Tag Archives: Jessops

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.

How can we save Jessops?

1888 Kodak camera
It will never last...

I was speaking with David Pickering, CEO of Charteris at a breakfast briefing recently when the subject of Jessops came up. We both agreed that we didn’t want Jessops to go out of business as we found their stores a really useful source of advice and information but were equally worried about how they would survive given the financial performance they had been experiencing [when we spoke]. So yesterday when I read that Bloomberg reported Jessops losses had widened my concern increased and I decided to carry out some desk research of my own.

Sales in store have fallen 11% in the past three weeks. That is not that surprising when you consider the prevailing market conditions and gross profit percentage is up. A year ago the company announced that it would close 81 stores, 31 of which were loss making and with these changes in place the company still expects to report improved EBITDA figures on last year. A big problem however is the level of debt they need to service. Borrowings are at £52.26m and although they managed to restructure the debt with HSBC they will have to make a payment against the £49m of senior by spring next year according to FT.com. Even a year ago Jessops was being referred to as a ‘Private Equity Disaster‘ although despite the results Chief Executive David Adams is optimistic about the future.

So they have a lot of big problems and have taken extreme measures to cut costs and do the normal things companies do when they are going slowly down the toilet. But in my view, they are still worth saving. Why? Because they are one of the few high street retailers that are truly specialist. If you visit Jessops and you are interested in photography you will be met by employees who on the whole are passionate about photography and happy to spend time with you helping you. The problem is this doesn’t make you any money when the product has become commoditised and online competition is fierce. And it is this, the multi-channel elements of their retail strategy that in my view they get most wrong.

On Saturday I tried to do my bit to save Jessops. I had 3 digital photos to print: two 10″ x 12″ and one 7″ x 5″. Online, including delivery in 24 hours (which is real as I have used photobox before) the price £4.09. At Jessops each of the large photos was over £4 (the 3 day services £3.49 and 1 hour £6.99). These prices are available on the website as the link in the last sentence indicates.

On the same website I can link to Snapfish, Jessops online photo business and be offerd an 8″ x 10″ print for £1.25. Snapfish is in fact an HP business and the arrangement with Jessops has existed since 2006. Jessops have actually done something quite innovative by connecting the web with stores and providing a ‘reserve and collect’ services. The problem is the pricing and also the lack of specialism. Why would you pay a premium to order one day and pick up in store when it is cheaper to order and have a home delivery where they have no differentiation?

The website is completely “off” brand experience. There is no content beyond products for sale. If you type ‘advice’ in the site search you get a message that “nothing was found matching your search criteria”. The only link with the store are the prices of products or so it would seem. In fact when I navigated to the photos tab and then once in selected ‘photos home’ I was presented with a range of specialist in-store services. The usability of the website surrounding this content is so poor however that I can’t believe many find it. Interestingly there is listed here a further service that I have experience of.

I wanted my wedding video transferred from VHS to DVD. I went to Jessops (another opportunity to save them) and was told by the incredibly helpful and knowledgeable assistant that a store round the corner did it and Jessops didn’t. Thanks I said and took my £40 round the corner. According to the website this is a specialist service provided in store and a further demonstration of multi-channel strategy being poorly implemented.

Nor is the website well marketed and I wonder if this is an indication that where online is concerned, Jessops are not expansive in their thinking about what business they are in. If you search for “photography” in Google.co.uk, Jessops don’t appear on the first page at all. Changing the search phrase to “camera” and they come second in natural search, but have no paid for advertising. It is no coincidence that there is no photography content on the site.

In 2007, when commenting about the cuts Jessops were making David Adams, said: “The strategy allows us to re-position Jessops as a true multi-channel retailer, building on our core strengths in the digital imaging market place.”

It appears to me they have precious little strength in the digital imaging space and are not a multi-channel retailer. For sure they have multiple channels but they may as well be two separate businesses. I want to save Jessops but as a consumer I am struggling to work out what I can do to keep them alive.