Getting the numbers right in Independent Retailer Month

Despite the obvious advantages of capitalising on the public mood in support of local retail, coupled with fuel  savings and ultimate dilution of multiples’ power, the actual return per outlet is usually too low to justify the necessary investment in independent retail.

For this reason, suppliers that rely on traditional financial measures of ROI will find it difficult to realise the full potential of local shops.

However, a simple shift in perspective can help.

Given that a local retailer can be more flexible in terms of meeting shopper needs, and with the right support can be more willing to encourage customers to engage with the product in the store, it remains for the supplier to find a viable financial formula in order to justify the investment required.

Suppliers that can take the creative leap into regarding the instore experience as part of marketing of the brand, not only making media investment more effective, but optimising a final stage on the way to purchase, with ‘hands-on’ contact providing an effective way of managing expectations, have to gain a competitive edge over those who focus primarily on the major multiples…

In other words, why not regard say 50% of the store-visit costs as part of the national media advertising budget, and thus make the sales per independent outlet vs. the ‘reduced’ instore-investment compare better with other uses of brand resources?

Independent Retailer Month provides an ideal opportunity to run the numbers on a 50/50 basis on current promo-programmes, evaluate the ROI results and take steps to focus more effort next year, while those already using this approach reap the rewards over the next four weeks….

Home Delivery charges - a one-way subsidy?

Given that picking, bagging and making a home delivery costs supermarkets up to £20, the £5 charge actually represents a subsidy for the service.

This leaves the retailer with four options:

• Absorb the loss: impossible on current retail margins, especially as the online/physical shop ratio increases?
• Charge more for instore purchases: An increasing an unacceptable burden on those that want/need to shop instore.
• Charge £20 per delivery: a significant turn-off for many online shoppers?
• Or radically increase the minimum order size: a likely mismatch with real shopper need?

Going for scale
Some retailers may see significant scaling up of home deliveries as a possible solution, with the milkman’s street-agreements as a way forward (in the final days of home delivery of milk, dairies agreed solus access to individual streets in order to make individual milkmens’ routes profitable), a practice that might cause issues with the competition authorities, nowadays…

A radical business model?
However, for radical thinkers, the way forward may be via a significant scaling down of store sizes and numbers to better match a shrinking need for physical presence as online increases. With less physical overheads, the average retail margins of 25% could be used to fund home delivery, thereby evolving a new retail model that fully acknowledges a future balance of online and physical retailing.

Otherwise, Amazonian third party online retailers will emerge to take up the space, profitably… 

Virtual shops vs. bricks – some spacial implications?

With a 2012 anticipated 13.2% share of all UK retail trade, and growing at 14%, in a flat-line market, online retail has to represent an unforeseen alternative to ‘real’ retail space. In other words, given the relatively slow reaction of retail space development to market demand, it could be said that UK retail space is already 13.2% over capacity, in that online is taking 13.2% of all retail sales. Moreover this situation will get worse as online grows, especially as online can react ‘instantly’ to market demand, scaling up at relatively little incremental cost…

The real space requirement:
In addition, as shops become more efficient, generating increased revenue per sq.ft., coupled with suppliers’ increased distribution efficiency (smaller quantities delivered more often = increased availability, 100%, zero-defect), adding store-level assortment, matched to local need, it can be seen that even less physical retail space will be required.

Buying time:
This means that major retailers will attempt to diversify even more to buy time, as they slowly readjust to market demand in terms of reducing their physical space i.e. sell off redundant shops, whilst taking some comfort in the growth of their online business, without fully appreciating the cannibalistic element…
Besides which, with Amazon at 50% of all online, no one can rest easy…

Supplier action:

• Suppliers need to reassess brands in terms of their bricks vs. online balance vs. real demand
• Where physical in-store presence is required, the brand will need focused support and performance-based-reward to justify its footprint
• Where shoppers need to handle the brand, suppliers will have to make case for purposeful ‘show-rooming’ and reward the retailer appropriately
• Suppliers need to drive store redundancy via 100% zero-defect supply, and optimise space productivity until a level of retail space is achieved that is more in line with market realities

All else is detail…

Touch but don't press - How daily Apples have become unhealthy for the competition

Latest figures from Kantar Worldpanel reveal that in the UK, more than one in seven people now have a tablet in their household and over 52% of the population own a smartphone. Couple this global realisation that tapping keys have become increasingly out-of-tune with consumer intuition and it can be seen why Apple have forced Microsoft, Blackberry and Nokia into catch-up mode…forever in pursuit of Apple’s innovator advantage.
In other words, Apple have made ‘screen-touching’ the only future…

A touching retail experience
Add to this the escalating success of Apple’s retail outlets, and it can be seen that the company is successfully applying the same fundamental creativity to retailing by populating its outlets with non-virtual Apple people! In fact, over the past five years, the company created 35,852 retail jobs, all acting as representatives for one of the best known brands in the world, optimising their unique combination of retail plus online plus a daily dialogue with enthusiastic users that few tech companies can duplicate.
In practice, their stores are more about being the front line for Apple advertising, rather than a ‘normal’ retail experience.

Helping people buy...
However, this experience of the ultra-softsell, in an open-table environment littered with products in constant use by enthusiastic shoppers, and continual access to human advice, can be addictive. In fact, this tactile experience, coupled with the realisation that the price cannot be bettered elsewhere, makes buying compulsive.
A frustrating lesson for ‘normal’ retailers everywhere….

Applying the Apple lessons to your business
Seth Godin extracts 10 iPad lessons to enhance your product launches, especially in niche markets.

Can you risk being out-of-touch in an Apple-free personal-corporate life balance that does not include a daily bite of the inevitapple?

Target to delist Kindle, fed-up ‘show-rooming’ for online...

Target, the US mass market discounter, communicated the decision to stores last week, and underlines growing antagonism between Amazon and bricks ‘n mortar retailers, which are threatened by the online retailer’s aggressive discounting, entry into new merchandise categories and attractive shipping service.
Target reported last November that the Kindle was the best-selling tablet in its stores on the day after the Thanksgiving holiday, typically the busiest shopping day of the year.
Target has in the past complained about the practice of “show-rooming”, a growing habit by shoppers to view a product in-store and then buy it from an online seller.
Apart from threatening the stability of routes to market for a number of key non-food categories, this move raises an important issue re the relationship between suppliers and specialist retailers.

Specialist shops viability
Essentially, as you know, the purpose of specialist shops in categories such as toys, bookselling, consumer-electronics and home entertainment is to meet a fundamental consumer-shopper need to physically experience the product. When specialists’ retail prices are so out of line with alternative formats, it is inevitable that having ‘pressed the buttons’ on a piece of electronic equipment in a specialist outlet, the shopper will invariably make a purchase online at a significant discount. There is no legal way of ensuring fulfilment of the sale by the specialist retailer unless via a price differential that is so low that purchasing elsewhere is not worth the trouble.

Even the mass retailers are under pressure from Amazon 
It has to be expected that as bricks ‘n mortar specialist shops cannot compete with online providers they need help in optimising their business model. The major multiples have reached market dominance by taking state-of-art retailing to new highs, in effect becoming expert shopkeepers.  In fact, these major multiple retailers have set global standards in state-of-art retailing that have redefined shop-keeping, and these standards need to be met by specialist retailers in order to survive.

Role of the supplier in helping the survival of specialist retailers
In practice, suppliers need to be retail business consultants to specialist and independent shops, helping them to adapt state-of-art retailing techniques and practices to their operations.  However, as the cost of this level of service would rarely be covered by the size of the resulting order, suppliers need to change their approach to calculating the profitability of some customer types. Because specialist and sometimes independent customers are ‘educating’ the consumer and ‘show-rooming’ the product, they are in fact performing an advertising function for the brand. They therefore need compensation by way of additional margin and help in becoming more effective shopkeepers.

Budgeting tip to help specialist retailers
Should we not therefore charge say 50% of the cost of servicing them to the advertising budget, and continue to call if the remaining cost is covered by size of average order?
Otherwise find a new way of show-rooming your brand and re-engaging the consumer….

Meanwhile, have a long, experiential weekend, from the NamNews Team! 

Flash Mobs morphing into Cash Mobs, a new force in retailing?

Inspired by Flash Mobs, a cash mob is a group of people who assemble at a local business and all buy items from that business. These groups of online activists are harnessing social media like Twitter and Facebook to get consumers to spend at locally owned stores in cities around the world in so-called Cash Mobs.

At the first International Cash Mob day on Saturday 24^th March, wallet- toting activists gathered in as many as 200 mobs in the United States and Europe, with the aim of spending at least £12 each in locally owned businesses, according to the concept's founder, Cleveland lawyer Andrew Samtoy. 

Essentially, this is a break-through moment, an event where a virtual society enters the real world, prepared to put their real money where their virtual/real mouths are, and actively support local shops….as their contribution to the on-going health of the community.

The need for conversion

However, it is essential to bear in mind that such initiatives are one-off injections of support, the ‘first bite’ of a new product. As you know, the ‘repeat purchase’ depends upon how well the experience matches, or exceeds expectation. In other words, for local retailers this is a windfall, an opportunity to meet and influence a target audience that wants to support local business and the community, and is prepared to spend money in the process…and tell others about their experiences (Remember, that’s how they got to the shop in the first place)

Capitalising on the trial visit

To convert these ‘trialists’ into regular customers, retailers need to ensure that their 8P Marketing Mix (Products & Assortment, Pricing, Promotional activities, Place i.e. store location, Personnel, Physical distribution & handling, Presentation of stores & products, and Productivity) more closely matches shopper need than equivalent offerings available from local and out-of-town multiple retailers. What they lack in price advantage, needs to compensated for in terms of personal service and convenience, to an extent that shoppers willingly come back for more…

How suppliers can help

Suppliers can help by revising their independent retail business model, and find ways of helping survival-mode retailers to adapt the state-of-art retailing principles established by the major multiples, and build an alternative route to consumers, as a way of realistically diluting trade concentration.

Have a pro-active weekend, from the NamNews Team!.

Retailers hampered by lack of innovation?

If the test of innovation is a consumer’s willingness to pay, then it could be said that retailers have it all their own way. 

Whilst a brand owner can take nine months from initial idea until appropriate shelf-space is secured in a major multiple, for a retailer the source of a new idea can be a presentation by a supplier that morning, a hyper-efficient supply chain can have it on a shelf by noon, and by close of play that same day, the retailer is in a position to delist the brand or double the order…

Exaggerated, but you get the picture…  

Recent press reports suggest that retailers need to be more innovative.

In fact, the two types of innovation, products and channels, present different challenges for retailers in these unprecedented times.

The innovation challenge for retailers: products vs. channels

Product /service Innovation can be so easy for retailers

-       ‘Suppliers taking all upfront risk’

-       ‘Put it on shelf and let the market decide’

How private label can make a difference

In fact, with the right supplier-partners private label can be a means of making exceptional products available exclusively in a retailer’s outlets, with consumers having to return for any repeat purchases, willingly…

Traditionally, suppliers kept the best ideas for the brand and offered second-tier ideas to the retailer. However, one exception was a client I worked with many years ago, a leading yogurt brand. They took a more innovative approach to brand development: when the ‘Lab’ had produced six new flavours, the company would first offer all six to their own-label customer. Then, following  a month’s sales in Tesco/JS, the relative popularity of each flavour allowed the company to select the best three flavours for inclusion in the brand extension programme….(Tesco/JS were ok with this, given their innovator’s advantage and their different agendas)   

Different when innovating channels or changing channel emphasis

Retailing can be a zero-sum game, in that in general a retailer’s routes-to-consumer can be sub-sets of a fixed demand. In other words, the success of a ‘new’ channel can be at a cost to their main channel in terms of sales, for instance where online siphons off sales of many non-food categories from a superstore…    

Large outlet 'redundancy'

Although pop-up shops can make some outlet diversification easy, re-engineering a 100,000 sq. ft. outlet can take a little more effort…

Large outlet ‘redundancy’ was a natural consequence of increased shopper insight combined with improvement in supply-chain efficiencies, in that two facings and minimal stock levels can now do the work of ten facings and a week’s back-up stock.

Rescuing a superstore 

In fact, for the major multiples, the next moves are crucial, in that £50m investments in superstores cannot easily be reversed, without massive dilution of ROCE, and sell-off is not an alternative, in that a superstore’s traditional retail hyper-efficiency means that any alternative use of the building cannot match a superstore’s  financials…i.e. no one can afford to pay what the retailer needs...

Restoring its viability 

A more practical solution might be a combination of store-level assortment, extending the range of goods/services to include anything that can be legally sold to the public, and sub-letting some space to shop-within-a-shop specialist retailers.

How to attract, select and retain the right specialists?

Charge a minimal rent, and a percentage of sales, collaborate on purchasing, share insights on retail productivity, and earn some good press in the process…

This has to be an opportunity for suppliers willing to help a retailer to really innovate…

Seemple, right?    (i.e. seems simple....)

High Street survival and leases

For many years, UK and Irish retail property markets have been compromised by the existence of 25 year upward-only leases with no break clauses. This has ensured that institutional landlords like banks have been able to put the leases on their balance sheets as assets with a guaranteed income stream. In fact commercial property is valued not on its sale price, but rather as a multiple of annual rental*.

This explains why bank-landlords cannot renegotiate rentals, in that to acknowledge a lower yield means lowering the value of the asset in the balance sheet, leading to a need for re-capitalisation…God forbid,,,

Because of the global financial crisis, a two-tiermarket has emerged for high street leases depending on whether they have an upwards-only reviews or not.

For retailers the new leases mean there is a stronger focus on the unit, the pitch, the covenant and the lease terms. In other words, a more realistic, commercial approach to risk-sharing by the landlord.

There is a commercial logic to aligning the interests of the landlord and the tenant to ensure both maximise the performance of their capital. But it requires a more forensic approach to retail development in the future, with developers/investors, governments and banks taking a greater, long-term interest in how a retailer will trade.

Until then high street retail will continue on a downward spiral, as most of the action moves to the suburbs and retail parks…


* Deep down the same logic applies to domestic housing. In most countries outside the UK & Ireland, houses are regarded as places where people live, and are not seen as investments. In other words a house is valued at approximately 20 times its annual rental…a yield of 5%. This may explain the periodic housing bubbles that occur when consumers lose track of what their houses are really worth...
Incidentally, why not sit down with a strong coffee and try the 20x multiple on your home…?

The future of Specialist retail?

Three decades ago, the rule of thumb in US retail was that there was room for three big players in each product category. “Good, better, and best,” as Walter Loeb, a veteran US retail consultant, recalls.

But today, it appears that each category has room for just one specialist chain, competing with Amazon, the world’s biggest online retailer by sales, and Walmart,

The issue for UK retail is how specialist retail will fare in categories such as electronics, alcohol, books and toys. The major multiples are growing at the expense of specialist retail, by focusing on these non-food categories, cherry-picking SKUs and reflecting scale economies via deep-cut prices, as retailers do…

Moreover, suppliers cannot afford, or be seen to give additional price support in different channels. Realistic customer profitability analysis will also prevent any other subsidising of specialist retailers by suppliers.

This has all been compounded by the emergence of the savvy consumer using smart phones and price-comparison sites

It follows that it is not possible for full-range specialists to compete and survive on this basis, however good their retailing abilities.

However, given that specialist retailers serve an important purpose of ‘explaining’ the category and ‘educating’ users, it is vital that they be treated differently by suppliers in terms of remuneration via performance-based-reward. In other words, a supplier should regard specialist retailers' activities as part of their advertising programme and reward them accordingly. Specialists can also benefit from help in providing category-specific instore entertainment, an enhancement of the shopping experience.

Otherwise, it is inevitable that even a 1-specialist chain, Tesco/Walmart and Amazon may be unsustainable in a flat-line market…

Credit insurance and the role of independent retailers

Whilst the withdrawal of trade credit insurance cover for independent retailers has several implications in terms of increased customer concentration, changes in supplier-customer power-balance and supplier risk, the real issue for suppliers has to be the fundamental role of the independent retailer within their overall marketing and trade marketing strategies.
Essentially, in many categories such as electronics, toys, books and wines, the independent specialist provides a means for the consumer to get to know the product, 'press the buttons' and seek in-use advice, in ways not available elsewhere. The specialist (enthusiast/champion, how few of these are available?) often provides this service in the full knowledge that the 'shopper' will later source the product at a lower price elsewhere, often online.
Suppliers can feel that, as their brands benefit from the sale anyway, then little harm is done by the gradual shut-down of the independent specialist channel. This obviously ignores the fact that without the 'education' provided by a well-supported specialist, the consumer is more liable to choose an alternative brand.
Whilst the supplier may want to treat all retailers equally in proportion to their volume, and cannot afford to support inefficiency, there may be a case for acknowledgeing the 'educational' role of the specialist by developing a special support budget to cover additional attention by the specialist salesforce (business education of the retailer in terms of product knowledge, display, and especially retail-finance) The negative impact on the customer P&L could be neutralised by factoring in the eventual consumer purchase via other channels (i.e. calculate a % of multiples/online sales, net it off their P&L and add to the Specialist P&L) Incidentally, the additional risk of uninsured credit could be reflected as an additional cost on the customer P&L, in the short term, in the hope that continuous provision of advice on business finance will cause both parties to reduce financial exposure via shorter credit periods, for those specialists that can take the advice and remain standing….