The title of this blog is taken from a song delivered by that hoary old crooner Frank Sinatra. I was reminded of it recently when reading about the continuing developments within Amazon with regard to their work on mobile air deliveries i.e. drones. Its more technical term is the use of Unmanned Aerial vehicles (UAV’s).

Within the United Kingdom Amazon received clearance from the UK government and the Civil Aviation Authority to test out the use of drones as a mechanism for delivering items to its customer base. The overall aim of Amazon is to be in a position to deliver parcels within thirty minutes of the placement and payment of an order.

The permission is contingent on a number of restrictions; most of which are obvious and focus on issues of health and safety. These include the avoidance of obstacles and flight patterns and how they are operated. The basic idea was proposed by Amazon as far back as 2013 and it has been working on the concept ever since.

What is the specific value proposition?

Amazon is striving to develop drones that are capable of delivering a parcel of up to 25kg in weight over a distance of around ten miles. This could be to the home, office or a specific designated pick-up location (depending on the preference of the shopper and safety concerns)). In essence it takes the concept of mobile delivery to a new level. Up to now, retailers have experimented with conventional transport modes such as lorries, vans, motor bikes, bicycles and walking to the location. Taking to the air is seen as a potential game-changer in terms of speeding up the process of delivery. It also potentially overcomes the challenges of driving to the destination via potentially horrendous traffic jams and congestion experienced in many of the major cities and centres of high urban population.

How practical and achievable is this development?

In terms of health and safety for instance it doesn’t cause any potential difficulties in terms of collisions with planes: the UAV’s do not fly above 400 ft. However there are some practical issues to be overcome.

Current legislation within the UK means that such drones cannot be flown within 50 metres of a vehicle, person or building. It has to remain in line of sight and within 500 metres of the pilot.

How do you deliver to customers who live on the tenth floor of an apartment block?

In terms of customer service it could be argued that it is the essence of low –touch; indeed non-touch. The customer does not meet or is not greeted by a representative of the retailer, nor is there a friendly smile or tangible reassurance if there are errors with the delivery.

On a more practical level is there any evident demand from shoppers for such a service?

As I have noted in the book, the problem with mobile marketing is that there is an ever-present danger that companies can abuse their strong position (from having so much data on the individual’s shopping patterns) that they invade people’s privacy. Imagine a scenario where you have stepped out of your shower and are caught by a UAV passing by as you look out the window.

Do most people expect or want deliveries within thirty minutes? Will the sky be swamped by hundreds of drones flying this way and that way to deliver and drop parcels?

The short answer is that I don’t know. As a shopper such activities are likely to irritate me and as long as I have a firm indication of the delivery period then it is unlikely that I would want my weekly Tesco shop to arrive within thirty minutes.

From a more cynical perspective is this typical of companies who become obsessed technology and allow their research “boffins” to play around with very innovative but ultimately irrelevant designs? A classic case of being “R&D-led” as opposed to being “customer-led”?

Other practical considerations come into play. The nature of the items to be carried via such UAV’s is very restrictive. For instance it cannot carry “white good” items such as refrigerators or cookers.

However the concept is viable in terms of technology: currently Amazon is partnering with appropriate organisations who specialise in this field at a location outside Cambridge (a technology hub). The vast majority of items stocked by Amazon are less than 5 lbs in weight. In a sign that there must be something substantial behind the concept, companies such as Google, Flirty and Wal-Mart have also applied to US regulators for permission to engage in similar testing procedures to that of Amazon.

Amazon have actually been beaten to the punch by Seven Eleven. This retailer recently used a drone to deliver a customer order in Reno, Nevada (to a customer located within one mile of the store).

What are we to make of it all? Science fiction gone wrong? A logical incremental development in mobile technology? The face of the future? The lunatics taking over the asylum?

Firstly we can assume that governments will adopt a very cautious and risk-averse approach to the granting of licenses for the use of UAV’s. This will be driven by the ever-increasing risk of terrorism activities that are happening in many parts of the world. Sadly the concept of using drones is something that fits into the plans of terrorists in order to disrupt 9at best) or cause material damage (at worst). It is highly unlikely that we shall see hundreds of drones clogging up the lower air space and resembling conventional traffic congestion.

Secondly I presume that there will be a premium price for the use of such services – particularly if there are such major restrictions on the use of drones.

Thirdly it is more likely in my view that instead of delivering to the home or the office (and if permission is granted) retailers like Amazon will deliver to a designated and secure landing zone at a “drop-off / pick-up” point. Such a facility is likely to resemble a warehouse type construction and the shopper will have to make his / her way there to pick up the item. In some ways this defeats the original proposition of being able to deliver to the customer within thirty minutes. It also adds a layer of complexity to the proposition.

Fourthly practical issues such as hi-jacking (people re-directing the drones to another site or taking down a drone) would have to be fully tested in order to eliminate / reduce such risks.

Fifthly while it could be argued by idealistic environmentalists that it may reduce the number of vans and motor bikes in congested areas, this is unlikely to happen in the foreseeable future. It could equally be argued that this development simply transfers such congestion to the air.

Finally it can be argued that the use of drones would be better served in the context of inventory and warehouse management within the supply chains of companies in general and retailers in particular. Imagine the benefits that could accrue from the speedier and more accurate movement of inventory around a warehouse or distribution centre. This could to real efficiencies and savings for the company. This could be passed on (unlikely perhaps in its entirety) in the form of lower prices to the shopper.

It will be interesting to see what happens over the next couple of years.

Fly me to the moon

 Let me play among the stars

 Let me see what spring is like on

           Jupiter and Mars…………

La La La La La La La La……..

Recent developments and travails at Burberry raised a number of thoughts and questions in my mind about the role of the CEO is shaping and developing the direction of a company or organisation.

First by way of background are some details about Burberry.

The company was established in the UK in the middle of the nineteenth century and over the years and decades became established as the traditional face of luxury UK fashion. With its eponymous trench coats and distinctive styling. It opened its first store in central London in 1891. In more recent times it has become a global retailers with a number of different routes to market such as branded stores, franchises and concessions in many of the main cities.

It also benefits from a Royal Warrant issued by the Queen. This is an extremely important marketing tool as it reinforces the concept of luxury and has the official approval of a critical organisation which influences and shapes some people’s perspective of aspiration and exclusivity.

In the past couple of decades Burberry had experience a number of “highs and lows”. In the latter case it bore the brunt of much fun and humour as it attracted the attention of counterfeit operators who sold the traditional check garments for very low prices on market stalls. Many of the so-called “chav” celebrities were also to be seen wearing Burberry. This issue was addressed over a period of time by reducing the check appearance on many of the items and focusing instead on factors such as quality, style and positioning.

The growth experienced in economies such as China sparked off a very large demand for luxury items and brands in general. Burberry, with its long-established and traditional image and heritage benefited from this surge in interest in luxury. This heritage factor has consistently been reinforced by the consistent use of actresses and actors over the decades to promote the brand. These included Humphrey Bogart, Pierce Brosnan, to more recent people such as Emma Watson and Carla Delevinge.

It was not just China which provided the surge in growth of sales for Burberry: the Gulf region, Russia, India, Brazil and other fast-growing economies also developed a healthy appetite for luxury in general and Burberry in particular. The Asia-Pacific region in particular generated over 40% of overall sales. In 2013-14, an overall growth rate of 18 per cent was generated. This dropped to a decline in sales of two percent in 2015.

The decline in growth of these economies caused a major hiccup in performance and overall profitability and forced Burberry to reconsider its overall strategic direction. Luxury tourists to centres such as Hong Kong and Singapore are in decline and this “cash cow” has dried up to a large extent. It is not all doom and gloom however as Japan is holding up well in this luxury centre and Burberry is performing satisfactorily there.

Notwithstanding the overall decline in sales from China, Burberry still remains confident that the sheer size of the “middle-class” market there will continue to generate new customers.

Burberry had introduced some changes to its overall strategy. We will focus on the managerial ones but briefly will consider the other changes in direction.

It has embarked on an overall cost-cutting exercise to generate savings of around £100 million. This revolves around reduced staffing, a reduction in the number of sku’s carried – rumoured to be around 20 per cent and a focus on more localised products. It also plans to improve the overall store experience for shoppers.

From my perspective the changes at the top raise some interesting issues about the overall role, importance and influence that individuals can play in shaping or in this case possibly re-shaping the future direction of an organisation.

I would suggest that when we look at a retailer such as Burberry, with its focus on fashion and luxury it becomes even more challenging and interesting. Why?

Well fashion immediately raises issues about the attitudes and perceptions of the target market to the product offering. Fashion can be ephemeral: it does not have the long-lasting impact that other more traditional brand tend to have. Although it can be argued that this is not the case with Burberry, which has lasted since the middle of the nineteenth century. The creative and design challenges are arguably difficult to address with full confidence. Can you teach creativity? In the fashion retail sector it is critical to attract the right people to run the business. However someone who has a proven track record of running a traditional business may lack the necessary empathy or “feel” for what constitutes fashion and what is appropriate for a well-established luxury brand.

Let’s briefly consider how Burberry has addressed this issue.

In July 2016 Burberry replaced Christopher Bailey with Marco Gobbetti, who was previously the CEO of the French luxury brand, Celine. Bailey moves to the position of President and retains his position as the Chief Creative Officer of the company. Both of them will report directly to John Peace: the Chairman.

Arguably the decline cannot be attributed directly to the work of Bailey. The macro-economic vagaries of key markets would have happened anyway. However as is the case most notably with football managers, the “buck stops with them”. Fashion retailing, like sports is a “results business” and someone has to carry the can for poor performance.

In this revamped organisational change, Bailey will be allowed to continue with his focus and expertise on issues such as brand development and overall creative design. Gobbetti will focus on the overall issue of strategy and corporate culture. Gobbetti has proved himself as someone who has delivered in luxury fashion with the overall performance of Celine during an eight year period with them. He brings his overall expertise in strategy development to Burberry and arguably frees up Bailey to concentrate on what he has been good at; namely design and creativity.

It can be argued this merging of talents should generate a synergy that ultimately can lead to improved performance in sales and profitability across Burberry. The old adage of “2+2=5” applies. Or does it?

The cynic in me suggests otherwise. We would appear to have two strong personalities coming together with particular views about the way the business should run. Bailey has had a lot of success up to the recession in key markets and the overall drop in sales and profitability. Has he been “shoved upstairs”, like a successful football manager that a club is reluctant to get rid of? Creative people tend to have big egos and are difficult to work with.

Companies like Burberry come under pressure from shareholders when profits fall. To some extent, personnel changes are inevitable, like the case of football management.

When Peace made Bailey chief executive in 2013, he provide him with a very generous remuneration package which was subsequently heavily criticised by shareholders. Part of it included a retention bonus to be spread out over2015 – 2018, irrespective of how the company performed. The new deal predictably has been reduced and is heavily performance-driven.

It will be interesting to see how the new management structure might work. Will we see some synergy or will we encounter ongoing battles between the individuals? Let’s wait and see (hic)

Roger Whittaker: a well-known singer and songwriter of the 1960’s and 70’s penned a song called “I don’t believe in if anymore”. I have taken the title and misinterpreted it somewhat to capture my feelings and thoughts about the recent decision of the UK population to vote to leave the European Union.

Since the referendum results came out in late-June, the media has been more than pre-occupied with the views of all sorts of experts, gurus, commentators and so on, about its impact on the future of the UK. The usual suspects: politicians, economists, business consultants and prophets have been to the fore in this regard.

What about the impact of Brexit on the retail sector? I will try to capture some views in the following paragraphs, albeit with a sardonic and cynical perspective; grounded in decades of experience of listening to such “experts” on various subject matter.

Much of the commentary since the referendum has been based around the word “if”. If certain things happen e.g. a severe decline in the value of sterling, continuing uncertainty and the challenges of “doing a deal” with the EU, then certain things may (or may not) happen. The usual jargon and clichés are used by such writers and commentators. The simple answer is that we don’t know what might happen. Much of the contributions reflect biases and prejudices that are not necessarily objective and indeed in many cases are doing damage to the well-being of the economy.

The facts are as follows. Politicians, business-people and consumers, for the most part, dislike any change to the way in which they do business and operate in their every-day lives and transactions. For most of us, the natural reaction is to reject or turn our backs against transformative processes or decisions. This is evidenced in the commentary that appears almost daily in the general and social media.

Irrespective of the “rights or wrongs” arising from the decision to leave the EU (and it is not my intention to declare any personal views here), it is TOO EARLY to make any definitive statement about where the retail sector will be in the sort, medium or long-term. This should be the default position at the beginning of any discussion on the impact of Brexit.

In February 2016, the Centre for Retail Research presented a reasonably objective view of the likely impact of Brexit. (www.http://retailresearch.org/brexit.php). It is worth reading to gain a reasonably clear insight into the ley issues that may or may not play a significant impact on the retail sector.

I highlight a few observations in the next couple of paragraphs.

The issue of tariffs comes to the fore in much of the discussion. Clearly when the UK leaves the EU it is likely to have to deal with various tariffs imposed by countries in the context of international trade. However in the forty to fifty years since the advent of the EU, international tariffs in general have fallen to as low as 5 to 6 per cent in nearly all cases. In this period, we have seen a move to market liberalisation and a greater emphasis on creating a positive climate for foreign trade globally. Previously closed economies such as India and China have opened up considerably in the last ten to fifteen years. In this context, tariffs, while still around, possibly are less likely to present such insurmountable barriers as was the case in the past.

Free movement of labour is a key issue in any negotiation with the EU. It is one of the essential pillars behind the rationale for a European Union. All we can say at this stage is that much will depend on the tenor of the negotiations that will take place over the next couple of years. It is likely to be used as a key bargaining chip by the UK government negotiators. For key markets such as the automotive industry, German car manufacturers are likely to press for a favourable negotiation to allow them to have continued access to the lucrative UK market. Again, we don’t know what may happen here.

Early indications suggest that it will be impossible to prevent free movement of labour. This was acknowledged by many of the “leave” advocates shortly after the results of the referendum. People can still come in and out of the UK, albeit without the necessary benefits such as permanent residency rights that currently exist for EU people. It is also likely that deals will be struck with various countries. Again it is too difficult to make any predictions.

The decline of sterling has already happened in light of the referendum result. This is totally unsurprising. The stock markets hate uncertainty and react accordingly. Over the first two weeks since the vote took place, the value of sterling has declined by about 10 per cent in relation to the dollar. It may go further and will certainly fluctuate at key points in the negotiation process in the next couple of years.

The Centre for Retail Research notes that sterling has probably been over-valued in the past couple of years anyway and that any readjustment downwards leading to a lower exchange rate may not necessarily be a bad thing.

If the pound continues to devalue it can be argued that it will make the UK an attractive place for visitors to shop and boost the retail sector over the longer-term. Again we don’t really know the extent of the lowering in value of the pound and too much speculation is dangerous.

In terms of legal protection for retail workers, it is unlikely that we shall witness major changes. Retailers are probably going to stick with the established legislation that is already in place. In terms of EU directives and standards, again it is unlikely that retailers will deviate substantially from existing legislation – particularly if they wish to continue to do business with established customers in EU-base locations.

With regard to the VAT tax, it is likely to remain in any post-EU situation. It is a critical source of revenue of the UK government. While it will no longer be tied to any attempts by the EU to harmonise such as tax, it is likely that it will not deviate significantly from other European countries. If pressed, I might argue that it may go up slightly on certain product categories because the general UK VAT rates are among the lowest within the EU community.

Enough of this speculation!!! I am beginning to create “what if” situations and doing precisely what I claimed at the beginning that I would not do!!

In summary it is dangerous and stupid to engage in too much speculation. Much will depend on the nature and tenor of the negotiations that will take place in the coming months and possibly years. There will certainly be “give and take” and “horse-trading”. Both sides (UK government and the EU) have strengths and weaknesses. Retailers will adjust and adapt to situations that emerge. We will still survive. Let’s kick that word “if” to touch!

The title of this blog refers to an attempt by Tesco to enter the North American market with its “Fresh & Easy” format about eight years ago or so. After rolling out over three hundred stores, eventually Tesco decided that it was not a viable proposition and closed down the operation. It was written off as a failure.

I was reminded of this case a couple of weeks ago when I read of the recent attempt by Amazon to spread its ever-increasing tentacles further by launching its Amazon Fresh grocery service in the UK market at the beginning of June 2016. This represents its first major attempt to directly compete with the “Big Four” food supermarkets in this market: Tesco, Asda, Sainsbury’s and Morrison’s.

What is the nature of this value proposition and how does it differentiate itself from the opposition?

In the initial phases Amazon plans to deliver to over 69 postcodes in the London and greater London geographic area. It plans to carry around 130,000 sku’s, deliver within four hours and will carry well-known brands such as Coca-Cola, Kellogg’s and Danone.

Its stated aim is to focus on “low prices, vast selection, fast delivery options and customer experience”. It plans to offer substitutions for items that are currently not in stock, plus an automatic refund. By comparison, Ocado offers around 48,000 items, Morrison’s, 22,000 and Tesco 70,000. In a move that is potentially a winner, it offers same day delivery on all orders placed before 1pm. This is likely to put its competitors under pressure if they seek to match this promise.

In terms of price, Amazon promises an ever-day-low-price approach. This avoids a direct guarantee of offering the lowest price available on any particular item but none the less highlights Amazon’s competitive approach to pricing.

Essentially the value proposition is a further development of its “Amazon Prime” offering. In the latter case, Amazon shoppers can pay an annual subscription fee of £79 to benefit from an online TV and a delivery service. “Amazon Fresh” extends this delivery concept into the highly competitive area of grocery retailing.

Currently the online grocery sector in the UK is projected to be worth around £17 billion between 2015 and 2020. By contrast sales in physical outlets is projected to decrease by around 3% to around £70 billion in the same period. It can be argued that the new business model proposed by Amazon will allow it to capitalise on the continued swing towards online shopping. It can also capitalise on its existing expertise and knowledge of the rudiments of efficient supply chain management and delivery options.

In addition to the annual subscription of £79, shoppers will also pay a fee of £6.99 per month in order to receive unlimited deliveries more than £40. This takes the annual cost to the tune of £162.88p. For shoppers who do not use the full range of “Amazon Prime” services, this might be perceived as being an expensive option. By contrast one of its competitors, Sainsbury’s charges a fee of £60 per annually.

Some people argue that in a sector which exists on very tight margins (often as low as 1-2%), Amazon might struggle to generate profits. The counter-argument is that is notoriously successful as managing profits across its existing product offerings.

Other commentators posit the view that Amazon has had little success against giants such as Wal-Mart and Safeway in the North American market with a similar proposition. In this instance, the “big guys” successfully maintained their market shares.

On a more positive note, Amazon is likely to move quickly across the UK in terms of its geographic coverage. As stated earlier, it currently operates in only one region (albeit a large one from a population point of view). Larger cities such as Manchester and Birmingham provide similar opportunities. Amazon Prime already covers a wide ranges of regions and cities in the UK such as Liverpool, Birmingham, Manchester, Leeds and Portsmouth.

Amazon also has the potential to work with local suppliers and provide a more customised approach that reflects regional tastes and preferences. Currently it deals with a number of established brands (mentioned earlier) as well as Morrison’s own label items (around 2,500 items in total).

What are the challenges?

Amazon has built up an enviable success story through its ability to deliver a vast range of items to its customers having achieved excellence in the functionality of managing the supply chain. Can it do the same in the fresh food sector? Some commentators argue that this area creates challenges to the supply chain and delivery because of the nature of fresh food (much shorter product life cycles and wastage. It is also directly “muscling in” on a market that had been dominated in the UK (and indeed in many developed economies) by a small number of powerful and dominant retailers. How will the “Big Four” respond? Also factor in increasingly serious operators such as Aldi and Lidl and you have potentially a venomous cocktail of competition.

Already it is estimated that Amazon is experiencing some problems in its delivery system by using cool boxes instead of refrigerated vans. If this is not addressed, it is likely that shoppers will complain and possibly revert back to their previous mode of shopping.

Another key question is what do shoppers actually want? Is it low price? Quick delivery? A mixture of both? Quality? Ultimately this will determine the success or otherwise of the intervention of Amazon in this highly competitive market. As mentioned earlier, the North American experience suggests that while Amazon has made a small impact, it has not seriously threatened the established players to any significant extent.

Amazon’s value proposition however cannot be dismissed easily. For instance it offers shoppers a much wider set of items (130,000) than the completion. Because of the wide and varied choice, it potentially satisfies those shoppers who wish to complete their full weekly shop in one go. It is competitive on price, when compared to the others. It can also potentially benefit from its existing scale of operations and its undoubted capabilities in the area of supply chain management and implementation.

It also begs the question as to whether we will see other third-party logistics / supply chain operators entering into the market and effectively acting as conduits in providing shoppers with an increasingly varied set of delivery options and choice. Will we see the emergence of powerful and dominant supply chain integrators over the next decade or so?

For now we can keep a “gimlet eye “on how Amazon evolves in this sector. Will it do it in a fresh and easy, fresh and cheap, fresh and slow way? Let’s see!

We have recently witnessed the demise of British Home Stores (BHS) in the United Kingdom. For those of you from outside the UK, this is a well-known department store which has been on the high street for around eighty years and, at the time of its demise, had 164 stores and employed 8,000 people directly within its store portfolio.

While currently there is much debate about the behaviour of its owners and previous owners in terms of how they generally ran the business and how one in particular, Sir Philip Green sold on the operation to an individual of dubious business background, it is possibly more interesting to enter into some general discussion on the relevance and role of department stores in modern-day retailing.

Department stores have been a constant feature since the early part of the19th century and emerged shortly after the industrial revolution as a response to rising prosperity. Essentially they are typically large stores which sell a wide range of merchandise which are categorised into different “departments” within the store and allow the shopper to carry out a multitude of purchases. Over the years the product categories have increased across a wide range of categories: clothing to jewellery; stationary to electrical goods and so on.

However in the current retail climate of online retailing, backed up by mobile channels and social media, many commentators have questioned the relevance of such a concept.

To be clear, department stores vary in terms of their product offerings and value propositions. Some are at the low end in terms of price and relative quality. Primark for instance might fall into this category. Other retailers such as John Lewis Partnership (in the UK), Macy’s and Nordstrom (in the US market) have pursued a more focused strategy on quality and innovation. All of them have been to a greater or lesser extent successful in terms of building sales and customers.

A Verdict retail review of BHS in 2015 criticised the retailer on the ground that it had made a number of strategic mistakes which ultimately caused its present downfall.

They cited the concept of the “squeezed middle”: a term used by politicians to describe the economic situation which in their view has prevailed in the UK for the past decade or so. This theory is built around the notion that the middle income earners inevitably pick up a disproportional part of the taxes and expenditure (when compared to low and high income citizens) and that their disposable income has declined in real terms as a result. When applying this concept to retailing, it suggests that such individual caught in this “trap” inevitably see greater value or as the American say “more bang for their buck”. This puts pressure on retailers who sit in the middle: offering no point of differentiation on price (at the low end) or quality (at the high end).

Retailers such as Debenhams and Marks and Spencer have tried to reinvigorate their product ranges and offerings with some limited success. What has BHS done over the past few years by way of response? Very little according to Verdict research. They cite the experience of BHS with its ability to convert visitors to its website to a sale: (28%). This compares to Debenhams (42%) and M&S (52%).

With regard to its physical stores, we also have witnessed little by way of inspiration also. The facia of its stores is tired and dated. The same could be said of its merchandise within the stores. This inability to adapt and change is in sharp contrast to department stores such as Macys and Nordstrom in the US. Macys over the past few years has quickly introduced an integrated and focused omni-channel strategy. Nordstrom has also increased its overall profitability due to investment in its e-commerce and mobile platforms. They have also introduced a number of high end retailers and brands into its stores via its “shop-in-shop” programmes. This initiative arguably goes to the heart of what a successful department store is all about. Think about it for a minute. The typical department store has a large space to fill. The onus is on it to keep its target audience interested and excited. The best way to do this is to consistently refresh its offerings. This can be done effectively when new brands are introduced in the concession areas. Over time this leads shoppers to expect choice and variety which translates into value. End result? They keep coming back for more. Id department stores successfully maintain and refresh their own brands also, they can provide in theory, an even more interesting mix of product for its shoppers.

When we reflect on the woes and perils of BHS, it is very difficult to suggest that it has come anywhere near meeting these requirements for continued success in the modern retail market-place. Arguably the change of ownership over the years has impeded the need for change and progress. Combined with high rents to be paid on their portfolio of stores, the retailer became very unsustainable and the writing was on the wall a long time before its demise in May 2016.

The fact that the population of over forties is growing in the UK in theory should have provided BHS with opportunities to regain some ground; given that this is their core market. However even this segment did not respond with any enthusiasm to the value proposition of BHS.

Let us go back to the general question as to the role of the department store in the future.

Some commentators argue that it can still play a significant role as an anchor tenant in major shopping malls. In Asia in particular the number of middle income earners is project to grow significantly over the next decade. Retailer-anchored shopping centres have not taken off to the same extent as in Europe but this is likely to change.

Japan is perhaps the most advanced in terms of retail development in this area. Most of the expansion with respect to department stores occurs at the high end. For instance the Isetan department stores in Japan regularly introduce designers and specialty shops to address the ever-increasing expectations of the Japanese shopper. A Thai-based retailer; Central, also is expanding in Asian markets and follows a similar approach by supplementing its store business with franchise brands such as Muji and Nike.

We see some commonality here when we compare Asia with the US and European experiences. The successful department stores consistently refresh and change their product offerings and also invest in a more integrated omni-channel strategy. The lesson here is to continually look for opportunities to partner with brands either through store-in-store programmes or franchised brands.

Potentially there is a line of argument to suggest that department store will not disappear off the high street or shopping malls. We shall see!

Retailing is in many cases an ephemeral business. Retailers come and go. Success stories of today are likely to be the failures of tomorrow. As shopper preferences changes, perceptions alter and new entrants come on the scene, profitable retail operations can struggle and in many cases disappear off the horizon.

This is especially so in the case of fashion retailing – where young shoppers in particular are consistently promiscuous in terms of where, when and how they shop.

I become intrigued when a particular fashion retailer begins to acquire positive publicity in the business and retail press. One such retailer is Boohoo.

This is an online fashion retailer and targets the 16 to 24 year old market. Recently it launched a sister-site: boohooman.com to specifically focus on “trend-led, price-conscious sixteen to twenty-four year old men.

It was listed on the stock exchange in 2013 amid great fanfare. Unfortunately it issued a profit warning at the end 2014. Retail analysts reckoned that it needed more aggressive marketing and more focused differentiation from its main competitors: ASOS, Misguided and Pretty Little Things. Boohoo promised to address these issues and at the start of 2016 it returned much improved figures: pre-tax profit was up by forty-two per cent and a forty per cent increase in sales (£195 million) was recorded.

Boohoo operates in the online clothing sector which over the next three years is estimated to generate overall revenue of £9.4 billion.

Why then should we study the retail strategy of Boohoo more carefully?

Since the profit warning, senior management at Boohoo have embarked on an aggressive and focused overall marketing strategy. It has invested a significant percentage of overall revenue (15% approximately) on general and digital marketing activities. These include: TV, underground, digital display, banners, video, blogger outreach and direct mail, to boost performance.

It has also invested significantly in its overall infrastructure such as warehousing. This has sharpened up its ability to respond quickly to the customer demands and the changing nature of the fashion retail sector.

The key differentiating factor and indeed its main lies in its overall business agility. This is a term that is used frequently when discussing the overall supply chain of a business. We discuss this in chapter three of the text-book. Many commentators argue that successful supply chains are ones that are built on the principle of speed and flexibility in terms of managing the process in the supply chain and in responding to the needs of its target market.

Clearly not all supply chains need to be so responsive. For instance in well established, mature and commodity type sectors, the pressure to deliver and respond flexibly, may be less significant than issues surrounding efficiency and price.

However in the case of the fashion sector this is not the case. The nature of the fashion business is based on unpredictability, fluctuations, sharp changes in customer preferences and turbulence. Retailers that have developed rigid and inflexible supply chains are likely to struggle against the “quick fashion” operators like Zara, ASOS and more recently Boohoo. Witness the demise of Marks and Spencer in this respect. While there are many reasons for their continued struggles in the clothing sector, many of the problems can be found in its approach to supply chain management.

Boohoo’s retail model is anchored around the following features. It launches on average, one hundred new styles daily. It has created a range fulfilment options such as a midnight cut-off point for next day delivery. It has also introduced petit and plus size ranges to cater for a broader range of sixteen to twenty-four year old males and females.

Seventy-five per cent of its suppliers are based in the United Kingdom. This is a good example of what is often referred to in the literature as “proximity-based” sourcing and allowed for greater flexibility in terms of supply chain management. For instance lines that move more quickly off the shelves can be re-ordered expeditiously and orders can be fulfilled more quickly. Likewise they do not place large orders with suppliers (shares of Zara in this respect). This means that they are not exposed to the vagaries of volatile demand. If particular lines are not popular, they have not build up a large amount of inventory in the warehouse. Unproductive inventory as a consequence is kept to a minimum.

Boohoo has around four million active customers and has an impressive set of social media statistics. These include: 500,000 twitter followers – generating a reach of 9.6 million, 1.4 million users of Instagram and over 1 million views on YouTube.

On a slightly critical note, Boohoo perhaps is over-reliant on the United Kingdom for its customer base. Currently two-thirds of its customers are generated from its home base. It has plans to expand in Europe with an initial focus on France and the Republic of Ireland.

In the past eighteen months Boohoo has also invested aggressively in its mobile experience. It has developed UK, US and Australian apps. Again this allows for more flexible ordering, delivery and return options for its customers.

Other initiatives include the setting up of a student ambassador programme with UK universities, collaboration with the singer Charlie XCX and a pop-up store in France.

Will we be talking about Boohoo in five years’ time? Who knows? We have already mentioned the vagaries of fashion retailing.

We should note that Boohoo is a pure-play online retailer and as such has no visible physical presence on the high street. This conflicts with the ever-increasing presence of multi-channel and omni-channel retailers who are arguably in a stronger position to provide a broader array of options and alternatives for shoppers.

It will have to widen the number of collection and return points for its customers over the next couple of years to provide a flexible range of alternatives for its target market. The introduction of a pop-up store in France suggests that Boohoo is not ignoring the possibility of widening the number of retail channels and following the trend of other retailers.

A recent collaboration with Summit – an online retail consultant, suggests that Boohoo is still keen on aggressively pursuing opportunities in the digital arena surrounding areas such as increasing traffic growth and new customer acquisition.

For now, it is fair to say that this is one of the success stories over the past year or so. It will be interesting to see how it develops in the future.

The concept of personalised pricing has emerged with renewed vigour in the media over the past few months in the UK. This strategy essentially revolves around charging different prices to different individuals at different times based on the information and knowledge that they hold.

In essence personalised pricing is a derivation of the well-known overall pricing strategy commonly referred to as price discrimination. At the outset we should recognise that the concept is not new and has always been around – particularly in retail. For instance a good salesperson will quickly size up the appearance and credentials of someone who arrives in the store or showroom and design their sales pitch accordingly.

By the tone of voice, appearance and knowledge, they can size up the requirements of the individual and hopefully direct them to an appropriate product or piece of merchandise. I say “hopefully” because there is always the temptation to steer the customer to a more expensive item that may not necessarily be appropriate for their needs.

Many organisations have been accused of exploiting customers, either through shoddy selling techniques or pricing policies that are confusing and non-transparent at best and or downright misleading or dishonest at worst. Typical alleged offenders are financial services and utility companies.

The reason why personalised pricing has appeared on the horizon again is due to the convergence of technology and data: something that I repeatedly visit in the various chapters of my text-book.

For instance as we probably know, “cookies” record what websites shoppers visit and at what times. Retailers can also identify the profile of shoppers from their shopping purchases and patterns. This can lead to a deeper understanding of the shopper’s attitudes and responses to promotional offers for instance. Fortified by this sort of information, the retailer can design customised and more effective promotional campaigns that are more likely to generate positive responses.

In theory this looks good for both retailers and shoppers. In the case of the former they can presumably generate more revenue, reward loyal customers through customised promotions and likewise for shoppers, they can benefit from discounts and advance information on special deals of promotions.

Alarm bells start to ring however when retailers also buy information held on individuals by third parties. This insidious practice, which most of us don’t know about (or don’t want to acknowledge), provides retailers with even more focused and detailed information about our shopping patterns and behaviour.

Is there any evidence to suggest that companies in general and retailers in particular are using such data and technology to exploit customers?

European law requests websites to explain clearly what cookies are all about and that they are expected to get customer’s permission before such data can be used.

In the United Kingdom the Office of Fair Trading (OFT) introduced a “midata programme” which encourage banks and energy companies in particular to release data about a consumer’s consumption patterns if requested by the consumer.

In 2013, an investigation by OFT indicated that businesses were not using information to charger higher prices but instead were more likely to use it instead for targeted discounting. However revealingly not that many companies actually used online data. The investigation indicated that only around twenty-seven per cent of companies followed such an approach. This might be explained by the fact that many companies may not have the specialised personnel to analyse and “make sense” of the data and translate into usable information.

A quick perusal of the internet reveals that personalised pricing engenders much debate (have a quick search!). This combination of technology (smart phones, tablets and social media platforms allied to Apple’s iBeacon and Samsung’s Proximity) and the resulting “big data” affords some opportunities for retailers.

For instance they can more accurately assess the willingness or propensity of the shopper to purchase an item at a certain price. Through studying past purchases, they can also calculate the reservation price of the individual shopper. By reservation price we mean the maximum price a shopper would pay before they started to have reservations.

If used for rewarding loyal customers, then clearly it can be argued that it has much merit for the shopper and the retailer. Customer engagement, retention and relationship management argues that ultimately both parties benefit.

However how would feel if you ordered a high-end smart phone only to discover that a friend of yours had acquired the same product at a price of fifteen per cent less than what you paid for it?

In this case there is a strong danger that in addition to creating a highly annoyed shopper, such a practice can lead to an overall erosion of trust in the retailer and also with respect to shopping online. Shoppers may feel alienated and in the worst case scenario, victimised. In the latter case this may because of the post code that identifies where they live, the newspapers that they read or their socio-economic status – all of which can be gleaned from “big data” captured by the retailer or information which they have purchased from a third party operator.

Of course it can be counter-argued that such practices are not that unusual. The next time you purchase an airline ticket from Ryanair or Easyjet and take your seat on the plane, ask yourself the following question. I wonder what the passengers to my right and left have paid for their respective tickets. More likely than not you would find a great disparity in the prices paid? Although these “low-cost” operators have built up a reputation for low prices, they are arguably one of the most prolific users of sophisticated technology and software that analyses demand patterns and behaviour and allows them to maximise revenue and yield from seat bookings.

Other service operators such as hotels have also followed similar practices over the years.

The worrying and underlying aspect of this of course is that as technology and data continue to converge and become easier and cheaper to use, we will see dubious, dishonest and non-transparent practices increase in prevalence.

This may lead to even more evidence of “different strokes for different folks”. Let’s watch this space!

In my previous blog we considered the pressures on many retailers to offer merchandise at increasingly lower prices to ward off competition and satisfy the ever-demanding needs and requirements of shopper. This often leads to dubious practices with respect to their sourcing of material and their relationships with their supply base.

At the end of that blog I raised a question as to the attitudes of shoppers with respect to “green” merchandise or items that are environmentally friendly. In particular are they willing to pay a premium for the privilege of purchasing such goods?

Before we consider that question it might be appropriate to examine the changing approaches of companies in general and retailers in particular to the issue of sustainability.

Prior to the beginning of this century (the noughties) the overall issue of sustainability covered a number of broad areas encompassing: ethics, social responsibility and environmental concerns. Governments and policy-makers began to introduce legislation which placed the issue of sustainability on the agenda for many organisations. Many retailers adopted what we might call a preventative approach to dealing with sustainability issues. By this I mean that they took a compliance-based approach – where they addressed areas that could not be ignored by the legislative measures that were introduced.

Other retailers saw an opportunity to generate “good news stories” and propagate some favourable publicity. In some cases of course this led to cynical practices – often referred to as “greenwashing”, which we discuss in the text-book in our chapter on sustainability.

Over the past decade or so the issue has moved on in general and features much more prominently on the overall strategic agenda of many organisations. Marks and Spencer has often been cited in the literature as a retailer that was one of the first to fully embrace to issue of sustainability into its overall retail strategy. You can read more about their approach in the text-book.

What impact has this had on the shopper? We constantly see references in the academic and business literature to the “green” shopper, the “ethical” shopper and the “environmentally-concerned” shopper. Is there any evidence to suggest that shoppers are “buying into” such concepts? Is there a danger that we make the presumption that they are? On the basis that the issue is presumptively good for society in general and individuals in particular. Like many similar debates and discussions on “climate change”, is there evidence to suggest that shoppers are cynical about such initiatives and see them as increasing the price of items and merchandise in the shops?

Before we consider some of the evidence I inject a cautionary note. Many of the studies and surveys reported in the media (I encourage you to do some browsing on the internet) are either “region or country – specific”, focus on particular categories of shoppers, for example students or internet users. As a consequence the findings and inferences cannot necessarily be fully accepted as being fully representative of shoppers in general or generalizable to the public.

McKinsey, the US consultancy firm interviewed 1,000 respondents across the USA and Europe in 2012. This indicated that seven in ten people would be prepared to pay an additional five per cent if it met the same standards and performance as a non-green alternative product. If the premium for a “green” product came in at twenty-five percent however, only ten per cent would be prepared to make such a purchase. This provides perhaps an indicator as to the attitudes of shoppers to such products and initiatives.

Another study challenged the conventional view of the demographics of “green shoppers”. The traditional view is that they tend to be young, well-educated and on middle to high incomes. A study by Deloitte challenges this and argues that there is no pattern or prescription as to the typical profile.

Recently in my classes with undergraduates (a class size of over three hundred) and postgraduates (a class of 125), I posed the following question to them. Indicate the level of interest, non-interest or whether you are neutral about green products. In the case of the undergraduate about five per cent raised their hands and said that they were interested in such products. About thirty per cent indicated that they had no interest and the remainder: about fifty-five per cent indicated that they were neutral. Similar findings emerged with my postgraduate students (around forty per cent stated that they had no interest). In this class it was almost exclusively made up of non-UK students.

I am not claiming that my “unscientific” question is in any way generalizable or applicable to society in general. However it is revealing and indicates a number of issues that are of potential interest to the stakeholders in this debate: retailers, policy-makers and shoppers.

For instance it suggests that there are potentially a large number of people for whom “green” issues are not seen as relevant or important in terms of their lifestyles or shopping behaviour.

While other studies indicate that increasingly there are more people around who are interested in learning more about green products and services, this tends in the case of the UK to come in at around twenty-five per cent. A study conducted by www.retailmenot.com suggests that four in five people view “green” products as being more expensive. Three out of five people indicated that they would consider purchasing environmentally friendly products if they cost the same or less than “non-green” products.

If you are interested in this topic, I encourage to engage in a search on the internet on the level of interest and willingness to pay for green products.

There is of course no definitive evidence that we can rely on to make an accurate judgement on the matter. The variation of views and opinions in any event is likely to be wide across different geographic regions.

However I would make the observation that a lot of work needs to be done in order to overcome the reluctance on the part of shoppers to pay more for “green” products. There is also an imperative to be more transparent about the potential benefits that are likely to accrue to shoppers. It can also be argued that it is important for manufacturers and suppliers to address the cost issue and make “green” items that are priced at, or very close to the price of non-green products.

I suspect there is a perception (possibly cynical) that suppliers and retailers a seen to be ripping people off by charging a premium on the basis that the target market is perceived as coming from a middle to high income bracket. As we have noted earlier however it can be a dangerous presumption to suggest that “green” shoppers follow a stereotypical pattern when it comes to demographics.

The active “green” shopper may still be relatively small, relative to the number of people who indicate that they see themselves as being interested in such products and that they make be a focus of good for society.

As legislation in the area is likely to increase over the next few years across a range of areas: from recycling to packaging through to the ingredients that go into products, stakeholders such as retailers and suppliers cannot ignore the trends. In order to speed up the growth of the active green consumer segment however they are going to have to demonstrate a stronger value proposition for the shopper. This certainly will have to revolve around the cost of producing such products and passing on savings to the shopper in the form of prices that are comparable to non-green products. Otherwise they may have to suffer the consequences.

In January 2016 Bunnings, the dominant DIY retailer in the Australian market, cast its eyes on the UK and acquired over 260 stores that previously traded under the ownership of Homebase for around £350 million. This is a significant step and may ignite this retail sector over the coming years. It plans to replace the Homebase brand and re-brand the stores as Bunnings – a brand that is synonymous with “all things Australian” but unknown to the DIY enthusiast in the UK.

The UK DIY sector, is perhaps more accurately described as the “home improvement and garden” sector and over the past number of years, despite the prolonged recession, has shown evidence of strong growth – always an attractive but necessary feature of potential international expansion opportunities. It is estimated that it is worth under £40 billion as of 2015.

Bunnings, owned by the large Australian corporation, Wesfarmers, holds over 20 per cent of the Australian home improvement and garden sector. It has based its business model on three main platforms.

• Every-day-low-prices
• A very wide and deep product range – covering anything from 95 cent buckets through to hard-core building materials and outdoor garden centres
• Strong customer services: its staff is built around ex-plumbers, builders and horticulturalists, who provide advice and guidance to its customers.

The cornerstone of its model is the “sausage sizzle”. Outside its stores, it sells sausage sandwiches, redolent of the smell of barbeques and the “great outdoors”. This reinforces the desire of Bunnings to tap into and to be seen as part of the local community. All of the sales from the stalls selling these sandwiches goes to local charities.

In terms of its retail formats, it uses an industrial, warehouse-defined image through large shed-like structures. It also operates smaller units in the inner-cities and towns. As well as carrying a wide range of merchandise, most of its larger stores contain a children’s playground, kids craft workshops and classes for adults on a number of activities that are all designed around the theme of home improvement.

It has established an online presence but interestingly does not provide the means for customers to make transactions on this retail channel. The rationale for this approach is based on the belief that the vast distances between distribution points and customers is likely to make delivery and returns an unprofitable exercise. Instead it uses its online channel as a mechanism for providing advice and guidance to its shoppers on a range of topics and activities. For instance it puts up short “how to” video clips on various aspects of home improvement activities.

The UK market, apart from its continued evidence of growth has other attractions. Perhaps the main one is that around 56 per cent of houses and apartments are over fifty years old: thus providing strong requirements for upgrading and improvement. The vagaries of UK weather patterns also ensure that houses are often damaged from storms and from general “wear and tear”.

Why Homebase as the target for acquisition?

This brand in recent years has fallen into the common trap of ending up being “stuck in the middle” and sending confused messages and signals to shoppers in this sector. Is it in the FIY or the home improvements area? In the latter case it appeared to be competing with retailers such as Habitat while in the former it was up against B&Q, the third largest DIY retailer in the world. In summary it was losing focus and its sales and profitability was suffering as a direct consequence. This was graphically evidenced by the closure of 27 stores in the UK during 2015.

However its brand perception appeared to be strong: it still received a high percentage of favourable mentions and positive conversations on the social media platforms. Its overall brand is that of a well-recognised and established brand.

The challenges?

Bunnings will have to grapple with some significant differences between the two brands as it attempts to re-brand in the UK market.

On price for instance, it operates EDLP policies while Homebase has positioned itself at the premium price points. Bunnings carries a far wider range of items while Homecare has focused on home furnishings and its own brands. Bunnings has placed a strong emphasis on customer service and staff expertise. Homecare has not emphasised this element as strongly in its overall business model. Homebase’s opening hours are more restrictive than the case of Bunnings in Australia. These are areas that will feature prominently in a re-vamp and re-branding exercise.

The UK market is more fragmented than in Australia. B&Q and Homebase between them hold around 15 per cent of market share. Wickes, another major player in this sector, has positioned its brand more closely to the DIY “nerds” and the trade.

The planned re-branding and re-vamp exercise will require substantial investment. If initial reports are to be believed, this will see major changes in critical areas of the retail marketing mix: such as customer service, merchandise and store design and layout. It will also take Bunnings directly into a collision with B&Q, a global giant in the sector. On this latter point at least, Bunnings has form. It has successfully fought off competitors such as Masters in the Australian market and is not afraid of direct challenges to established competitors and brands.

The UK housing market continues to stagnate: prices continue to rise and prospective house purchasers are naturally put off by this trend. It has also become increasingly harder to get affordable mortgages from financial providers. This is exacerbated by higher demands placed on the amount of money needed for deposits and the level savings required in order to be considered for loans. As against that, house owners are possibly more likely to develop existing properties rather than purchase new ones. As a result the demand for DIY-related products and services has not declined to any significant extent during this period.

Bunnings may have to consider the possibility that the “big box”, warehouse type operation that works well in Australia many have lesser impact in the UK; where customers may not require the extent of items offered by Bunnings or be prepared to make destination shopping activities, when they are only making minor adjustments or upgrades to their existing properties.

B&Q are also likely to have the patience and more critically, the resources, to engage with Bunnings on lower prices over an extended period of time.

On a more fundamental level are there differences in culture and behaviour between the Australian and UK customers in this retail sector?

Although obviously culturally similar in terms of language, it can be argued that there are fundamental difference between them in terms of behaviour and outlook. The Australian “psyche” is often portrayed as being based on the “great outdoors” and “mate ship”. Many urban dwellers own “uts” (utility vehicles) and think nothing of travelling to stores such as Bunnings and loading up with a range of home furnishing, gardening and DIY products. This is reflected in the wides spaces and aisles in the Bunnings stores, allied to large car-parking facilities and locating just off major highway junctions – to enable ease of access and convenience.

This phenomenon is less obvious in the UK, where many people live in high-density areas and do not have the same penchant for utility trucks or vehicles.

In the UK the arrival of many legal migrants has led to the availability of cheap but skilled tradespeople who are happy to do work on houses for “cash-in-hand”. Instead of home owners grappling with the challenges of DIY, many are happier to pay such workers to do the necessary. This still means that there is a demand for such products but it has the potential to dampen the enthusiasm for travelling to such “big box” units and spending time discovering the joys of DIY. Convenience and “quick fixes” are the order of the day.

Certainly Bunnings will have to give more thought and focus to the smaller, more localised retail trading format as well as creating an online channel that facilitates purchases and transactions.

In summary the Bunnings case presents us with an interesting and substantive example of a very successful retailer attempting to transfer its business model to an international market that superficially has similar cultures and the same language. However there are a number of potential obstacles and challenges it will have to overcome if it is to succeed.

Let’s watch developments over the next couple of years with interest.

This blog is about the issue of retailers and their approach to sustainability. One aspect of this “umbrella term” addresses the issue of sourcing material and product from suppliers and how retailers manage this process in an ethical manner with a (supposed) keen eye on being a good corporate citizen.

Since the mid 1990’s (or thereabouts) we have seen an increasing focus on sustainability. This was driven by a raft of revelations about how iconic well-known US brands such as Nike, Old Navy, Gap and so on, were able to sell merchandise at low prices. It transpired that in many cases this was due to their ability to identify “sweatshops” in parts of the world where there was little emphasis placed on issues such as worker safety and where workers were exploited or where child labour featured prominently.

The author, Naomi Klein, through her book No Logo, also flagged up the sins of many multinational companies in these areas.

This triggered protests by consumers and indirectly, it could be argued, forced retailers such as Nike, IKEA and many others, to put in place programmes to address these issues. Codes of behaviour, inspections and audits became “flavour of the month”. Ethical sourcing became the buzz word: sustainability, the Holy Grail. Through the noughties and into this decade this approach continued with ever-increasing rigour and focus. Can we therefore assume that the issue of ethical sourcing and the associated problems have been fully addressed?

Unfortunately not.

We should have been alerted to ongoing problems with the horsemeat scandal which I refer to in chapter four of Retail Marketing. The key learning outcome from this example was that supply chains can become very complex and to a large extent, uncontrollable. We witnessed situations where retailers caught up in the scandal had little or no firm mechanisms in place to trace the ultimate source of the products. Suppliers sourced from other suppliers who sourced from other suppliers across many countries in Europe. Like money that disappears into off-shore accounts through untraceable “shell” companies”, it became apparent that it was very difficult to determine the ultimate provenance of the products.

I was reminded of this case when I read a recent article posted on the internet. (Hobbes, Michael. The Myth of the Ethical Shopper. Huffington Post, 2015).

In this article, the author paints a pessimistic picture of the way in which companies source their material and product. The cynic in me believes that many of his observations have merit. He reserves particular criticism for the tendency of many retailers to wrap themselves around the psychological “comfort zone” of inspections, audits and traceability reports.

By checking paperwork, many retailers are convinced that suppliers are complying with the standards laid down and are therefore behaving in an ethical and responsible manner. Hobbes suggests that rather than relying on quantitative, paper-driven evidence, retailers can learn a lot more from a more subtle, qualitative approach. He cites the example of Nike who used a combination of both methods. Not surprisingly they found that most suppliers “ticked the boxes” when it came to the paper trail. However in-depth interviews with workers revealed that in many cases working conditions in factories had not improved, and in some cases actually worsened.

In many ways this example mirrors the flaws associated with quality management programmes such as the much criticised ISO900 model. In this case, many companies have successfully completed the paperwork to be certified. However it can be argued that the real skill is to provide the requisite and required paperwork, tick the boxes and thereby get certification. It does not necessarily mean that the organisation is fully practicing quality management principles and procedures in an effective manner.

Hobbes argues that the realities (in the case of the retail fashion and clothing sector) of fast fashion and the need to generate new designs and merchandise in a rapid manner to satiate the needs of consumers, means that supply chains become even more complex. This raises questions of traceability, transparency and accountability across the supply chain. It fosters an environment where “short-cuts” are taken by members of the supply chain in order to meet the ever-pressing and demanding requirements of retailers in terms of price, cost-cutting and speed. As an indicator of the changing face of fashion retailing, factories in such supply chains are churning out as many as four hundred different products for a range of customers at any one time.

Let us explore this issue further.

How many of us have heard of a company called Li & Fung? I thought not.

Li & Fung produces a range of products for a bewildering and diverse range of retailers: from Wal-Mart to Disney. It deals with over 15,000 supplier factories in over 40 countries. It has an estimated revenue of nearly $20 billion – more than the combined total of Ralph Lauren, Armani and Tommy Hilfiger. Yet it does not own or operate any of these suppliers. It is essentially a mega-coordinator or middleman that links together suppliers in areas such as cotton supply, textile mills, stitching and sewing houses.

To be fair, it has policies and procedures in place to monitor and audit its supplier base. It feeds back the results of its auditing too many of the buyers. However, given the opaque nature of its relationships and the complexity of the networks, it is almost impossible to eliminate ethical concerns and issues. In recent years it has had to deal with the death of 29 workers in one of its supplier’s factories in Bangladesh. In Cambodia, nearly 300 workers fainted as a result of malnutrition.

As retailers place ever-increasing demands on suppliers, there is in fact no guarantee that orders will be met by the same supplier on consecutive occasions.

Hobbes cites the case of Wal-Mart and its relationship with a company called Tazreen. This company had a major fire in 2014 which killed over 120 workers. The cause of the fire and the inability of many to escape (when the firm alarm went off, they were allegedly ordered to return to their work) due to unsafe stacking of material led to world-wide condemnation.

Subsequent investigations revealed that Wal-Mart was responsible for over 60 per cent of the products being produced at Tazreen. However deeper probing revealed that the global retailer had never placed an order with the company. It used a mega-supplier to meet the orders – a company called Success Apparel. It in turn hired a company called Simco who also sub-contracted a percentage of the order to another supplier who in turn used another one. You get the picture!

The net consequence of this practice is that in many cases retailers can (legitimately?) exculpate themselves from responsibility for any shoddy, unethical or downright dangerous practices or procedures that may or may not happen.

Wal-Mart has subsequently in some cases reverted back to “in-sourcing” in an attempt to retain greater control over its supply chain. However the practice of using “mega-coordinators / coordinators / suppliers” is still prevalent.

What can we learn from this experience?

Firstly it would be naïve to assume that issues such as ethical sourcing and corporate social responsibility have largely replaced the “bad” practices of the 1990’s and noughties.

The complexity of supply chains, allied to the ever-increasing demands on retailers to promulgate the “fast-fashion” era means that it is difficult to trace the provenance of products in the supply chain.

It is also difficult to fully monitor the practices and procedures of this bewildering array of geographically diverse spread of suppliers, sub-suppliers, and sub – sub suppliers and so on.

It begs the question as to whether shoppers are aware or even care about such practices. That is a discussion point for another blog. Watch this space. In the meantime we will continue down the yellow brick road!