significant danger of breaching its banking covenants this year, owing to a toxic cocktail of a "pile of debt and falling market share".

Ocado’s dilemma
Essentially, Ocado has reached a point that often causes problems for an undercapitalised business needing to fund the development of critical mass.
They have broken the back of grocery home delivery in an M25 enclosure that has the potential population to provide a profitable opportunity for the right company.

The Amazon opportunity
Amazon meanwhile needs a way of adding groceries to its repertoire and showing it can match traditional providers in terms of service level, profitably…

We believe that taking over Ocado would provide such an opportunity.

As you know, Amazon entered the UK grocery market last year with a piece-meal ‘multiple-delivery’ model that failed to impress anybody other than those people who saw it as merely an opening gambit.
Moreover, in July last year it was mooted  that the acquisition of Ocado might represent a good opportunity for Amazon, at a time when Ocado’s market capitalisation was £1bn.

With Ocado’s market capitalisation now having fallen to £365m, we believe that the likelihood of a bid is a running certainty…

NB If you want to catch up with Amazon see our free paper Amazing Amazon

Just a virtual Hut?

Following the success of Amazon, it is unlikely that many will underestimate the potential of The Hut, especially given the direct involvement of Terry Leahy and now Stuart Rose…
For those who may have been a little distracted by the 7 years preparation for the Olympics, The Hut sells fast moving consumer goods that are non-perishable with high levels of repeat purchase, and premium luxury products with higher average unit sales and strong consumer loyalty.

Investment and backing
The business has expanded greatly since their launch in 2004, and with the help of c£75m (raised over three years from both individual investors such as Terry Leahy and financial institutions).

Key websites
This investment capital has funded the organic launch of websites across a number of sectors including clothing, footwear, bags and accessories plus a number of acquisitions including gifts, health & beauty HB1, HB2, HB3  and sports nutrition, a total of 16 web-sites.
The Hut Group’s huge customer base is split between Consumer, Prestige and Lifestyle with fashion falling under both Consumer and Prestige

Making The Hut real for suppliers 
The issue for suppliers is how to justify treating the Hut as a major customer, with a share of attention and NAM-talent far in excess of its actual size, when many suppliers  allocate resource and talent based on historical size of business.
These same suppliers normally have no problem allocating their best brand managers to embryo products, leaving their lesser talent to maintenance marketing of established brands.

Treating retailers and brands ‘equally’
This all goes back to the need to treat customers as equivalent business units to brands of the same size, never forgetting that in the end brand equity is sacrosanct.
However, if a customer generates 10% of sales and profit, and a brand represents 10% of sales and profit, then surely they require equivalent resourcing, at least… The same holds for potential shares of the business
Finally, if anyone at board level lacking a sales background needs convincing, it might be worth pointing out that a major customer represents a gateway to the consumer, and is in a position thereby to concentrate or dilute the brand message, depending on how well it appears to fits with the store offering…

The Hut is already too real to either ignore or short-change in terms of resourcing…  

'Eating cake' no longer an option in Andalucia?

                                                                                                  pic: Libcom.org
Unemployed take food from Mercadona and Carrefour.
Earlier this week, unemployed fieldworkers and other members of the Spanish union SAT went to two supermarkets, one in Ecija (Sevilla) and one in Arcos de la Frontera (Cadiz) and loaded up trolleys with basic necessities including milk, sugar, chickpeas, pasta and rice, which have been given to charities to distribute.

With unemployment in the area at 40%, compared with a national average of 24%, the union plans further actions in a protest against austerity cut-backs.

Isolated incident?
Whilst this development might appear to be an isolated incident in a region suffering extreme hardship, it is symptomatic of the pressure building up in many countries as a result of attempts to balance economic disparities.

There are obviously serious social and political issues involved that need to be covered elsewhere.
Equally, we do not believe it is in our remit to advise retailers or suppliers ref their policies on charitable donations. 

Ignoring the symptoms?
However, if either party believes that the business of selling and buying can continue ‘as normal’, i.e. without factoring these pressures and actions into business strategies, their business models will become increasingly unrealistic in terms of predictable output, and will gradually become unsustainable.

Action 
We believe that these unprecedented circumstances require a fundamental review to determine what business the company is really in, where it is realistically headed, at what rate, at what cost, at what level of risk, with what minimum output in a real world, where people are prepared to break the law in order to survive.

Awaiting a return to 'normal' is no longer an option…

Tesco’s ‘arm’s length’ artisan coffee shop business, an approach to 'over-branding?'

                                                                           pic: University of Cambridge
Yesterday’s announcement of Tesco’s entry into the artisan coffee shop business via a non-controlling stake in Taylor Street represents a move to ‘….help build brands where we believe we can add value; much in the same way we did with [garden centre chain] Dobbies, [video and music-streaming sites] blinkbox, and We7’.
It could also an acknowledgement that the Tesco name is ‘over-branded’, at least in the UK.

An incremental option for Tesco? 
This means that Tesco could now begin to capitalise on its ‘back-of-shop’ and supply chain expertise/muscle, leaving all ‘front-of-shop’ activities to their business partners….. "we are investing in the entrepreneurial founders of a new venture. The Tolley family will decide the business strategy….Taylor Street is a successful artisan coffee shop business with a loyal and thriving customer base…"

Why the hands-off approach?
Tesco need play no overt role in the day-to-day business, i.e. front-of-house, but the likely addition of buying muscle, distribution, instore décor/equipment, purchasing of roll-out sites, and potential use of spare space in ‘over-capacity’ stores could provide all the help a small company needs, and can receive from a ‘sleeping’ partner that also has one eye open…
In practice, everything the consumer sees will be Taylor Street/ Harris and Hoole, whilst what the consumer cannot see, will be supplied by Tesco..
A neat way for Tesco to generate incremental profits, without adding to ‘Tesco’ presence in the UK.

The supplier’s options?
From a supplier point of view, the customer gets bigger…
However, this can represent an opportunity for those who really think through and are willing to integrate with Tesco’s options for a company with a 30% share of the grocery sector, and an engine that is capable of far more…