Category Archives: Multi channel

Is this the end of multichannel retail?

Jessops went into administration late last week at the cost of hundreds of jobs. According to administrator PWC on 11th January Jessops will close all 190 stores after discussions with suppliers made it clear that support for ongoing trading wasn’t there. This week there was similar news for HMV although it is hoped that a buyer can be found.Jessops appomts administrators

I have written before about Jessops, using them as an example of multichannel retail to question whether the model has a future. I hoped that it would have but wonder whether the failure of Jessops and HMV is a problem waiting to happen for other, niche retailers and in the longer term even more diverse retailers.

Let’s deal with the financials first. Jessops had its problems but last June reported rising revenues up 1.3% and earnings up nearly 30% on 2010. Online sales had risen nearly 80% and accounted for 32% of the business with 70% of online customers choosing to collect their purchases in store.

The problem is that despite agreeing a debt for equity swap with HSBC in 2009 (who at the time wrote off £34m and were still owed £30m at time of collapse) the company still serviced significant debt, estimated to be £80 million. In the last published accounts to 1st January 2012 the company recorded a loss of £909,000 and paid interest of £411,000. Interestingly, the profit before interest, non-recurring items, reversal of intercompany impairments and taxation for the period was £0.2 compaired with a loss in the previous period.

It also paid its 5 or 6 Directors £1,478,000 with the highest paid earning £408,000. This seems a lot given the profitability of the firm and even its relative size – just 190 stores and £236 million. Perhaps it is indicative of the market and Jessops needed to attract good people and in fact couldn’t hold on to Trevor Moore who resigned as CEO to join HMV in August 2012. (HMV also had huge debts as a result of private equity transactions and they were servicing an estimated £176.1m)

So, I could argue that if Jessops wasn’t saddled with debt, had a management team that it could afford and a little more time they could start to deliver a regular profit. But I’m not going to do that.

The music and film industry is particularly vulnerable and HMV’s own estimates were that by 2015 over 90% of music and film sales will be online. They were late to go online and diversification with acquisitions of online brands didn’t pay off. Much of their strategy was driven around getting out of the music and film business and with good reason.

Music and film are not products in the same way that a camera or washing machine is. The tire kicking part of the buying process doesn’t take place with the physical product and is driven by trailers, adverts and recommendations. As soon as broadband speeds reach the stage when they support streaming high-definition video everywhere, people will no longer need physical media at all – assuming the licensing rules are sorted out. So HMV faced a very different problem to Jessops and simply didn’t react quick enough.

Jessops sell a physical product and one sufficiently technical and complex that quite a lot of people want to look at it, pick it up, try it, touch it, literally get to grips with it. They need somewhere to do this but are not tied to purchase from the same place. In fact with the rise of mobile commerce price checking is taking place online often whilst in store. It places retailers with physical stores and the associated overheads at a huge disadvantage.

This is a challenge facing all retailers and I suspect most won’t know how much it is impacting them. They will know that sales are going online and that footfall or sales in store is reducing but trying to understand the relationship between the two is very difficult. Click and collect is all well and good but at some tipping point in the not too distant future online will outstrip retail by a sufficiently large margin that the store will in reality be a glorified warehouse and showroom.

What can retailers do about it? Here are a few suggestions:

  • Change the way they think about products: Jessops could have looked to the mobile phone industry and created propositions that built-in customer loyalty. Why couldn’t a camera be sold on contract over two years and bundled with tech support, a number of prints each month, storage for photo’s online and other parts of the proposition? Niche market shops should think differently about how they differentiate.
  • Brands to pay: Get brands to pay them for displaying their goods to offset the cost of the retail space. Not all brands are going to want to open showrooms and it will be inefficient for them to do so.
  • Measurement: Implement better multichannel measurement techniques so they can understand how hard the store asset is working for them.
  • Differentiate on experience: Retailers have the opportunity to create an experience because of their stores. This is rarely exploited to its fullest potential.

I think multichannel retail, and by this I mean online and offline as the main distinction, will survive but in the future the supply chain will be completely different. If retailers are going to survive they will need to look further ahead or suffer the same fate as HMV, Jessops and all the others that have closed.

Sainsbury’s moves away from HR and customer service

Back in July 2010, Sainsbury’s announced that it was scrapping the HR Director role and creating instead a single role that would encapsulate HR and Customer services. The new Customer Services & Colleague Director, in addition to having one of the longest business cards, would take responsibility for HR, customer services, sponsorship, corporate responsibility, and both corporate and internal communications. A huge role then, and massive undertaking that was described by Gwyn Burr, who was promoted from the role of customer service director, as “an opportunity for HR to become much more focused on strategic delivery”.

So, fast forward 30 months to the announcement that Burr will leave Sainsburys in March 2013 and that Angie Risley, current Lloyds Bank Group HRD will take over as Sainsbury’s Group HRD. It was clear from this announcement that this also signifies a demerger of the customer service and HR roles so should we conclude that the initiative failed?

It was only in 2004 that Sainsbury’s first created the position of Customer Service Director with Justin King, then and still CEO, bringing in ex-Asda colleague Gwyn Burr to the role. At the time he felt the customer service needed to be improved dramatically and although Burr sat on the Board she remained a contractor. She also held, and continues to hold, a number of non-Executive Director roles and whilst this isn’t unusual for board members perhaps in this case it indicates that the move was always temporary.

Certainly Sainsbury’s customer service has improved and they have now moved ahead of their rivals. With various initiatives over the past few years the retailer has tackled the causes of poor customer service with training and technology initiatives as well as better use of the web and the introduction of Click-and-Collect, which has been rolled out to more than 900 stores.

The evidence would suggest that we shouldn’t read into this latest announcement that the HR/Customer Service mash-up initiative has failed. Perhaps the greater focus on strategic delivery has worked and now Sainsbury’s is simply putting in place an organization structure that will keep it moving. We will certainly be watching with interest.

 

In defence of Morrisons

Yesterday, Mycustomer.com reported that retailers were losing millions because of poorly integrated touchpoints. It goes on to say many are playing catch-up and can’t understand why “retailers are allowing sub-standard websites to damage online sales opportunities”. Of course in an ideal world all major retailers would be investing in the digital channel but I think Morrisons has a defendable argument as to why they are late. I should say from the outset this is my analysis and I don’t have an inside track on what Morrisons is doing.

If you drive down the M5 between Bristol and Exeter you will see one reason why, in Morrisons case the website is not currently the centre of attention. They are investing £95million in a new regional distribution centre and the project is slightly behind. However, it is a very important project in support of allowing Morrisons to distribute nationally.

The group is also only half-way through an IT infrastructure roll out at an estimated cost of £310m. The project, called “Evolve” will be completed in 2013 and is a five year upgrade of virtually every system and process the business has. The upgrade will support the groups planned expansion to 600 stores whilst saving support costs and providing operational benefits and efficiencies. Back in 2004 Morrisons also paid £3.35bn to acquire Safeway and has some problems integrating the 327 stores and IT systems into its own.

Also, Morrisons only announced that it would have a go at online sales in 2010 and even then was cautious because of keeping costs under control. Recent news compared Morrisons to the sales Tesco and Sainsburys are achieving online but that hardly seems fair given Tesco’s was the worlds first online grocer and Sainsbury started online in 1998. Having said that, the recent acquisition of a 10% stake in FreshDirect is designed to accelerate the groups knowledge of how to run an online business. They will actually get a seat on the board and the ability to learn about the systems and processes FreshDirect has. They also announced the acquisition of Kiddicare back in February who is an online retailer of cots, nappies and push-chairs.

8th September, Morrisons announced its interim results for the half year to 31st July 2011. Although Morrisons financial performance is good, they can only do so much. Revenue is up as was PBT (to £449m for the period) and cashflow was £667m, £97m up on the previous period but with higher outflows due to capital expenditure. They have also initiated the first phase of the planned £1bn equity retirement. As a result debt grew £238m to £1,055m but they do have a £1.26bn revolving credit facility available until 2016 and with £494m not drawn down.

Can they also invest in a major multi-channel, integrated customer experience programme? I would argue they already are by getting solid building blocks in place both in terms of systems and knowledge. This will put them in a very good position to accelerate development of mobile channels and possibly even overtake some of the competition.

I haven’t bought a news paper in years but I buy The Times daily

I am now totally convinced that digital publications will be the salvation of the news print industry. I haven’t paid for a paper in years but now read The Times every day on my iPad and have subscribed to the digital package that offers web access plus The Times and Sunday Times for £2 per week.

The secret to sustainability by consumers comes from a change in habits because of your product or service and The Times iPad addition has definitely achieved that. My morning routine has now been adapted to ensure that my daily “paper” has been downloaded and the pictures are available for my commute.

Apple iPad – the latest business tool

I suppose like most people who work in the related industries, I have been having lots of conversations and thoughts about the iPad recently. Nearly all of them have ended with two conclusions: That the iPad is game changing (something I have not always agreed with); and no-one is really sure how. Well now I am convinced and I think I do know how.

The “not sure” conversations have all looked for applications around the home. I have seen people sat on the train with tip toes trying to type on the iPad and that is definitely not the way forward. So if the input nature of it is weak then the home applications relate to it becoming  a coffee-table device for looking at photos, social media, maps, websites etc. All these I suspect will be true but the biggest application for the iPad I believe will now be as a business tool.

Two weeks ago, the Economist reported that a company, whose head office was located in Bermuda, had rolled out iPad’s to 500 senior managers globally with the primary purpose of enabling them to view the monthly management information pack. Previously, this monthly pack of four inches of freshly printed paper was couriered around the world to each of the managers. It was reported that the company saved the cost of the iPad’s in the first month alone, although it is hard to see that precisely, but savings in a short cycle are certainly achievable.

A large media company in the UK has gone down a similar route issuing iPad’s to its key managers although the purpose at this stage is not clear. They have many online properties and spend a substantial amount of time reviewing them so this alone might provide the purpose. And these two examples are enough to convince me that the iPad will become an important business tool.

Add to these the ability of the iPad to do, what many, myself included have been sceptical about, replace books and magazines because of it’s own “feel” and I think it will be prolific. When I look in my own bag and I see that I am carrying the Economist, New Media Age, Revolution and Management Today plus a book and company papers. Replacing these for a single, lighter device is certainly desirable and if their iPad versions (if and when they arrive) are anything as good as The Times (well done Applied Works) I will have no hesitation but to put my luddite ways behind me and go digital for my reading.

Have Starbucks broken the code or solved the puzzle?

Photo of Howard Schultz - Starbucks CEO
No wonder he’s smiling

So we can all rest easy now that Starbucks have managed the “crack the customer experience code”. This was reported across the “wire” after Starbucks CEO, Chairman and President Howard Schultz reported record earnings and explained that Starbucks had lost its way and would rediscover its “laser like focus on customer experience”. In fact the code cracking report wasn’t quite true and what Schultz actually said was that they have been able to “crack the code at creating and environment where people are treated well, they’re respected and they’re valued” as Carmine Gallo reported for Business Week.

I like what Schultz has to say and he certainly comes across as a man who is passionate about what he believes in which in essence is that if you get the staff environment right you can get the customer experience right. I believe the staff element is a contributing and potentially critical component of the customer experience but there is more to it than that.  I am not sure that you can really crack the code of customer experience or even that there is a code to crack.

The code analogy is a useful starting point when thinking about how to discover the solution for providing a differentiated customer experience but in fact we need to move on to puzzles quite quickly. A code is a secret language designed to hide the meaning of a message and I am not sure that the mystical secrets of customer experience have been deliberately or unconsciously hidden from us. More likely this is a puzzle where all the pieces are visible and known and our challenge is to get them in the right combination in order to reach the solution. For this we need a vision of what the end should look like so that we can started fitting together the pieces.

Schultz certainly understands a key piece and that is that front-line staff are the brand in human form.  He also talks about the need for theatre and this is further investigated by two previous Starbucks marketeers in the blog “Brand Autopsy”. The post I link to here describes in detail the internal issues surrounding espresso machine selection as it would seem Starbucks have selected a semi-automatic machine for stores that need high through-put and manual machines for those where the pace is slower. The rationale for the selection by Starbucks besides speed is that the semi-automatic machine would provide the Barista with more time to interact with the people because they would be spending less time making coffee.

The blog authors draw the wrong conclusion to me when they say that the automatic machine would not “detract from the customer’s experience because their experience is based upon the need for speed. I don’t agree with this and also don’t think it reflects Schultz view of the world. If speed is the only differentiating factor then it is going to be short lived as anyone can make a fast espresso when it is the machine doing the work. Surely the need for theatre exists in every Starbucks and long run shareholder value is not created by building a brand that is based on volume in what is the epitome of the experiential industry?

The business model seems to me to rely to heavily on staffing with low skilled and low salaried people. If you analyse the earnings report the revenue growth is marginal and the operating margin is up due to costs savings from stores closed in 2008 (100 in the US) vs. store openings in the US of 53 in 2009. Internationally store openings are up year on year but references to “in-store labor efficiencies” in the earnings report that have driven costs savings in store operating expenses do not point to an experience rich strategy.

There are examples of this low cost staffing model working, say at ASDA in the UK, but the recruitment strategy is fundamental.  ASDA use assessment centres to select store staff and they were the first and I believe are still the only grocer to do this. Expensive yes, needing of time and energy also yes but they get staff that like people. David Smith, formerly Director of People at ASDA is writing a book on the subject and spoke about his experiences at this years CIPD annual conference and how ASDA transformed the way they selected their people.

Another code breaker that brings the brand dimension to the argument is Lois Boyle who wrote in 2007 about “cracking the multi-channel code: The Brand Experience“. Her explanation of how brands create a differentiated and personalised experience I particularly like. You do this, Boyle says, “by creating a differentiated brand that can be translated into meaningful benefit and then delivered in an engaging experience that will connect with the hearts of customers and prospects” and goes on to explain that this is a process that “must be defined and managed”.

Too often the creation of a differentiated customer experience is

CScape Customer Engagement Report is out

The 4th annual customer engagement report has been published by CScape and I was privileged to be asked to contribute to the report by Richard Sedley, the director of the Customer Engagement Unit. The report can be downloaded from EConsultancy’s website and is free to members and £150 for non-members. A “highlights” report of the key findings can be read at Issuu.

Electronic book readers

Sooner or later any, and probably every blogger, will pull out a reference to the Gutenberg press. Now it’s my turn. The Gutenberg press was probably the single most important invention in modern times. It came on to the scene in about 1440 and by 1499 approximately 15 million books had been printed across some 3,000 titles. The development of the world wide web comes close and has had a similar dramatic impact on the distribution of knowledge to the masses. Not so, however the electronic book reader.

Kindle was launched in 2007 and on August 25th, as reported by various publications including the Economist, Sony has launched their latest challenger. In the same article it is also reported that “according to some estimates more people use Apple’s iphone to read digital texts than use Kindle”. To me this is no surprise and is the classic single function product problem.

It is as if electronic book readers have been developed by book lovers rather than technology companies. For the same reason the born digital generation don’t wear watches (their mobile phones provide them with the time as well as a range of other functions) they also won’t buy ebook readers. They may well come to buy a device that reads eBooks in an accessible and pleasurable way but also plays audio and video files, store photos, accesses the internet, tells the time and various other tasks but that appears not to be what eBook reader manufactures are producing.

The Gutenberg press created the opportunity to share all the information in the world in the best format available at the time. It happened to be a single function device – printed material. Today’s information requirements are far broader and the sooner eBook reader manufacturers realise they are competing with mobile phones, mini laptops, internet watches, and a whole host of other wearable and static technologies the sooner the consumer will start parting with their cash.

The World is Flat (ish)

I am on holiday this week and right now I am sat pool side in the beautiful Tenerife resort of Los Gigantes. As usual I am trying to read a book, a page at a time, as I juggle the (not entirely unreasonable) demands of my three children with my own needs. The book I am reading is by three time Pulitzer Prize winner Thomas L. Friedman titled “The World is Flat”.

It is an excellent book and even though I am only half way through I have found it thought provoking and informative. It is a must read for anyone in business now, whether large or small. My only reservation is that in many ways the book is ahead of its time – despite the various current and historical examples and case studies.

As I write, the third day of the fifth Ashes test is about to get under way. Last night England bowled Australia out for 160. In an ideal world, I’d like to log in to my Sky Player and watch the 3rd day unfold – but I can’t. The licensing laws apparently won’t allow it so despite paying my monthly subscription, Sky is getting two weeks of my money for very little service delivery. In a truly flat world I would be able to access any of my entertainment services wherever I am and when ever I want to.

One of the stories in the book is about Friedman’s daughter searching addresses through Google by using phone numbers and considering her Mum to be almost backward when she asks if she has brought an address book. That was 2004 and I wonder now what would be the expectations of her and other teenagers like her?

I am far from being a teenager and I am already impatient for a flatter world. I am having to type this blog post in open office writer and then copy and paste it in to the blog because the Internet connection is so unstable. Even if it were stable I still couldn’t do what I want to and access my paid for entertainment.

The world may well be flat if you are UPS, Google or Infosys, but if you are an individual there are still quite a few bumps in the road. Having said that, the fact I can sit here, pool side on my laptop and access the Internet at all, is a world away from just a few years ago. In another 5 years I would expect the connections issues to be a thing of the past. Licensing however, is a political issue that won’t go away any time soon.