Saturday 12 September 2015
Wednesday 9 September 2015
Last year’s trade strategy still feel right?
What is going on in UK retail?
Retailers and pundits are calling it ‘structural change’ meaning an economic condition that occurs when a market changes how it functions or operates, making yesterday’s forecasts and decisions inappropriate.
In practice, as you now know, this is one of the most fundamental retail changes in career history for most people.
- Radical changes in how people shop: need to buy anytime, anywhere, any way they choose, or else..
- Major mults locked into large space outlets – their retail estates at least 20% over capacity - that cannot be released via sell-off without compromising the balance sheet (the value of a store is based on sales of £1k/sq ft/annum, which no other business can legally deliver, +2% annual depreciation means a lifetime expectation of 50 years, all contributing to lower sell-off prices..
- Long tail of instore SKUs: with 80% of sales produced by 20% of the SKUs, means that current stores are at least 20% too large, a gap too great to cover via instore theatre and alternative usage, putting more pressure on the £1k/sq ft/annum KPI. This means that the Tesco cull has to be just the start…
- Online still indicating an unknown upside, and an equally unmeasurable downside for traditional retail
Where is it headed?
Radical change has to result in a re-alignment of market shares, only issues are how long and how fundamental... Pragmatic business people have to plunge in and commit now, in order to optimise resources and profitability, while others ideally await a return to normal...
Taking Nielsen market shares as a basis, why not ‘what if’ the possible re-alignment – crude, but probably better than assuming share maintenance or even reversion to better times?
Current share Share end 2017?
Total Mults 90.6% 88.0%
Tesco 27.9% 25.0%
Sainsbury’s 15.9% 14.0%
Asda 15.6% 14.5%
Morrisons 10.8% 9.5%
Aldi 6.2% 9.0%
Co-op 5.8% 5.0%
Waitrose 4.2% 5.0%
Lidl 4.2% 6.0%
Key dynamics:
- Drift of business away from large space retail, with lock-in + long tail causing profitability issues/write-offs
- Smaller, closer, more frequent shopping trips benefiting small local convenience players
- Growth of online - no space/tail issues - with click & collect diluting fulfilment costs
These changes represent both opportunities and threats. Threats for those who ‘wait & see’, but opportunities for the few who act now on incomplete information but can anticipate the inevitable consequences of fundamental change in their markets. The unprecedented forces unleashed in the market will not be limited to the market-share ‘tweakings’ indicated above – we are talking about fundamental change in market composition, the degree of which change will be determined by your category-customer-competitor mix…
What to do about it?
Back-to-basics review of relative competitive appeal vs. available alternatives – by definition this will re-evaluate brand capabilities vs. real consumer need, set against your company expectations of brand growth, time window, and appetite for risk, all assessed within a realistic – and objective – assessment of a current market context and its probable development
In other words, if your current trade strategy pinches a bit, perhaps our 3.5hr bespoke session can help secure a better fit?
More: contact me bmoore@namnews.com
Sunday 6 September 2015
Saturday 5 September 2015
Friday 4 September 2015
Co-op reforms not quite paying Dividends, but...
For years the training ground for young, ambitious NAMs, with a typical two year tenure 'to understand how it works', anyone claiming 100% insight at the end of the induction-period was promptly sent back for another two years, to appreciate the extent of their naivety in presuming to make sense of this unique business model, ever...
In practice, it took a crisis that would have destroyed normal PLCs to demonstrate the inner strengths of an organisation that for years aimed at breaking even, and obviously came in with a 3% loss at year end, in contrast with 'normal' retailers that aim for a 5% Net Profit that inevitably results in 2.5%...
Having bitten this particular bullet - aiming for and delivering a moderate profit, and even mentioning ROCE in despatches - the organisation last year addressed the cumbersome governance structure and made it more merit-based, and even more democratic via a 1 man, 1 vote modification.
This made it more tolerable to adopt other normal retailer moves aimed at cutting waste and improving profitability. In fact this morning's Independent lists the jettisoning of non-core businesses, such as the pharmacy chain and the much-loved farming business, using some of the savings to fund an 8.5% pay rise for staff.
Even the 'Divi' appears to have been replaced by the immediacy of discount vouchers at point of sale...
In fact, anyone that has heard Richard Pennycook's IGD presentation of the turnaround, realises that the Co-op is truly on the way back, in part evidenced by their ability to survive the current price wars in UK retail, better than most...
All that said, perhaps it is time for Co-op NAMs to step back a little from the fire-fighting, and consider using the ROCE, Net Margin and Capital Rotation tools that provide an effective working platform for their Big Four colleagues, all adapted to the realities of a Co-op attempting to morph into responsible capitalism.
At the very least, this approach will provide practical career-move training in how to optimise one of the mults a few years later. However, in the meantime, this change in MO will pay dividends in terms of job satisfaction...
In practice, it took a crisis that would have destroyed normal PLCs to demonstrate the inner strengths of an organisation that for years aimed at breaking even, and obviously came in with a 3% loss at year end, in contrast with 'normal' retailers that aim for a 5% Net Profit that inevitably results in 2.5%...
Having bitten this particular bullet - aiming for and delivering a moderate profit, and even mentioning ROCE in despatches - the organisation last year addressed the cumbersome governance structure and made it more merit-based, and even more democratic via a 1 man, 1 vote modification.
This made it more tolerable to adopt other normal retailer moves aimed at cutting waste and improving profitability. In fact this morning's Independent lists the jettisoning of non-core businesses, such as the pharmacy chain and the much-loved farming business, using some of the savings to fund an 8.5% pay rise for staff.
Even the 'Divi' appears to have been replaced by the immediacy of discount vouchers at point of sale...
In fact, anyone that has heard Richard Pennycook's IGD presentation of the turnaround, realises that the Co-op is truly on the way back, in part evidenced by their ability to survive the current price wars in UK retail, better than most...
All that said, perhaps it is time for Co-op NAMs to step back a little from the fire-fighting, and consider using the ROCE, Net Margin and Capital Rotation tools that provide an effective working platform for their Big Four colleagues, all adapted to the realities of a Co-op attempting to morph into responsible capitalism.
At the very least, this approach will provide practical career-move training in how to optimise one of the mults a few years later. However, in the meantime, this change in MO will pay dividends in terms of job satisfaction...
Thursday 3 September 2015
Tesco PLC's Balance Sheet Re-set: why selling South Korea may not be enough
Following today's confirmation of the sale of its South Korean operation to MBK Partners, and according to The Motley Fool, Tesco is now in the final stages of its asset sell-off aimed at reducing its adjusted net debt of £8.5bn by the £5bn Moody’s rating agency believes is necessary to meet stock-market expectations.
Ideally, asset sales will yield:
- South Korea £4.2bn
- Dunnhumby between £700k and £1bn
Given global stock-market uncertainties it is possible that these sales may not yield sufficient sums, in which case Tesco will have to resort to seeking more cuts within the business and/or attempt a Rights Issue to raise cash.
Rights Issue Risks
Whilst the latest share price is a daily reminder of stock market opinion re Tesco’s potential, actually asking shareholders to invest more in a falling share price - via a Rights Issue - would not only cause investors (and analysts) to take a really fundamental view of Tesco’s prospects of a successful turnaround in terms of re-balancing the business, but also question the retailer's ability to regain market share in a flat-demand market, re-assess their competitive edge vs. available alternatives and question their ability to compete with newer retail players.
And this apart from a Rights Issue yielding less as their share price falls in the current stock-market turmoil…
This leaves further cost-cutting in the business, a possible re-set of the product re-set, and a more aggressive approach to selling off redundant space, at any price…with no sign of a fat lady singer anywhere…
Ideally, asset sales will yield:
- South Korea £4.2bn
- Dunnhumby between £700k and £1bn
Given global stock-market uncertainties it is possible that these sales may not yield sufficient sums, in which case Tesco will have to resort to seeking more cuts within the business and/or attempt a Rights Issue to raise cash.
Rights Issue Risks
Whilst the latest share price is a daily reminder of stock market opinion re Tesco’s potential, actually asking shareholders to invest more in a falling share price - via a Rights Issue - would not only cause investors (and analysts) to take a really fundamental view of Tesco’s prospects of a successful turnaround in terms of re-balancing the business, but also question the retailer's ability to regain market share in a flat-demand market, re-assess their competitive edge vs. available alternatives and question their ability to compete with newer retail players.
And this apart from a Rights Issue yielding less as their share price falls in the current stock-market turmoil…
This leaves further cost-cutting in the business, a possible re-set of the product re-set, and a more aggressive approach to selling off redundant space, at any price…with no sign of a fat lady singer anywhere…
Wednesday 2 September 2015
Germany moves towards credit card usage in retail - at a price!
Cashback cull: Tesco halves Clubcard points for 2.8m credit card holders
According to The Telegraph, EU rule changes on the fees paid by retailers accepting payments via Third Party credit cards has been halved to 0.3% of purchases to reduce shelf prices.
In practice, credit card owners like Tesco either have to reduce the reward points on usage of their card in non-Tesco outlets, or absorb the losses on such deals.
Tesco have decided to reduce the rewards from £1 per £400 spend (0.25%) to £1 per £800 spend (0.125%), whilst retaining the £1/£400 spend in Tesco stores.
In practice, being a lead player, other retailers will follow Tesco, and savvy shoppers will probably switch to a more rewarding card for their non-Tesco purchases. This means that the viability of retailer credit-card schemes built on the assumption of access to the entire market, will become less profitable and/or will result in additional charges/points reduction to claw back losses...
However, the real downside is that any attempt at detailed explanation will only heighten consumer awareness of the miniscule rewards available via credit-card and loyalty schemes, with questions asked re what costs are involved and how much is distributed via rewards, in an increasingly suspicious mode on the part of consumers, especially those returning from their first holiday trip refusals to show boarding cards at checkout...
In practice, credit card owners like Tesco either have to reduce the reward points on usage of their card in non-Tesco outlets, or absorb the losses on such deals.
Tesco have decided to reduce the rewards from £1 per £400 spend (0.25%) to £1 per £800 spend (0.125%), whilst retaining the £1/£400 spend in Tesco stores.
In practice, being a lead player, other retailers will follow Tesco, and savvy shoppers will probably switch to a more rewarding card for their non-Tesco purchases. This means that the viability of retailer credit-card schemes built on the assumption of access to the entire market, will become less profitable and/or will result in additional charges/points reduction to claw back losses...
However, the real downside is that any attempt at detailed explanation will only heighten consumer awareness of the miniscule rewards available via credit-card and loyalty schemes, with questions asked re what costs are involved and how much is distributed via rewards, in an increasingly suspicious mode on the part of consumers, especially those returning from their first holiday trip refusals to show boarding cards at checkout...
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