When the Buyer says your supplier margin is too big....

With retailers struggling on 4% Net Margin, whilst many suppliers are in trouble on anything less than 9%, the buyer may claim that you are taking advantage.

S:   Glad to see you have looked up our latest published accounts. I obviously keep up to speed on your profitability, so now we can jointly explore ways of optimising your net margin, without driving me out of business

B:   Well, you are always banging on about lack of money, so I thought I’d call your bluff: Here you are making 9% and we only have 4%

S:   On the surface, it looks bad, and it had me worried first time around. However, deep down we are each trying to balance reward and risk, it’s just that we work in two  different business models..if you take more risk, you need more reward

B:   How come? …and I haven’t got time for a lecture on finance

S:   No way. For me to understand it, it has to be simple: As a manufacturer, we have to research and invest in product ideas up front, a big risk we are prepared to take, provided we can convince our shareholders that the rewards will be adequate. We also have lots of money tied up in state-of-art plant and equipment, whilst you can operate from leased premises, if necessary…

B:   We all take risks in business

S:   Agreed, but your risk is limited to taking in two weeks stock of our new product, and if our advertising and trade funding is not enough to move it, you can sell it at cost and de-list it. No harm done, except to our bottom line…

B:   Yes, but I could have given that space to something more successful

S:   ….and sacrificed an opportunity to experiment with a bit of innovation that might have given you a competitive edge. But let me explain more about why we need our margin to optimise your profitability…

B:   Ok, I buy the need for innovation, but I need to improve my bottom line

S    Fine, we need to manufacture big runs and hold at least 6 weeks buffer-stock of finished goods to cope with fluctuating demand. This allows you to operate on two weeks average stock. In fact, with our daily delivery of main SKUs, your average stock on our lines comes down to 2.5 days, reducing your risk even further.

B:   More like 3 days, but I take your point..

S:   Great, so when it comes to optimising your profit, the closer we work together, the more we can each make…you make more sales, we waste less money..

B:   How come?

S:   Think about it. Our biggest investment is in advertising (5%) and trade promotion (20%). See, you already get the lion’s share! So if we can coordinate our above-the-line campaigns with bespoke instore activity geared to your traffic flow, we get more for our buck, and the more you optimise shopper demand. Provided you manage potential wastage, the increments go straight to your bottom line.

Buyer:   So what do you need from me?

SuperNAM:   Now you are talking! If you give me guaranteed forecasts, we can optimise factory output. If you can pay a bit faster, we don’t have to fund so much free credit, but the real payoff can be via improved compliance instore…

Adventures of SuperNAM (19)

Differential Euros - how a French euro can be worth more than a Cypriot euro?

As we approach the final stages of EU governments’ efforts to agree to use bank deposits exceeding €100,000 as a means of ‘bailing in’ or rescuing ailing banks, clients have asked for an explanation of how this can result in differing values for a euro within the EU.

When a government raids depositors savings accounts, those who can do so try to move their money overseas. The government is obliged to ban currency transfers to prevent such ‘exporting’ of savings and avoid a run on the banks….

Example
Suppose a Frenchman, Pierre, wants to sell his holiday home in Cyprus for €200k.
He has two bank accounts, one in Paris and one in Cyprus.
Nikos, a Cypriot citizen living in Cyprus, wants to buy Pierre’s holiday home.
He also has two bank accounts, one in Cyprus and one in Paris, but wants to pay via his Cyprus account i.e. in Cypriot euros.
Pierre wants to be paid via the French bank i.e. in French euros, to avoid having the money locked in Cyprus, because of the currency controls.
If Nikos insists on paying in Cypriot euros, then Pierre wants an additional €50k for the flat, as compensation for the risk of tying up his money in Cyprus. 

Therefore Cy€250k is worth Fr€200k …. 

Thinking ahead...
In other words, if it looks like a major bank in the EU needs re-capitalising, and a government bans currency exports, then local euro devaluation follows by default, as the government helps itself to depositors’ savings, like in Cyprus…

Watch this space… 

BOPUT deals - at a checkout near you!

Contactless cards can hit shoppers with an inadvertent Buy-Once-Pay-UP-Twice deal as an extra payment can be triggered without their permission while paying with a standard bank card or cash.

The system, which can be used for goods worth up to £20, is supposed to work only when the cards are placed within two inches of special terminals at the checkout. But customers who got in touch with the Money Box show on BBC Radio 4 allegedly said they were charged when the plastic was in their purse and well away from the readers – meaning they unwittingly paid twice.

An article in the Daily Mail details shopper experiences in discovering the errors and obtaining refunds, and quotes the UK Cards Association’s suggestions that cardholders should not to put their wallet down in this quite narrow field when they pay.

Reality check!
Given that many shoppers may choose to hold their purse in one hand while multi-tasking                                (packing/coupons/babies/cash-back/loyalty points…) at the checkout, and even use their purse-hand to shield PIN input, it seems unreasonable to expect them to also remember to hold the purse at arm’s length, 'out-of-sight', away from the terminal…?

Action
Taking into account the fragile level of acceptance and relative novelty of contactless payment, retailers need to find ways of identifying the scale of the problem –‘naïve’ shoppers will expect that computer screens will simply reveal duplicate payments at a checkout terminal and in retailer records – and make immediate refunds, rather than await the inevitable build-up of creeping suspicion, and suffer the loss of business to ‘old fashioned’ competitors that still rely on personal contact…. 

Porsche gatecrashes Aldi – the ultimate in hard discounter pulling power?

                                                                                        Picture: Twitter / SarahGPuetz
Speaking to the Carmarthen Journal newspaper, store manager Tom Jones (!) said: "The chap who had the crash had just bought the car, and thought it was in reverse…..”

Reminds me of a pal in the City who picked up the keys of his first Porsche and couldn’t resist leaving work early. He went to the underground garage, switched on, touched the accelerator, shot up the ramp, took the gate off its hinges and ended up on the other side of a fortunately quiet, mid-afternoon street….

All goes to show, like in negotiation, power is often better implied than applied…

But now and again, giving it full throttle can be fun….

Have a powerful weekend, from the NamNews Team!

Trade Issues and the NAM – How Much Should You Know, or Care?

Given the unmapped rate of change in these unprecedented times, keeping up with the issues has become virtually impossible.

As the resident company expert on the retail scene, you are meant to have factored key issues into your trading strategies, with the lack of such foresight becoming obvious only in retrospect.

This means developing the ability to quickly evaluate individual issues, using the following approach:
- What is this about?
- Where is it headed?
- How does it affect me?
- What to do about it?
- How to do it?

In other words, be able to see what's coming and see what matters

For more on application, see this month’s NamNews editorial May 2013

Forgotten Underground Edwardian shopping arcade in West Yorkshire as traffic builder?

                                                                         pic:  Nick Catford, Subterranea Britannica
During renovation of the Royal Arcade in Keighley in 2003, a lower level of Edwardian shops was found underground during the clearance of the basement area.

The original Royal Arcade was built in 1901, the year Queen Victoria died and Edward VII came to the throne. Gott and Butterfield ironmongers moved in, and it was popularly known as Butterfield's arcade
The shop, once described as an Aladdin's cave selling household goods, bicycles and camping equipment, closed in 1983

Now Nick Holroyd, manager of the Royal Arcade, which is situated above the discovery, is investigating whether the street - once at ground level - can be restored. He has enlisted an architect and structural engineer - and plans are being made to develop the street, which has space for up to eight units.

Given that many high streets have long histories, perhaps there is scope for incorporating a high street’s origins into plans to revitalise town centre shopping areas, and possibly capitalise on the consumer’s current retro-appetite?

A pointer for major multiples seeking 'non-commercial' projects?

For full details including 27 pics and two 1890 site-plans, here 

Incidentally, if going underground seems like a perfect antidote to these unprecedented times, visit the home page of Subterranea  Britannica here

Eliminating the cost of the last mile: InPost lockers for online pickups

                                             Pic: one of InPost global partners, source InPost site
In the UK, InPost’s new network goes up against the existing ByBox network of parcel terminals, which are mainly used for business-to-business deliveries, and also the growing number of parcel shop networks – CollectPlus, myHermes, UPS Access Point and Local Letterbox.

According to the FT, Amazon already provides a locker delivery service for items purchased on its website while CollectPlus, a joint venture between parcel delivery business Yodel and PayPoint, delivers to more than 5,000 convenience stores, newsagents and petrol stations. Earlier this year John Lewis said it would begin offering CollectPlus to shoppers buying items from its website.

InPost UK, a subsidiary of private postal operator Integer.pl, launched its service two weeks ago with a network of 114 locker sites in Manchester, Leeds, Glasgow and Edinburgh among other places. The company plans to have 3,000 locker sites operational by the end of the year.

A win-win for Bricks & Mortar retailers and site-owners
Retailers can rent Inpost a site and benefit from:

• Extra income from rent
• Utilisation of unused sites
• Additional revenues as a result of increased footfall
• Increased customer satisfaction resulting from access to a new, innovative service

...with the added advantage for a retailer in not losing the 30% of space and cost of operating a 'manual' collection service instore, and perhaps a little boost for the High Street?

A final online break-through
However, the real benefit of third party operation of the collection facility has to be the elimination of the final barriers of inconvenience and cost associated with the traditional need for shoppers and retailers to coordinate a physical handover at the home, with consumers willingly absorbing the travelling cost of the final collection-mile, to pick up goods at their convenience.... 

Free 15-slide presentation here

Philosophising in a Checkout Queue: What the hell is water?

Two young fish swim past an older fish. The older fish says: "Morning boys. How's the water?"
The two younger fish swim on in silence until one says to the other: "what the hell is water?"

‘This is water’, a new video by The Glossary was put online five days ago and has already had over 3m visits. It was then taken down for copyright reasons, and is now replaced by the original recording.  Writer David Foster Wallace, in a graduation speech, uses time in a checkout queue to explore the meaning of life, a fascinating achievement!

Whilst we all complain about long checkout queues, it is about the only place left that allows a NAM time to think…..

(For the James Joyce version see 'A Superstore Odyssey')