UK accounting watchdog warns retailers after Tesco scandal

Britain's Financial Reporting Council (FRC), which polices accountants and is examining how Tesco's error came about, said on Monday that the boards of all retailers and suppliers should provide investors with sufficient information on their accounting policies, especially Commercial Income (i.e. Trade investment).

This is particularly important for NAMs as the watchdog said it would focus on this area when it comes to reviewing audits for 2014 that will be published in 2015.

The FRC said there was no single accounting standard for such disclosures and there is an "absence of well-known industry norms", meaning that auditors have to resort to judgement in most cases.

Given the 20+ ‘buckets’ that suppliers use for trade funding, it might be useful if NAMs simplified and segregated their funding.

‘Supply and Demand’ rewards could provide a useful basis for clarification.  In other words, classifying elements of commercial income as either facilitating supply economies, or optimising consumer demand, might help, but still leaves complexity....

Supply rewards could include:
- Central assortment & listing
- Timely and committed forecasts
- EDI
- Central credit, settlement terms, and payment
- Returns/write-offs
- Deductions

Demand rewards could include:
- Listings
- 'Appropriate' range/assortment
- Category compliance: shelf space & level, fair-share facings
- Promotional compliance, price support, POS compliance, additional placements/displays
- Minimalising post-audit recoveries
- Sales achievement

It is likely that the SFO-Tesco outcome will result in new auditing procedures aimed at transparency, defensibility and like-with-like 'comparability' in dealing with Commercial Income in retail accounts.

Meanwhile, suppliers can anticipate the changes and possibly avoid major retrospective overhauling of their trade funding process, by taking action to clarify their trade funding process now, while others await the inevitable… 

Tesco's Christmas' Surprise - a Final Shocker for the Market?

Today’s profit warning, indicating that February’s year-end profits will come in at £1.4bn, 25% lower than analysts’ expectations, had better be the final shock from Tesco…

Whilst the City will be relieved that no further scandals were revealed, this below-expectation profit guidance has to mean that analysts are still not reading Dave Lewis well enough, and will hopefully result in an over-reaction in terms of the share price…

In other words, the stock market will probably mark the shares down more than is warranted, just-in-case…

There is hopefully an element of ‘kitchen-sinking’ in the 2014-15 results in that we have to assume that all write-offs have been factored in, which, coupled with investments in price, availability and other improvements in its customer offer, lead us to expect that all future announcements will be defensible, transparent but above all, conservative….

We are obviously seeing only the surface impact of the changes being undergone in Tesco, as Dave Lewis’ new team revisits plans and strategies, implementing a new commercial approach that will underpin stronger long-term relationships with its suppliers to ensure that revenue recognition is transparent and appropriate, all in the shadow of an SFO investigation….

What it means for NAMs
• All commercial income will be redefined, quantified and where possible, retrospective
• All forecasts will be conservative, and ideally tied to clear KPI measures
• …However, in order to avoid missing out on unexpected demand, Tesco will expect a rapid response to sales surges...

The future conversation will be about demonstrable cost & value, as a base requirement.

In return, suppliers should insist on 100% compliance, and fair-share dealings, shock-proofed…

More on 'Tesco- the end of the beginning for a great retailer' here

When the target misses the point...

Most of us remember the Dudley Moore free-range chicken TV campaigns....??

It was intended as a way of having Dud discover different continental foods available at Tesco, such as farmers' cheese, wine etc, with free range chickens as a back-drop...

Unfortunately, the demand for free range chickens soared, resulting in numbers that far exceeded what was available in France...

Apparently, this meant that Tesco had to source overseas, discovering that chickens in different continents were bred/evolved to different profiles (big breasts here, big thighs there, you know how it is...) resulting in some confusion at UK tables.

The campaign eventually ran out of steam also...

Hat-tip to Mike Anthony for the reminder of a truely memorable campaign

Premier Foods 'Invest or else' request from suppliers

According to the BBC, Premier Foods have allegedly been asking their suppliers for payments to continue doing business with the firm.

NAMs, long accustomed to fielding such ‘requests’ from major customers, might be forgiven for thinking that Premier Foods had diversified into retailing…

Essentially, when a company enters a supply arrangement with a customer, they obviously negotiate a working arrangement that should be summarised in a supply agreement – a legal completion of the agreement process where UK suppliers still lag behind their continental cousins.

However, commercially speaking, a contract is an instrument that ‘can’ rather than should be used, because in practice, resorting to the law is an end-of-relationship process rather than a  basis for a mutually productive partnership…

The agreement to supply needs to include the total package – all terms and conditions, binding both parties. This up-front agreement can contain some ‘gun-to-head’ elements in that the customer, exploiting their size, can make it a condition that they will pay in 90 days for a product delivered daily.

Strictly speaking, this condition can be in compliance with current ‘pay-on-time’ legislation, but ignores the fact that the 90 days can be unreasonable where the customer experiences the value of the product within days of receipt on a rapid rotation line, and credit period was always meant to simply cover the gap between delivery and resale of a product.

In other words, the customer observes the letter of the law, as worded, and ignores the real issue, the need for payment within an appropriate-for-purpose time frame – the law patently needs modifying to make this more explicit.

The same holds for a retro-demand for additional cash, for whatever purpose. However, if the request applies to future dealing, then that becomes a basis for negotiation, however unfair the balance of power…

When a customer steps outside an agreement and imposes a new condition retrospectively, the supplier has a genuine grievance, and a basis for action, if a comprehensive written contract exists. It may still be unrealistic to expect a small supplier to take on a big customer. In fact the little guy may even  'knuckle under', with wise customers keeping in mind the possibility of the ‘don’t get mad, get even’ condition being invoked….

The real issue is the damage being done to the customer’s reputation for fair dealing, both with other suppliers, the legislature and current employees, and especially with the general public - the ultimate consumers - in times where abuse by big business is becoming an increasingly sensitive topic….

Additional details in The Telegraph here
Update in The Independent here

The pop-up store that will allow you to pay with 'social currency' instead of cash

                                                                                                                                           pic: Velcro

According to The Daily Mail, the Velcro Brand Holiday Hackshop has declared Monday, December 15, its 'Social Currency Day,' when customers can pay for select items with 'retweets, posts and more' in which the brand is mentioned. The company is hoping to get more followers on social media sites by running a holiday pop-up shop in lower Manhattan where customers are encouraged to post about their experience.

Velcro missing a trick?
In the excitement of combining pop-up shopping with social media optimisation and despite illustrating 19 different uses of Velcro in POS, the company might have capitalised on the creative potential and reach of their new audience by building in incentives to think up additional ways of using the product and crowd-sourcing ideas via the network…

Other NAMs missing a trick?
Think beyond adhesion to the process operating here and its potential as a way of stretching scarce promotional monies for your brand.

Go even further and think amplification of message, in the way that some major retailers optimised their dismantling of Sunday trading legislation, all those years ago.

As a reminder of the method, say a branch in Neasden decided to open on a single Sunday in breach of the legislation, and were promptly brought to court and fined £10k. The resulting media coverage was invariably worth in excess of £250k, advertising their role as ‘champions of the people’…

The authorities eventually saw the wisdom of acknowledging real-world consumer need by allowing 24/7 trading… 

Landlines giving a final boost to mobile usage?

According to the BBC, the major landline providers are raising their line rental charges to approximately £17 per month, three times the rate of inflation.

Ofcom figures confirm that while the number of residential lines has risen, this has been more than offset by a fall in the number of business lines.  However, call usage on landlines has fallen by 12.7% in the year to June 2014….

Given the increase in mobile usage, the ultimate move to user convenience, this makes the idea of having to be anchored to the home ‘to receive and make calls’ seem Neanderthal…

It seems obvious that any increase in landline installations is surely arising from a need to bring wifi to the household, a position increasingly under threat from mobile operators willing to develop a pricing model that ‘wifies’ a home at something less than £17 per month.

In other words, in the way that the Post Office price-increases & and postal strikes boosted the growth of fax machines, so too are price increases drawing attention to the increasing redundancy of that old fashioned telecommunications technology on the hall table… 

What if a supplier was running Tesco UK - as Dave Lewis takes charge of helping the consumer to buy...

As NAMs we have all stayed in hotels, supped in restaurants and bars and concluded that a NAM in charge would make a real difference.

Ditto with retailing

Given that much of our effort in front of the buyer is devoted to fighting the consumer’s corner, then perhaps with Dave Lewis’ decision to work ‘hands-on’, a NAM dream has been realised and we are entering a new era with Tesco?

Think about it:

As a brand marketer, Lewis’ starting point has to be consumption, in the home. This means that Tesco will at last acknowledge that the process starts with ensuring that the consumer’s needs as a consumer are met, in that the contents of the box are fit for purpose and exceed expectation.

The next step is to ensure that the product is made available wherever, whenever and however the consumer-shopper chooses to buy -  a multi-channel approach, writ large…

When it comes to bricks & mortar, 100% on-shelf availability is a given, with no excuses.
It follows that category-based in-store presence via aisle-based shopper-marketing will be made conducive to optimising repeat purchase, with theater to match…

This means 100% zero-defect delivery, all based upon sales-based demand and fulfilment.

That only works if the brands are purchased within a realistic competitive-set, with private label having its fair share, instead of being an over-faced passenger  ...and never forgetting that the guy in charge knows more about supply than Tesco could only dream about….

And patently, given the stock-market impact of the Tesco crisis, the financials have to stack up…

In other words, the next three months are going to make or break Dave Lewis, so I don’t mind betting he will give it his best shot, in the only way he knows…

NAMs and other retailers might well profit by taking a leaf from his new book, and attempting to turn around their entire approach to helping consumer-shoppers to buy, again and again and again and again…

Tesco's poetic response to a rhyming complaint

According to an article in Metro, Isabelle Bousquette, 20, and Tomi Baikie, 18, students at St Andrews university, wrote to Tesco after discovering their Tesco store in Fife no longer stocked salted Popcorn Sensations. They used the 'only language' they knew - a Shakespearean sonnet.

They were astonished to receive a Shakespearean sonnet in reply.

                                                                                                           pic: Facebook

Key learnings for NAMs:

• If Tesco still have a sense of humour after this Annus Horribilis, they are on the way back...
• They may be expecting NAMs to rise to new heights of creative endeavour in their 2015 trade strategies
• For our part, as an aide memoire for NAMs, we are looking into adding some rhyming couplets to our treatment of trade finance...
• (Don't hold your breath, writing poetry ain't for sissies....)