Tag Archives: multichannel customer experience

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.

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.