Category Archives: Economy

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.

Rooney and Wilshere’s Nike advertising on Twitter banned

The future of Twitter advertising was thrown into turmoil today by the ASA’s action banning the campaign by Nike. The BBC covered the story earlier today and explained that the ASA were unhappy that Rooney and Wilshere had promoted Nike without it being explicit that it was advertising. http://www.bbc.co.uk/news/technology-18517668

I think you have to be a pretty stupid sports fan given the state of sports media advertising and sponsorship to believe that Rooney and Wilshere love Nike so much that they are going to mention them on Twitter without it being part of a sponsorship agreement. It was hardly a sophisticated ploy to dupe the public and I have heard far worse. For example, bogus fan accounts being set up to ask a player what boots he wears and thereby allowing the athlete to reply subtly promoting his sponsor.

The pace of change in sports social media and social media advertising is such that authorities will struggle to keep up. Without a sophisticated knowledge of social media advertising they stand little chance understanding the way it is being used for promotional purposes and run the risk of driving it underground. Perhaps the solution is from new social media platforms that focus on the specific vertical markets such as sports which is the domain of JockTalk.

JockTalk is a sports social media platform for true fans and athletes that publishes to Twitter, Facebook and other social sites and enables athletes to monetise the content they are creating in a legitimate way. For many, they share all or part of the advertising revenue they earn with the good causes they support as the platform is set up to do this as a direct request from athletes – they’re not all bad!

That said, athletes can still promote sponsors and brands through the content they publish on JockTalk and you only have to look at Spanish footballer Iniesta to see that this is the way sports social is going. Iniesta has million’s of followers and promotes to them all the time but often no more subtly that Rooney and Wilshere. New rules are needed for a new world where sports social media is breaking down previously unknown boundaries.

 

The evolution of Sports Social Media

I was recently invited to get involved with a social media start-up called JockTalk (www.jocktalk.com). I am a bit of a cynic when it comes to new social media ventures because I am the type of person who likes the ones I use and use the ones I like and that keeps the paying field small – mainly LinkedIn, Twitter and Facebook (a bit and mainly for the kids). However, the more I heard about JockTalk the more convinced I became that this is the future of sports social media.

Photo of stage at DEMO12

There are a number of social media plays trying to fix the “monetisation of Twitter” problem and JockTalk certainly addresses this opportunity. A revenue share with athletes means that the content created can be monetised through ad revenue. However, what is really great about JockTalk is the level of fan engagement built-in. It is obvious when you get under the hood, that athletes have been involved in scoping it because each feature fulfils a flaw in the way Twitter supports fan:athlete engagement. There is a Q&A section, athletes can rank top fans and the platform publishes to Twitter and Facebook so it doesn’t require a massive behavioural change for athletes and fans to get involved.

What I most like about JockTalk is that it is designed to deal with all sports. As a fan this is crucial because like many fans, I enjoy multiple sports. I don’t want to go to a different social media platform for each set of athletes (soccer, Rugby, Baseball, Cricket etc.) I want to be able to put all my sport in one place. As a Twitter user with two profiles – one work and one social I already have compartmentalised my business Tweeting from my sports Tweeting and so JockTalk allows me to enhance this even further. The site is in Beta but you can take a peek here: https://beta.jocktalk.com

The team is presenting at DEMO12 this week and I can’t wait to see the feedback. It is often said that the simplest things are the most effective and JockTalk’s simplicity and power are sure to be a hit.

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

Bob Cialdini and the science of Persuasion

Last night, 4th March 2009, I was fortunate enough to be invited by the Chatered Institute of Management to attend an “Influence Masterclass” being given by Bob Cialdini at the Royal Society of Physicians and sponsored by the UK Commission for Employment and Skills (UKCES). To explain why the UKCES had decided to invest tax payers money on a subject with such tenuous connections to its goals, Chris Humphries the current CEO took the podium.

Chris Humphries’ presentation focused on how far the UK is likely to fall behind the rest of the OECD (organisation of economic co-operation and development) over the next 10 or so years in areas such as employment and productivity. He showed how the UK was becoming a nation of haves and have nots with the South East for example having high employment and productivity but the North of England possessing neither. The audience was too polite to point out we were performaning better than his homeland of Australia!

The answer is to train our people more often and more effectively and his hope was that if people with training needs for themselves or their teams could learn how to influence and persuade budget holders better we would be more likely to achieve those goals. A worthy goal but for anyone who had read either one of Cialdini’s books on the subject of persuasion they would have already known there would be little to go on.

Once you get over the fixed facial expression and nasal American accent, Cialdini delivers a good presentation. Whilst there was little different from the research described in his books, he brought the examples to life and his stories and anecdotes meant I left able to share some of the learning with colleagues quite easily.

Cialdini focused the presentation on three of his six principles of “Ethical Influence”. The six are:

  1. Reciprocity – if you do something for someone they will do something for you; but you have to offer up first.
  2. Scarcity – something increases in value if it is shown to be scarce or rare
  3. Authority – people are convinced more easily by people they see as authority figures.
  4. Consistency – if someone publicly commits to something they are more likely to stick with that idea
  5. Consensus – People are more likely to be influenced by similar actions of a group of their peers
  6. Liking – no surprise here, but people are more easily influenced by people they like

We heard a little about each area and in depth about scarcity, authority and consensus. The area of authority was really interesting and the use of the word “but” was revealed as crucial for establishing trust. Cialdini explained that most people in a pitch when trying to get their point of view across, front end the benefits and then, to establish that they are honest, throw in a couple of limitations at the end. For example I might say that Foviance is a world leader in usability and customer experience consulting ‘but’ we don’t do graphic design.

Cialdini argues that people will only hear and retain the information after the ‘but’ and that all we have to do is switch the order  of what we say to be more compelling. So, what I should say is “Foviance doesn’t do graphic design, ‘but’ we are world leaders in usability and customer experience consulting. In order to be an authority that you are likely to believe when I say this, I can improve my chances by having a colleague introduce me and say a little about my credentials. What Cialdini is quick to observe is that his techniques only work where there are genuine arguments and honest benefits, ‘but’ you can’t have everything can you.

Coremetrics redundancy news

Word on the street is that Coremetrics has made a bunch or people redundant. Redundancies include sales, sales management and senior management. The reasons given relate to the Board’s desire to stop the company burning the cash (it raised $60m last year) and achieve run rate profitability.

As a web analytics software provider that relies heavily on the retail sector this is perhaps no big surprise. They have been trying to break in to other sectors but success has been limited. Enterprise software sales is a long game and the recession could not have come at a worse time for them I would think. Combine that with Omniture’s move in to the retail space and they could be facing more tough times ahead.

Talking recently to colleagues in the US they don’t seem to have the impact from the recession that the UK has but they are waiting and watching. This is certainly reflected in Coremetrics press release yesterday that the market is unpredictable. They had huge growth in Europe last year and a couple of non-retail wins including BBC Worldwide and Alliance & Leicester. Not sure it will be enough. I feel some M&A activity is ahead!

Shanghai #2 November 2008

There was nothing across the river 15 years ago
There was nothing across the river 15 years ago

One of the first things you notice on the drive in from Shanghai’s international airport is the number of VW and Ford motor cars on the road and very few other brands. VW’s are locally made and servicing & repairs are easier as parts are available – a valuable facility given the negligible use of indicators or concern for other motorists (or indeed passengers as far as taxi’s were concerned). “The Chinese manoeuvre, signal and then mirror” my local contact tells me. As a result nearly all the local taxi’s are VW and despite the economic downturn there are a lot of them with a typical fare costing less that a decent Latte in London.

In the papers Tuesday morning the two major stories were the US bail out of Citibank to the tune of $25b and the Chinese government’s rescue of the bean producers. The price has dropped so far that local farmers may stop planting which could lead to shortages down the line. Ironically, US bean growers stand to gain as imports will have to rise – an unsatisfactory outcome which at least everyone agrees on. The difference in the measures taken illustrates perfectly the wide variation in issues caused by the economic downturn although building work doesn’t seem to have abated. The entire city looks like one big building site and the pace of change is phenomenal. I was told that 15 years ago there were no buildings on the other side of the river. Now it is home to some of the most breathtaking skyscrapers in the world.

I am in Shanghai on business representing one of our customers in the mobile, or should I say ‘cell’ phone sector. Is the UK the only region to continue refer to these devices as mobile rather than cell? We seem never to have got it right and I remember getting my first ‘car-phone’ back in early 90’s! Maybe one day we will finally catch up.

The research is interesting on a number of levels and not least because our client has asked us to test a prototype device that uses a different input mechanism. Radical design and risk taking are seldom seen in the mobile arena and since the launch of the iphone everyone seems to have become a follower. A radical departure this may not be but at east it is challenging current thinking which can only be a good thing.

Of great interest was the market and perception differences between what in the west we are told about the Asian market, and what is in fact the reality. Connectivity for calls and text messaging was a big issue. 3G is an aspiration for most of the people I heard talking – who ranged from people working in Financial services to Teachers. The service delivery was a constant feature of the conversation and clearly there are issues with local providers. Although I experienced excellent connectivity via my Blackberry for email and picture messaging it seemed that none of the research participants had the capability or if they did, they didn’t use it.

Where Shanghai and London are similar is in the impact the economic slowdown is having on the sector. I heard plenty of stories of budget cuts, projects being delayed and a general concern over the medium term future. However, out to dinner at one of the nicer Chinese restaurants on Monday night I noticed there were more Westerners dining than Asians. Economic slowdown there may be, but Shanghai still offers plenty of opportunity and it isn’t just the local businesses that are making the most of it.

My visit to Shanghai #1

This is a short post because I am writing it on my blackberry. The reason is that the Chinese authorities appear to block wordpress access over the internet but do not via mobile internet. The same is true of twitter and various other websites I use regularly at home but cannot access here.
Ironically, the reason for my visit is to observe some mobile (cell) phone user groups. None of the participants so far use mobile Internet although all bar one would like to. There use is mainly texting with aspirations to watch TV on the bus and subway.
I wonder if mobile internet could offer freedom from the government restrictions placed on accessing certain content? My colleague described the control as being over “one big pipe” that comes in to China. If the same control does not exist over mobile the next 10 years could see a cultural revolution of a different kind.

Salary details published online

Glassdoor.com is the brain-child of Robert Hohman (ex President Hotwire), Rich Barton (founder of Expedia) and Tim Besse (also ex Expedia). The website launched in late August following beta trials and inception earlier in the year. The idea emerged in the summer of 2007 after the founders wondered what would happen if someone left an entire company employee survey on a printer and it got posted to the web. The initial idea expanded and the website now offers three things – for free!

The first is that it provides detailed company reviews that encourage employees to highlight the pros and cons of working for a firm with advice for senior management. Perhaps the dichotomy between criticising the company you work for with the potential to damage your own market value vs. the desire to ‘offload’ keeps the feedback honest. Whatever the motivation I didn’t read many ‘hotheaded’ reviews and I really like this idea as it has the potential to provide a canny employer with a no holds barred, finger on the pulse insight in to what employees really think about the company management and strategy at a grass routes level. If not the actual strategy then at least the employees perception of what the strategy is which is perhaps more important feedback.

The second is Employee ratings on workplace factors and leadership. The website asks employees to rate their employee against a range of criteria such as work life balance, benefits and more. They are also requested to provide a CEO approval rating which is shown as a score.

Finally, and perhaps the ‘killer’ piece of the website is that it provides real time salary information by company and by title. So I can see for example, that a Senior Consultant at Deloitte has an average salary of $95,723 and a Senior Manager a salary of £162,140. Quite useful to both employee and employer.

The fact that all the information comes from real employees is the crucial point of differentiation for the website. It is free to use and all the information is ‘anonymised’ so there is no fear of your employer finding out if you say something less than complimentary about them.  It is pure genius and surely it won’t be long before it is integrated with job listing sites to give an extra dimension to a recruitment decision.

The use of a “Wisdom of the crowd” approach in business is becoming increasingly documented – I reviewed Gary Hamel’s book ‘The future of Management’ recently and the theme is used as the basis for his ideas. Perhaps the Glassdoor provides a legitimate opportunity for crowd insight toward a companies strategy. I suspect however it will be a while before employers actually use it as they will no doubt dismiss it as only a report on the extremes.

Branded Utility

In last weeks NMA (09/10/08), Mike Nutley wrote under the heading “the cost of success is keeping it going”. He was referring to organisations, such as Nike, that create campaigns such as Nike+ and then get either lumbered with the ongoing running costs or risk disenfranchising a large group of their potentially, most loyal supporters. He credited Paul Dawson of Conchango with referring to the phenomena as “branded utility”.

Nike+ has been enormously successful attracting thousands of runners and creating a community which supports them. The problem is that once created, the community needs to be supported or it will die. The cost of the support restricts the brands from developing the next big idea and this is where the problem lies, according to Nutley.

This seems like a crazy situation to me and it is hard to believe of Nike. Nike’s mission is “to bring inspiration and innovation to every athlete in the world”. They define an athlete as follows: “If you have a body, you are an athlete.” Nike has already gone beyond being a sports apparel brand and has created a vision beyond this. If they do suffer this problem then it can only exist because the ongoing running costs are treated as a campaign when they should, in my view, be treated as a cost of sales.

Assuming the campaign adds value to the brand (and if it doesn’t it should probably be canned) it should be possible to calculate the ROI from the ongoing activity. What started out as a campaign is now clearly a product or service extension. They have created a brand that is more to consumers than just that of a product manufacturer. That comes at a cost, but also presents significant opportunities if thought about differently.

I think the point Nutley makes is a good one and I would be fascinated to understand if Nike really suffer from this issue. It is easy to believe that their are major brands operating without a clear view of their offering or who feel they should jump on the engagement band wagon and have created a monster that is now consuming them – or at least their budget. My suggestion of treating these campaigns as products, with a P&L and ROI contribution means they also benefit from being viewed against a lifecycle. This will assist the business with investment decisions and provide a management framework that is already familiar.