20/20 Hindsight reveals a quiet revolution…

A change of CEO in a major retailer has a radical influence on the customer, its key competitors…and especially suppliers' trade management strategies…

But how about three major multiples' CEOs moving on, and the resulting management team-changes reflecting similar changes in a fourth player likely to be taken over by a major shareholder…?

Add to this mix a need for 'new' to signal change, in the midst of global financial upheaval, and it becomes 'obvious' that the UK retail landscape is being quietly turned upside down….

Also, change of this degree means everyone can be equal, each at square one..

These unprecedented changes will have rendered obsolete your trade management strategies…

Unless, of course you anticipated these developments two years ago…

Have a 'what-if' weekend, from the Namnews Team!

Green Shoots on a Blue High Street?

Pic: Sarah Lee for the Guardian

News that 40% of Woolworths former stores are still empty, is possibly 'proof' of a spent business model, despite a possible resurgence of the brand online. The remaining 60% of outlets spread over several trade sectors, means that traditional Wollies categories will end up in increased trade concentration, adding to the negotiating muscle of the major retailers. Another result of a 10% over-capacity in retail space has been more realistic rental concessions from formerly 'upward-only' landlords, mindful of the impact of empty shops on consumer demand.

Meanwhile, this wake-up call for all retail business models has created opportunities for Pound shops, making them a permanent feature of the retail landscape, all in response to the demonstrable value-for-money demands of the savvy consumer.

Suppliers that have managed the transition to profitable management of a more demanding customer-mix have done so by stripping down their basic offering to meet real need, and ruthless elimination of all surplus, before the market did it for them.

Insisting on fair-share partnerships with the survivors then became a no-brainer..

In other words, if you are still here, as one of the strong players you deserve and must demand a game with equal trade-partners, ……or else!

Managing demands for extra credit via the customer's bank…

As retailers extend their credit periods, some are offering access to their banks to enable suppliers to present invoices for immediate payment.
This helps your cashflow, great! (But at what cost?)

However, given that banks are not in the free-lunch business, they will presumably take a discount off the invoice for the privilege.
Suppose you present an invoice due for payment in 60 days, and the bank takes 1% off-invoice, you are in fact paying 1% for 60 days money.
Given there are 365 days in a year, this 1% translates into a rate of 6% per annum for the money, i.e. 6 x % off invoice…..
In the same way, a 2% off-invoice = 12%, a 3% off-invoice = 18%, etc.

The above chart shows how to calculate the annual interest cost on different off-invoice rates and different payment period savings.
Each line represents a different off-invoice rate, and the left-hand axis gives the equivalent annual rate for the money.
Simply select the off-invoice rate being charged by the bank, then follow the line to where it crosses the line representing the number of days of the invoice, on bottom axis.
Then read the annual rate on the left-hand axis. This tells you the annual rate you are paying for the privilege of getting paid early.

This off-invoice charge thus becomes an additional cost of dealing with the customer, thereby unbalancing the status quo, the fair-share negotiation principle with your trade partner….
You owe it to yourself to really understand the money….

Have a 'get real' weekend, from the Namnews Team!

M&S extension of credit terms from suppliers

News from The Telegraph that the company has apparently told 860 companies that provide it with 'general merchandise' – clothing, shoes and household goods – that from next month, payment terms will be extended. Suppliers shipping goods to M&S and firms that help the retailer with storage and distribution, have been paid within 30 days of submitting an invoice. But from the start of September, M&S is promising to pay only within 60 days.

Impact:

Suppose supplier sells £2.5m per annum to M&S, 30 days credit

Cost of interest = 9%

Average amount outstanding = £208,000 i.e £2.5m/12

Therefore cost of credit        = £18,750 i.e. £208,000 x 9%

Credit period extended to 60 days

Average amount outstanding = £416,000

Cost of credit                        = £37,500

Therefore additional cost     = £18,750

= 0.75% of suppliers sales   = additional cost to serve

Incremental sales by supplier to cover of additional credit = £187,500, assuming 10% net profit
(See NamCalc for this & 33 extra tools to calculate total cost to serve)

Incremental sales by M&S to generate gain from supplier extra credit = £257,554, based on M&S Net Profit of 7.28%, latest published accounts

In other words, the supplier has several options:

1. Object to the new terms: if nothing else changes, the supplier is handing over £18,750 (see Fair share negotiation video) Not to object can send a signal that even more extra credit should have been requested.

2. Demand equivalent value from customer, ability to generate additional sales of £187,500 to customer, at no extra cost

3. Walk away…... (Work out incremental sales required from other customers to cover lost sales, conduct 'what-ifs on same additional credit period being extended to other customers ) and challenge basic business model.

The Ultimate Negotiation App.?

Have a compliant weekend, from the Namnews Team!

Global Account Management of Tesco: keeping it in perspective

Imagine a circle that contains all of human knowledge ref Tesco:

As a consumer, you know a little:

By the time you become a Tesco Account Executive, you know a bit more: 

As a Tesco National Account Manager, you gain some specialised knowledge: 

A Tesco Senior NAM role deepens that specialised knowledge/insight: 

Reading research and trade papers (Namnews?) takes you to the edge of human knowledge:

Once you're at the boundary, you focus:

You push at the boundary for a few years:

Until one day, the boundary gives way, allowing some original thinking: 

And, that dent you've made is called Global Account Management of Tesco:

Of course, the Tesco world looks different to you now: 

So, don't forget the bigger picture:

Keep pushing, and reading…...

Adapted, with apologies, from “The illustrated guide to a Ph.D” at

http://matt.might.net/articles/phd-school-in-pictures/

Marmite now costs more than a gallon of petrol

Much has been made of the fact that the price of Marmite has risen by 25 per cent in five years, and is now more expensive than rump steak or a gallon of petrol. However, whilst specific cases can grab headlines, most NAMs/KAMs realise that the game is about demand-based portfolio management of both brands and customers. In other words, starting with planned corporate ROCE, this breaks down to Margin x Capital turn, large margins with slow stockturn, or high margins with fast stockturn. Overall ROCE performance drives share price, so as long as suppliers and retailers are meeting stockmarket expectations, they are usually left to play the 'margin x stockturn' game as appropriate, being 'experts' in market need. Thus a supplier can juggle a portfolio mix of brands (or customers ) to optimise total company ROCE.

In the same way headline performance figures i.e. 'green shoots', are averages, hiding not only negative performance, but also 'above-average' growth opportunities in individual categories or retail sectors.
Hence, many growth opportunities already exist, for those able to see though the averages….
....as indeed, misjudging market-price tolerance can cause consumers to vote with their feet..?

Breath-test required for vending machine wine sales

For an enriched shopping experience, why not try buying wine in Pennsylvania?
The state is currently testing a vending machine that holds 1,000 bottles of 55 wines. Following selection of a bottle, customers must insert a driver's licence to show they are over 21, then submit to video-linking for verification of identity by a member of the Pennsylvania Liquor Control Board. Next customers must blow into a breathalyser to make sure their breath-alcohol level is not more than 0.02, or just one quarter the legal limit for driving. If it is, the sale will be denied.

Apparently, Family planning authorities have thus far shown little interest in adapting the machine to dispense other weekend requisites…

Have an imaginative weekend, from the Namnews Team!