No going back - Tesco faces £1bn writedown to quit America

The size of the charge, via a writedown in the value of Tesco’s assets, shows that even playing by the book, doing all the obvious research, means relatively little when the world turns upside down, especially financially….

Fortunately Tesco has achieved reasonable success in other markets, and remains No.3 in the global league. However, the real issue is that it will take a very courageous leader to attempt to re-enter the US market, when conditions improve..

Better to have left a small physical presence combined with an online offering to make re-scaling easier.
It remains to be seen whether the rest-of-world will provide sufficient scope for the realisation of Tesco’s global ambitions, and remain No.3…

‘Be prepared’
Meanwhile, suppliers have to consider their response to any Tesco moves in their direction, as the company attempts to repair the damage done to its Balance Sheet….

HMV: Grocery Lessons in Survival?

News that Hilco is set to rescue HMV from 3-months administration added to the belief that music companies and film studios have agreed new supply terms with HMV and are backing the deal, means that the company has gained some breathing space…

As suppliers will be unable to offer unilateral support that not also available to other retailers, including grocery, the aim of music companies and film studios should be to reward HMV for any in-store activity that improves and delivers category performance. This support could also be offered to the grocers and mass retail.

However, given that online has possibly made the home entertainment format redundant, survival could depend on HMV being run more like a grocery shop, a format that manages to survive against impossible odds…

Leaving the ‘romance’ of home entertainment retailing aside for a moment, there are a number of grocery measures that could be adapted to the new HMV finance-based model, ideally with the support of suppliers…

Overall, the aim should be to make HMV home entertainment retailing comparable with leading edge major multiples as follows:

• Retail pricing: Suppliers need to set shelf pricing within an omni-channel strategy that will optimise the store model, and reduce unplanned leakage via other routes to consumer
• Net Margin: From its current net losses of 13%, HMV needs to achieve net margins of 5%+. This should start with average Gross Margins of 25%, allowing for 15% to run the shop, and 10% to cover central overheads and net profit.
• Sale-or-return: should not be offered, given that it can remove the incentive to sell and maintain the range and condition of in-store stock
• Stockturn: the grocers manage average turns of 20+, with individual SKUs  varying in response to demand. This can mean suppliers delivering some titles several times per day, if necessary (good practice for dealing with the grocery guys)
• Space Management: Again, leading grocers achieve £1,000 per sq. ft.  per annum on their store areas, with footprint of their fixtures/gondolas over-performing to 'carry' the non-selling space in the aisles. Given the near-vertical merchandising of CDs and DVDs i.e. minimum foot-print, this should be a no-brainer KPI for HMV
• Credit period: In the short term, credit should be limited to 30 days to encourage financial discipline in what is a cash business at point-of-sale.  The current 45-90 days enjoyed by some retailers is a ‘temporary’ aberration that will be corrected as soon as a government begins to fully appreciate the damage being done throughout the demand-supply chain
• NAM/KAM involvement: Acting as leading-edge retail business consultants to the store, with 50% of the NAM/KAMs‘  costs covered by the supplier’s advertising budget, if necessary, given their contribution to brand-building in the aisle

Having covered the above basics of good shop-keeping, HMV will then be in a position to apply all the ‘romance’ of the entertainment category (within a category management & shopper-marketing envelope), and really show the grocers how to optimise home entertainment retailing …

Meanwhile, have a really romantic weekend, from the NamNews Team!

Walmart's onshelf availability – moving from 1-stop to full-stop shopping?

With a database ‘as big as the Pentagon’, Walmart are in a better position than most retailers to validate the extent of shopper migration  resulting from on-shelf out-of-stocks.

According to articles in Bloomberg News,  significant numbers of 1-stop shoppers are becoming so frustrated at finding empty shelves that their full-shop needs to be topped up with essential items bought elsewhere… Bloomberg claim to have more than 1,000 emailed complaints signalling that on-shelf availability is worse than is claimed by Walmart, who say that the small sample size does not represent a national picture.

Anecdotal details of the OOS complaints are given in the article, and over 500 comments are appended to the online version.
Moreover, it would appear that the stock is in the store in most cases, but that staff cutbacks mean that refilling of shelves is suffering because available staff are focused on manning cash registers and answering shoppers’ questions…

Most of the complaints were from previously loyal Walmart customers befuddled by what had happened to service at a company they’d once admired for its low prices and wide assortment. Many said they were paying more and driving farther to avoid the local Walmart. Some had developed shopping strategies, including waiting until the last minute to grab ice cream, lest it melt in the lengthy checkout lines.

Given Walmart’s scale, their ‘handful of complaints’ would be a serious issue for lesser retailers.

However, if the company accepts that a complaining customer is someone trying to give the retailer a second chance, it would be a pity if Walmart waited for an impact on the share price, before taking remedial action…

Grocery Code Adjudication - Managing Expectations?

Whilst small and medium-sized suppliers may be encouraged by early signals ref the appointment of the Adjudicator, it should be kept in mind that the ultimate goal is protection of the consumer.

Those that have taken the GSCOP seriously from the beginning accept that retailers (and suppliers) have had three years to establish ‘precedents’ in terms of payment periods (40-90 days), quality specs, delivery conditions and other trading arrangements that now fall within the letter of the Code…. This means that retailers are now compliant, and only proven breaches will cause them problems. Given their £1bn+ scale, the major retailers will be as anxious as suppliers to avoid the distractions of any breaches by rogue buyers at operating level.

Whilst the Adjudicator is now open to receiving feedback from suppliers, any action against a retailer will require the building and winning of a case with all the legal conditions covered off.    In other words, legally watertight evidence will be essential for the success of any resulting action.

According to The Observer, the adjudicator will have two key options available - arbitrating on disputes and investigating complaints made anonymously or by third parties such as the National Farmers Union.
Presumably all such complaints will have to be investigated, aggregated and sufficiently ‘anonymised’ to protect whistle-blowers, in order to prove that a specific retailer has a case to answer on a specific issue.  Hopefully the combination of a ‘quiet word’ and the possibility of adverse publicity will then cause the obvious excesses to be kept in check…

In the meantime, pro-active suppliers need to reassess their working partnerships with the major mults in the light of the GSCOP. Their aim should be to establish an ‘ideal world’ trading relationship, based on  realistic post-financial crisis market conditions, that would allow both parties to function profitably, all things being equal….

This analysis would then form the basis of a robust and negotiated contract,  upon which they are prepared to litigate in the case of any provable breaches, if necessary. The company will then be in a position to clearly establish what are clear breaches of either spirit or letter of the agreement, and ideally will have collected supporting evidence in the process.

It then becomes a decision whether a visit to the Adjudicator or the law courts will be more effective….

In other words, the ball remains firmly in the supplier’s court, where  the primary responsibility lies with NAM and buyer to reach legally ‘bindable’  agreements between committed trading partners, each gaining sufficiently from the relationship that playing fair is more productive than abuse, as always……

Virtual fitting rooms for dogs...

                                                                                                      pic: veinteractive
Virtual fitting room provider, Fits.me, is to expand into the booming pet accessories market with the world’s first virtual fitting room for dogs.  Initially available for dachshunds and greyhounds – two breeds that Fits.me has identified as being the hugely difficult to buy for – the virtual fitting room will help fashion-conscious pet owners buy better fitting clothes for their pooches online.

With demand for pet clothing having soared in recent years, British dog owners already spend over £30m a year to dress and accessorise their four-legged friends

A virtual fitting room for cats is currently in development and Fits.me expects this to be made available for the next April Fool's Day in 2014.

BUI-ing online?

                                                                                                pic: Broadbandchoices
New research reveals that 1 in 4 Britons admit to Buying Under the Influence (BUI) online…

Apparently, in a survey of 2,000 people, 28% of those questioned said they'd shopped on the internet while under the influence of alcohol. One in four confessed they had later regretted a drunken buy…. Results range from purchases of false teeth, a musical Chairman Mao cigarette lighter, a 1930s male bathing suit and Chilli-vodka....

Personal experience
Apart from a notable near-miss return flight booked from destination to home, in that order, from personal experience I would beg to challenge the inclusion of Chilli-vodka as an indicator of BUI-online purchasing…

A few years ago when running a very intensive 24/7 workshop in the Ukraine, the client recommended a local ‘reviver’ when one needs that vital extra 30 mins output at the end of a 15hr day. I have to say that a generous shot of Chilli-vodka (must-have ingredient is a whole chilli pepper in the sealed vodka bottle) is scarily effective, but strictly for 30 minutes extra output only.

After that, one is left temporarily brain-dead, but thankfully in no condition to communicate with Amazon, 1-click or otherwise….

Have a long, no-regrets weekend, from the NamNews Team!

Au shop charges $5 'just looking' fee

                                                                                               pic: Reddit Barrett Fox
In a bid to combat show-rooming, a speciality food shop in Brisbane allegedly charges shoppers* Au$5 per visit, deductable from a purchase, or non-refundable if 'just looking'...

Apart from being a real test of retailer pulling power, this move raises the issue of how retailers and their suppliers can satisfy an obvious consumer need to 'touch the product' before buying, without compromising retail pricing.

In categories such as toys, consumer electronics but also speciality food and drinks, it obviously benefits the brand if consumers are given the opportunity to visit a specialist shop to experience the product and seek advice before making a purchase. However, the resulting on-cost usually makes it impossible for the retailer to compete with online prices for the same brand.

More intensive branch calling and support can obviously increase the efficiency of a specialist retailer. However, given the relatively low turnover of typical specialist outlets, it is usually not possible for a supplier to break-even via orders taken at store level.

A possible solution for brand owners could be to treat the specialist shop experience as an extension of the marketing process, and fund it appropriately. 

In other words, given that any support at point-of-sale can make ATL advertising more productive, then why not write off say 50% of the cost of branch support to the advertising budget? This additional funding could be used to cover part of the cost of calling and also the provision of 'demonstration' allowances for the specialist retailer.

This would allow the supplier to influence the point-of-purchase message to ensure compatibility with overall brand positioning, enhance the consumer-service and allow the retailer to reduce the online price-gap....

When you think about it, a variant on shopper marketing, for the little specialist guys...

* More on the Au initiative

Hiving off capital intensity - How Coca Cola bottling works...

The Coca-Cola model splits ownership of the brand and concentrate from capital-intensive bottling and logistics, by far the bulk of which is handled by independent franchises, with the remainder owned by the company. The system works for Coca-Cola by providing it with the superior margins that come with an asset-lite model, while giving it control over the bottlers.

In general, Coca Cola appear to favour the franchise option and in fact operate Bottling Investments Group, dubbed “the hospital ward” by outsiders, who describe it as the place where ailing bottlers are spruced up before being sold on again. According to the FT, the company is in the process of building scale and closer links with its franchisees through greater co-ordination and consolidation of the sprawling bottling empire. Details of regional/local performance and analysts' estimates of financial impact in key regions are given in the FT article. 

Food for thought?
Whilst the option of splitting brand ownership from production & logistics may not be available to all other suppliers, the advantage in terms of ‘allowing’ the multiple franchisees to handle the commercial relationship (esp. margins, prices and terms) with the trade, and the consequent dilution of retailer power, has to make this alternative worthy of exploration…

By keeping commercial issues tied to ‘local’ production units, the supplier could then focus upon brand building, and more effective management/negotiation/compliance ref trade spend, without the distraction of having to deal with other parts of the commercial relationship…

Too radical? Welcome to these unprecedented times….