Monthly Archives: January 2013

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.