Setting the correct objectives?

Two hunters in the jungle were spotted by a hungry leopard.

One hunter immediately sat down, took a pair of running shoes from his pack and began to put them on. His partner challenged the move saying no one could possibly outrun a leopard, and was answered with:

"I don't have to outrun the leopard. I simply have to run faster than you...."

McKesson says Celesio takeover offer has failed

Last night’s news by McKesson that their 3 month offer to purchase Celesio had failed to secure the 75% of the shares they deemed necessary to complete the purchase raises several issues for suppliers, retailers and wholesalers…

Apart from the disruption and uncertainty of the past three months and its impact on staff, possibly resulting in some of the good guys leaving, and key suppliers reverting to short term strategic mode, Celesio’s profile as a takeover prospect has invariable attracted the attention of other players such as McKesson’s closest U.S. rivals AmerisourceBergen and Cardinal Health, which between them account for 95% of the U.S. market, are, like McKesson, all looking to grow abroad to gain purchasing power with drug makers.
At a market capitalisation of €4.11bn, Celesio is within the reach of each of the companies.

Celesio Chief Executive Marion Helmes has said that an alliance or tie-up with a U.S. partner could help win steeper discounts, mainly for the generic drugs it buys but also for non-prescription medication and skin care products.

Celesio, owner of Britain's Lloyds pharmacy chain, is suffering from a price war that has all but erased its profits from the crowded German drugs wholesale market. Healthcare budget cuts across Europe, its main market, add to its woes.

In response, CEO Helmes is centralising procurement to cut costs, as well as widening and standardising the offering of its pharmacies across Europe under the Lloyds brand.

The mooted offer would value Celesio including its debt at close to 9.9 times expected earnings before interest, taxes, depreciation and amortisation (EBITDA) for this year, roughly in line with the 9.8 multiple its U.S. suitor is trading at. That compares with a multiple of about 11 times EBIDTA that U.S. drugstore chain Walgreens paid for a stake in Alliance Boots last year.

And speaking of which, Celesio wholesaling would add to the combined muscle of Walgreen and Alliance Boots, thereby frustrating the obvious appeal to A.S. Watson in completing a global structure that might help it keep pace with Walgreen Boots globally…

Meanwhile, back to the short term initiatives for NAMs…

Helping major retailers to help themselves cope with 2014

Given that the Christmas trading results were merely the latest in a succession of indicators that all is not well in retail land, it should come as no surprise that the major players are taking steps to keep the stock market happy.

In the absence of real sales growth, and apart from Debenhams’ request for more direct help via additional discounts, the key alternatives available to retailers are sale & leaseback, and taking longer to pay, in order to improve financial results.

Sale & leaseback:
As you know, this means selling their shops to a finance institution and leasing back the premises, which means there is technically no change from a trading point of view, except that significant quantities of cash are released from the assets. The only difference is the retailer is now paying rent, which comes off the bottom-line, and can hit their net margin.

This is why Morrisons still own 90% of their real estate in that Sir Ken was always unwilling to cede control to a landlord. However, most other retailers have gone halfway over the years, to say 50% on sale & leaseback, using the released funds to buy more property and finance takeovers. It can also be used to pay back to shareholders in order to ease pressure on the share price.

This is why over the weekend it emerged that Morrisons may sell & leaseback 10% of their estate for £800m, pay it back to shareholders to compensate for the recent fall in share price. This will still leave them owning 80% of their estate, conservative compared with their peers…

However, the real problem in UK retail is the redundancy in large space caused in part by the growth of online. This means that finance houses will want to reflect the resulting fall in value via a lower purchase price for the property.

Hence the major retailers will need to try additional means of raising cash, the ‘simplest’ being taking longer to pay

Extended credit periods
In general, a decade ago the average credit period for retailers in the UK was approximately 30 days (compared with 45 in France, 95 in Italy and 150 in Greece). The UK period has now crept out to approximately 45 days, a 50% increase while few suppliers were ‘minding the store’, as least as far as creeping credit was concerned...

Given the ‘impossibility’ of achieving any real reduction in ‘normal retail practice’ all a supplier can do about this new ‘norm’ is refuse to allow any further increase for those customers at 45 days and checking which customers are paying faster, inadvertently…

It is therefore key that a NAM be able to calculate approximate time taken by a retailer to pay all suppliers, and then re-negotiate any difference on their part. Essentially, this means taking the end of year Trade Creditors from the customer’s balance sheet, and given that most retailers are getting average gross margins of 25%, divide the Trade Creditor figure by 75 and multiply it by 100 to get a sales equivalent of the amount outstanding. Dividing this like-with-like figure into the annual sales figure on the P&L will tell you how often the retailer pays their invoices per annum, and this figure divided into 365 will give the number of days the retailer takes to pay suppliers (check the logic with your finance department for reassurance).

If suppliers had monitored and resisted these retail moves over the years, the latest 45 day ‘norm’ might not have been as easily achieved….

Anyway, here and now it means that the NAM can be in a position to go for fair share, at least…

Welcome to the realities of 2014!

A changing retail landscape - so what?

If the UK retail landscape is really changing fundamentally - and the combination of 'squeezed middle', latest Christmas results and increasing impact of the savvy consumer seem pretty fundamental - the issue has to be what you need to do about it, now!

Traditionally, a NAM could wait for things to settle down and then take a short break from the fire-fighting before attempting to change course...

However, your 2014 plans have already been put to bed and you are seeing Tesco next week!

Essentially, in any market shift, what really changes is the relative competitive appeal of the various retail players, from the points-of-view of their customers, who then act accordingly. From your perspective, your key focus should be the perspective of your target consumer, as part of your retail customer's traffic.

Fundamentally, your consumer will see the retailer as an 8P combination (Products & Assortment, Pricing, Promotional activities, Place i.e. store location, Personnel, Physical distribution & handling, Presentation of stores & products, and Productivity) and judge the retailer as better or worse than the available alternatives in the market in terms of how well they appear to meet their needs.

In other words, a NAM needs to re-assess their target consumer's need-set in the current climate and then make a judgement as to whether the new market dynamics (squeezed middle, online, convenience etc.) have changed how they view the competitive appeal of your major customer. You need to take a view on how that consumer rates the elements of the 8P mix, as far as your brand and customer are concerned, and decide what the customer needs to change in order to retain market share.

Meanwhile, now more than ever before, major retailers are struggling with fundamental issues of relative competitive appeal, and are - or should be - receptive to commercial insight from realistic and pragmatic NAMs, fresh from the coalface...

This moment of uncertainty represents a window for frank information and insight exchange, like never before..

Time to contact the buyer and warn them that next week's meeting could get pretty fundamental, may possibly take a little longer, but could represent a way forward for you both...?

 

Kegworth air disaster - some personal memories

At about 9pm on the evening of Sunday, 8th January 1989, I was driving northwards on the M1 to a workshop venue in Kegworth chosen because of its proximity to the M1 and airport, when a radio newsflash announced an air-crash. The plane had come in low, narrowly missed some buildings and crash-landed on the motorway embankment on the approach to the main runway of East Midlands airport.

My immediate concern was for my 12 delegates that I knew were assembling that evening for the workshop.

The motorway was closed soon afterwards and I made  my way to the hotel across country via smaller roads, no mean feat in those pre-satnav days…

On arrival I found that all of the team had been in the hotel when the plane flew overhead, obviously in trouble and seeming to narrowly miss the hotel roof before crashing nearby.

We all rang our families to reassure them that we were safe and after much discussion agreed to proceed with the workshop.

There followed a night and two days of frantic activity by the emergency services in the area, punctuated by media updates.

We finally finished the session and returned home.

In the circumstances I am not sure how much of the content sank in, but the over-riding lesson to my mind was that, despite the raw immediacy of a disaster that claimed 47 lives, life – and business – goes on… 

Consumer mood - how Asda's Gimmick-free Christmas touched a reality-nerve

Never known for flights of fancy, Asda – and its parent – decided to focus on gimmick-free, simple everyday low price transparency for their customers and to hold their nerve when it came to the sales, a strategy that resulted in a record footfall over the Christmas period, and results to boot....

Whilst it could be said that a group with a turnover of $356bn and a 19.6% ROCE - unique in key retail - could afford to ‘ignore sales’ they have some of the hardest taskmasters on Wall Street and some financially-beefy shareholders working internally.

I shall never forget sitting in a 20-man Walmart merchandising strategy meeting in Bentonville - the only non-millionaire in the room - a couple of years before their UK entry, and being ‘scared’ by their degree of focus on the simple approach when most other retailers were developing ever-increasing levels of sophistication and are now struggling to hit 10-12% ROCE.

The oldies amongst us will remember that Asda began as Associated Dairies and was launched by 'two milkmen that got lucky' (thanks Tony), and it has never really wavered from the simple approach to business perfectly suited to the current mood...

I am convinced that what we saw in Asda’s version of Christmas was the fundamental Walmart approach adapted for a company fully tuned - except for the big stores! - to the realities of the UK economy.

We can only recommend having the courage to join them at the realistic, basics coal-face, our minds and offerings stripped to the essentials of demonstrable value-for-money… It works!

Online Betting via Grocery Dark Stores

Whilst grocers are cutting back on megastores, rising internet food sales will see supermarkets sign up for twice as much online warehouse space in 2014.

Tesco, Asda and Waitrose will this year commit to doubling the space devoted to internet dark stores, according to property agent Jones Lang LaSalle. Around 1.8m sq. ft. of warehouse space is devoted to dark stores, but that is set to increase as online shopping transforms the retail sector.

Tesco is expected to open its seventh dark store in Didcot, Oxfordshire, later this year. They opened two dark stores in 2013 and have previously said they are scouting for further sites in Birmingham and Manchester. Their newest centre in Erith, south east London, can process 4,000 orders a day and offer 30,000 different items, 50% more than the average store. The site has also been designed to help Tesco launch same-day deliveries, a service already offered by Asda and Ocado.

The combination of faster picking, more delivery slots and increased use of ‘click & collect’ means acceleration of online growth, mainly at the expense of less efficient competition.

However, faster online supply of goods – especially bulky items – has to also accelerate the redundancy of large space retailing, and given that there are no obvious alternative use options – i.e. selloff- available, then the major retailers will seek to optimise available space via a combination of instore theatre and franchising.

Providing the numbers add up, this new availability of space has to represent a major opportunity for suppliers and retailers to fundamentally re-think the application of shopper marketing, a process conceived at a time when retail space was at a premium….

The Empty Shop – A retail innovation in Manchester launching January 23rd

As we head into a year where growth will come at the expense of the competition and especially via innovation, then being open to new ‘reversal’ ideas could be one way of kick-starting our creative juice production after the long break…

For example, based on a success in Sao Paulo that raised 3.2 tonnes of unwanted clothing, instead of customers buying clothes, The Empty Shop will encourage shoppers to become givers by offering clothes to the shop instead of taking them away.

In return, the shop is set to make a real event out of giving back by getting local fashion stylists and bloggers to turn second hand clothes into key looks for the season, all on display in what is set to be a rather upmarket space in Manchester Arndale's central square, just near Next. The space will then be emptied each evening with clothes going to a local homeless charity leaving The Empty shop ready to receive new donations again the following day.

As with all creativity, premature criticism can obviously stifle any idea, and hopefully, the above innovation in charitable giving will have a positive outcome.

However, from a NAM’s point of view, the reverse-thinking process may help by taking your 2014 objectives, considering the reverse for a moment, and see where it leads?

For instance:
- Reducing sales instead of going for growth
- Reducing instore space instead of…
- Reducing share, range, distribution, footprint in order to focus via concentration...
- Increasing cost via more creative investment

Scope for a little creativity before the 2014 fires flare up and become too distracting?