Tesco scraps 24-hour opening at two large stores - portfolio lessons for NAMs?

In the way that companies portfolio-manage brands by developing a mix of established with new products, and NAMs manage a mix of embryo and mature customers, the strong carrying the weak, so too retailers tolerate varying store profitability providing the national totals of sales and net profits are acceptable.

Thus Tesco, faced with pressures on national performance are probably re-assessing store-level viability based on individual branch P&Ls.

Whilst the obvious short-falling branches have already closed, or are on the waiting-list, marginal cases are obviously being tweaked as a last chance move.

Opening hours reduction obviously provides such an opportunity.
Tesco's original strategy of opening 24/7 was always a better option than guessing in advance whether an area around a store was likely to yield sufficient night-time traffic, given the ease of reducing the opening hours to match demand, via first-hand pragmatism.

So there should be no surprises here.

The question is where this leads, in that it seems inevitable that, should the new opening-hours window not translate into sufficient  improvement in the  bottom line, the knives will be back, in terms of executing a store-portfolio 're-set'.

In other words, Tesco will again bite the redundant-space bullet, starting with store closures, and searching for alternative usage of instore space where the outlet is retained in the portfolio.

This means that Tesco have the courage to cut, and continue to cut, until a sufficiently healthy retailer remains...(ROCE 15%, NPBT 5%, Stockturn 20+...)

And this in turn has to be a way forward for suppliers that need to shore up their bottom lines via a vigorous re-assessment of brands' and customers' portfolios, re-labeling as invest, maintain or divest in recognition of stages of business unit life-cycle evolution, and investing accordingly.

The alternative has to be continuing as usual and relying on a new owner to do it on our behalf...

How to get above-average insights from managing averages, via data animation...

A key issue for action-driven NAMs in unprecedented times is how to derive meaningful and actionable insights from well-intended but over-simplistic averages currently produced by ‘internal’ research.

A major problem with this approach, and a great deal of business reporting in general, is that it presents senior management with a host of averages:

category average margin
average space in store
average basket size
average customer spend
average shelf life etc.

We know these are important measures - the buyer keeps reminding us - but as measures, they have gone too far. In other words, they are a starting point, but we need to find ways of getting behind the averages, and data animation can help.

Guy Cuthbert, of Atheonanalytics, in a fascinating article, starts with a retailer’s average gross profit margin and shows via exploration and visualisation of underlying data, how to discover and communicate far more about the richness of shoppers' buying behaviour, helping us move towards the goal of any commercial analytical exercise – the oft-requested “actionable insight.”

In his graph-by-graph process he drills down and visualises by Customer Segment, Product Category, Sub-Category, Individual Customer, and converts a 2-variable scatter-plot to a 3-variable bubble-chart. He then adds total Profit (or Loss), using colour for this fourth variable, to highlight the variability in cash impact of the customers.

We are then in a position to loop back to the original question posed by the buyer – “How can we improve profitability?” – via a simple visual explanation of profitability, which can be explored by Customer or Product, and a recommendation to review customer discounting policy in the light of long-term customer value.

In other words, the data animation process has helped us move away from Averages of Averages, and provides a reasonable balance between simplicity and complexity, yielding actionable and communicable insight, far better than the average....

Peanut Corporation of America owner sentenced to 28 years

The ex-peanut company mogul was convicted on counts of conspiracy, obstruction of justice, fraud and other crimes in relation to the 2008-2009 salmonella outbreak which caused death of nine people and sickened more than 700. The incident caused one of the largest food recalls in US history. The QC Manager received 5 years and a food broker, 20 years, as parties to the conspiracy.

The key issue here is the escalation of accountability to the highest level in a company, along with the key players involved, and appropriate levels of punishment.

This development has to cause other companies and their teams to re-visit responsibilities re legislation and impact, everywhere.

Whilst in this case there appears to be no doubt as to culpability, it would be a pity if it caused business leaders and their teams to be over-cautious in terms of innovation and optimising resources in the marketplace.

Success in business is still about responsible risk-taking, working within existing rules and regulations, and this success will result from playing within the full ball-park, in full knowledge and observance of the legal and moral limits, while competitors seize this excuse for risk-avoidance in the centre of the pitch…

UK mults maxed out on space, losing 1m sq ft, a first cut in a decade

According to Financial Mail On Sunday, this represents a 1% space reduction, a long over-due combination of close-downs and sell-offs, in response to structural changes in the market.

Eight years of falling profits and flatline sales, combined with increased online efficiencies and consumer insights, have caused major retailers to re-assess their assortments. They have realised that, whilst overlap and duplication can be tolerable sources of back margin in good times, these surpluses become liabilities in a persistent downturn…leading to major range re-sets such as Tesco’s 30% SKU cull, in turn revealing that in large stores, upwards of 20% of retail space can be surplus to requirements….

The same navel-gazing by major mults has revealed that 80% of sales are made by 20% of the range, with ‘20% of SKUs selling but one pack per week’ in some cases.

Why the hesitation in making the cuts?
‘Normal’ businesses faced with these excess space issues would quickly sell-off unprofitable stores, but UK retail is special. As you know, the price of prime retail space is driven by sales/sq. ft. but no other business (except global Apple @ £4k/sq. ft./annum) can sell £1,000/sq. ft./annum.

Moreover, by applying a 2% depreciation rate per annum to their stores, retailers are saying that their assets have a 50 year lifespan - a 50yr lock-in - all leading to the fact that any sell-off of spare space could be at a loss, or drive down property values…

Whilst in good times, assumptions of 50 years of unchanging market conditions was understandable and even re-assuring, with the benefit of 20/20 hindsight, the structural changes resulting from closer, smaller, faster and more frequent shopping can be seen as inevitable, fundamental, and permanent… (in City terms, anything longer than a year is ‘permanent’ i.e. see long term debtors in the balance sheet..).

Limited options for B&M retailers
Thus it can be seen that Bricks & Mortar retailers have limited options available in attempting to restore historic levels of profitability, making online development - a major and compelling route back to profitability for the mults - even more appealing. And besides,online, space is not an issue, a place where long tails are irrelevant, and selling 1SKU a week, even a month, is still ok…

All that matters is exceeding consumer expectations 24/7 in terms of availability, speed, accuracy and contents of the tin…

The clarity vs. accuracy trade-off...

Wrong, but perfectly understandable, like watching the Rugby World Cup on TV (with aids) vs. in the ground...
The London tube map is a design classic, relying on equal spacing between the stations. This recent edition - produced to help engineers plan Crossrail - is a geographically accurate map showing the distance between the stations.

So now you know, it's quicker to walk the (almost) 329 yards between Covent Garden and Leicester Square stations than it is to get on the train.

Mouth-money indicators for Mult's CEOs?

According to The Business Desk, CEO David Potts has increased his £800k stake by investing £500k in Morrisons shares following a 10% drop in share price.  This has to be a major show of confidence and evidence of commitment in his new role, especially if other members of the board and staff are encouraged to do likewise.

Nothing beats a stake in the business to focus the mind…

Scope for NAMs to follow suit?
Now there’s commitment!

Seriously, Potts' latest move is bound to put additional pressure on the Tesco Board, with recent reports of City disquiet in The Guardian for their holding unusually low numbers of shares in company, and CEO Dave Lewis yet to invest any of his own money in the company…

This is being regarded as an indication that the Tesco executives have not been willing to back their turnaround plan by putting their own money into the retailer.

…thereby begging the question re how much suppliers can reasonably be expected to invest via trade funding…?

Retailer P&Ls: why 'contexting' helps....

Given normal pressures in the NAM day-job, one of the problems with firefighting is its tendency to prevent us stepping back to think... and place our data in context...

Take Morrisons latest annual results, and focus on the Net profit margin, before tax 

NAM's internal monologue:
Morrisons 2014 NPBT = (4.7%)...."almost a 5% loss.. "
"Panic, send for another an extra fire-engine!"

"Hang on, how about the other mults?"

Sector context:

Mults Sector 2014/5:
Tesco             (10.2%)  "Probably write-downs, but Trading Profit showing 1.1%, still a problem.."
Asda               3.9%  "Asda is probably a blip, forget"
Sainsbury's     (0.3%)
"That's a relief, everybody's down..." 

"But wait, how about other players in the UK?"
UK context:
Co-op               1.7%  "Better than 'non-profit' I guess..."
Waitrose          5.4%
Aldi                  4.9%
"Oops, this could be a mults' problem! Asda still a niggle...but the 'squeezed middle & and fundamental structural change' now making some sense..."

"Time for a continental view?"
EU context:
Carrefour          2.6%
Metro               1.1%

"All EU players low, but were never great anyway, time for a global look?"
Global context:
Walmart           5.1%

"Wow! Walmart are demonstrating that even in unprecedented, post-global financial crisis times, it is still possible to make net profit margins of 5%!"

"I now understand why the stock market is piling the pressure on the UK mults' share prices..."

"(I can also see that Asda's results, although better than other UK mults are still diluting Walmart's performance...)"

"Now, how can I help Morrisons?"

In other words, placing your customer's results in as big a context as possible, does not add further distraction, but can provide actionable insight, even in fire-fighting conditions....
NamNews - for big context...

Remember when monthly shopping breached the limit?

                                                                                                                                     pic: belgeinfo.com

Matt McKeown exceeds 70mph on his jet-powered shopping trolley in 2013, unconsciously signalling a return to weekly, then daily shopping trips, dragging large-space redundancy in its rear....