Tag Archives: Retail

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.

Will online sales benefit from high oil prices?

The Economist this week (The Economist July 12th 2008 ) reported that driving behaviour had changed as a result of higher fuel prices. Garages report that there has been a 5-10% drop in in fuel sales and this is as a result of fuel prices rising at their highest rate ever in June. The Economist also reports on data from Footfall, a research firm that tracks customer numbers, that indicates visits to out of town shops have fallen and at a higher rate than the drop in visits to town centres.The suggestion is that consumer behaviour is altering as a result of fuel price inflation.

At the same time Internet Retailing, an online retail website, reported increased sales to online grocery websites. Value retailers have experienced growth of between 30 to 40% in the four weeks to June 7th and visitor numbers for both Morrisons and Asda were up by more than 48% for the 3 months March to May 2008.

Meanwhile on June 30th 2008, ASOS, the UK’s largest online retail store attracting over 1 million visitors per week, were reported by Retail Exec, an online publication aimed at Retail Executives, to have achieved a 90% increase in revenues to £81 million and post pre-tax profits of £7.3 million up £3.4 million on last year.

I was asked to contribute to a book recently called “winners and losers in a troubled economy” and to offer my views on whether ‘online’ would be effected by an economic downturn. The answer to me is clear: Not if executives take on board the data available to them about changing consumer behaviour and the benefits the online channel offers. Having done so, they need to determine to make their online property best of breed.

Not everyone will do this of course and it is easy to predict that in 18 months time when the down turn is becoming a recovery there will be a number of high profile casualties that did not make the right investment decisions and were not able to maximise the opportunity that a down turn presented to their business.

We have all learned over the past decade or so, sometimes painfully, that the Internet is not the answer to all of our problems. However, where the case is dropping high street sales due to altering consumer behaviour as a direct result of high fuel prices there does seem to be a strong positive correlation and maybe this time, it is.