British Petroleum (BP) one of the top six global oil and gas companies made a major change in strategic direction at the end of July, 2020.

Its new CEO, Bernard Looney, who worked his way up the organisation since he joined as an engineer, took over as CEO from its previous incumbent, Bob Dudley, in February. One of his first moves was to alter the direction of the company for the next ten to twenty years. The implications of this shift in focus is likely to be precursor to the transformation of the oils and gas business globally.

Why might this be the case?

We are all familiar with the growing focus on the issue of climate change over the past number of years. Pressure for all companies across all industry sectors to grapple with this challenge has emanated from a wide range of diverse sources such as governments, scientists, environmentally conscious consumers and a plethora of activist groups.

Arguably pressure groups such as Extinction Rebellion and individuals such as Greta Thunberg have devised aggressive and creative campaigns to bring climate change to the forefront of attention for governments. Despite some negative connotations associated with their protests, it has worked in so far as it has put even greater pressure on policy makers to harness their thoughts around a coherent strategy going forward.

The United Nations (UN) Secretary General, Antonio Guterres has written to all the heads of state of countries world-wide to encourage them to achieve a position of net zero emissions by 2050. It has supported a “Race to Zero” campaign as part of its diplomatic encouragement to push this forward and to have it formalised in time for the COP26 International Summit to be held in Glasgow in 2021. This was supposed to have taken place in 2020 but was postponed due to the Covid crisis.

Currently it is estimated that one-third of the world’s GDP is already committed to the principles of the Race to Zero.

So far so good, you might say. However some of the major economies have been more reluctant to embrace the various elements of climate change. Donald Trump, to the consternation of many, has adopted a negative attitude to climate change, to the extent that he largely denies its impact. The USA, together with large countries such as India and China continues to rely on fossil energy and hydrocarbons to fuel their manufacturing operations.

What has BP done to generate such publicity about its change in direction?

First some background and context.

BP was established in 1908 and was then known as the Anglo-Persian Oil Company. Over the years it has established itself as one of the top six oil companies in the world. It has experienced good and bad times during its evolution. For instance in 2010 it encountered one of its most dismal periods when it was involved in a major oil spill in the Gulf of Mexico in 2010. It has taken the best part of a decade to recover from this disaster.

In tandem with other oil companies BP has been the recipient of much criticism and opprobrium in the national and global press. Arguably the oil sector is up there with the tobacco and gambling sectors in terms of negative publicity.

This was the environment and context that faced Bernard Looney when he took over as CEO in February 2020.

One of his initial statement was the intention to make BP a net-zero carbon emitter by 2050. In July he put some substance on this overall target. Currently 97 per cent of the BP business is hydrocarbon.

Firstly he promised to make a tenfold increase in investment in green power, from $500 million to $5 billion a year and to develop 50 gigawatts of renewable capacity by 2030. To put this in context, this figure is more than the UK’s entire current capacity.

He also stated that the company would move from 7,500 electric charging points to 70,000.

He promised to reduce investment in oil and gas production, the staple part of its business to around a half of its current spending.

He made the decision to stop exploring new countries for oil and gas development (excluding BP’s stake of around twenty per cent in the Russian oil company called Rosneft.

Looney argued that the company cannot move quickly to a position of being a net-zero carbon company. The existing hydrocarbon business will, in his view, generate the cash to allow for the investment in the initiatives necessary to move it to its targeted position by 2050.

It has already securing and supplying agricultural and bio feed stores to renewable fuels producers and has added renewable diesel production to one of its main refineries.

What are we to make of this change in approach?

As mentioned earlier, the pressure to move away from fossil fuel has been inexorable. On a more practical level, some of the organisations that BP has sponsored, such as the Royal Shakespeare Company and National Galleries Scotland have cancelled their respective deals. Even internally, key managers were leaving, or planning to move from the company because of the toxic publicity and image that it had in the media.

Reducing its carbon footprint in oil and gas exploration by 35% to 40% by 2030 is a not inconsiderable target. It also plans to sell off some of its assets through a rationalisation of its portfolio of forecourts and oil and gas facilities.

We should note that the reduction on oil and gas exploration has clear benefits. Such developments require major investment in drilling, platform development and general infrastructure. Simply pumping out oil on a daily basis, by contrast, is low-cost and the cash goes straight into the company’s coffers. In many ways this will provide the opportunity to pay down the debt that BP has built up from previous acquisition and pay for the various initiatives in the so called “carbon lite” energy economy.

What are the challenges facing BP in general and Looney in particular, as they roll out this new approach? One area that gives cause of concern is the style of management that exists within BP.As you might expect in a long established “heritage” brand employing over 60,000 people world-wide, the traditional principles of hierarchy and command and control procedures. It will now be operating in sectors that require more entrepreneurial skills and attributes. Older senior managers will have to adopt a more creative approach to dealing with the “carob lite” sector, where there is much competition.

Looney identifies three points of differentiation which he feels will make BP a very competitive player in this new environment.

• Integrated energy systems: along and across value chains, pulling together all of BP’s capabilities to optimise energy systems and create comprehensive value propositions for customers
• Partnering with countries, cities and industries as they shape their own paths to net zero
• Digitalised innovation – to enable new ways to engage with customers, create efficiencies and support new businesses.

Delivering the strategy will see BP become a very different company by 2030. By then, BP aims for:

Investment in low carbon energy to have increased from approximately US$500 million to around US$5 billion/y.

Developed renewable generating capacity to have grown from 2.5 GW in 2019 to approximately 50 GW.

Bioenergy production to have risen from 22 000 bpd to more than 100 000 bpd.

Hydrogen business to have grown to have 10% share of core markets.

Global customer interactions to have risen from 10 million to 20 million/d.

Electric vehicle charging points to have increased from 7500 to over 70 000.

Energy partnerships with 10 – 15 major cities around the world and three core industries.

How will BP fare over the next decade? Let’s see.

Discussion questions

1. Assess the approach adopted by Bernard Looney. In particular focus on whether this has substance. Is it likely to succeed?
2. Do the outcomes from the new direction in strategy match up with the strengths and weaknesses of BP? To what extent is approach radically different from its main competitors?
3. To what extent do sectors such as wind and solar energy and hydrogen production represent realistic opportunities for BP? Are there other sectors that it can develop as it goes forward?

It is a truism to state that we are living in strange times. How many people have we said that to in the last few months?

The implications for business have been articulated in the business literature and I do not intend to rehash them in this blog.

I have chosen the grocery business to consider how Covid has forced the major global food retailers to reassess their existing business models to take account of changes in buyer behaviour and shifts in shopping patterns.

In truth, Covid has not necessarily caused a sudden tremor for these retailers. For instance there has been an inexorable shift towards online shopping over the past few years.

In the United Kingdom, which is dominated by the “Big Four” retailers: Tesco, Sainsbury’s Morrison’s and Asda, online grocery shopping took some time to make inroads on visits to traditional “bricks and mortar” stores. By early 2020, online grocery shopping captured about eight per cent of all food sales in the UK. Since March 2020, this share has risen to around thirteen per cent. We should not be surprised by this. People who adhered to lockdown measures and restricted their movements availed of online shopping. They found it to be convenient and “hassle-free”.

However we need to take a “big picture” view of longer term trends and developments and their implications for future business models and marketing strategy in this sector.

In particular I am fascinated by the way in which we need to imagine or more specifically “reimagine” how supermarkets will look in five to ten years’ time. Will we see incremental change? Transformational change? I will argue that we are almost certain to see the latter happening.

Recently two brothers: Moshin and Zuber Issa teamed up with a private equity company called TDR Capital, to acquire Asda, one of the “big four” food retailers in the UK. They made their money when the established Euro Garage Forecourts to its present size of 6,000 such operations spread across ten countries.

Walmart, the giant US food retailer acquired a majority stake in Asda as far back as 1999. It continuously struggled to grow this business as it found that the dynamics and operations of the UK food retail sector did not conform to how Walmart operated in its US base.

In October it sold its majority stake to the EG group. We will revisit this purchase later in the blog.

Let us take a broader look at how the food retail sector globally has changed in recent years.

At the outset I argue that supermarket shopping is not necessarily something that most of us look forward to and enjoy. Much (admittedly not all) of the items that we purchase in our visits to the supermarket are functional in nature. There is nothing remotely romantic about purchasing toilet rolls, baked beans and instant coffee. Items such as the aforementioned toilet rolls tend to be commoditised.

This raises questions in my view. Why do we put ourselves through the misery of driving to shopping centres and malls to do supermarket shopping when parking is difficult, costly and that is before you enter the said store or outlet? When you are actively moving around the various aisles you are likely to be assaulted by shopping trolleys, impatient shoppers and screaming kids. Not, in my opinion, a very attractive prospect.

Will we change our behaviour? I believe we will.

Let us try to reimagine the typical large supermarket / hypermarket of the future!

Firstly the way in which such operations are structured and laid out will fundamentally change.

Currently most of the space is allocated to presenting a vast range of items to the visiting shoppers. A typical supermarket will carry anything from 40,000 to 50,000 items. This will be higher in the case of the larger hypermarket format.

With more and more people buying online, is there a need for such an allocation of space? No.

Increasingly the supermarkets of the future will reduce the space allocated to the display and merchandising of items and make more strategic use of space to operate as a distribution hub, a warehouse, a “click and collect” area, charging points for electronic vehicles to deliver online orders, a “drone” area and mobile shops.

Staff (initially) and in the longer term robots, will work side by side with shoppers as they pick items from the shelves for online orders that have been made by customers.

Items that do not require engagement or interaction by shoppers will be positioned in the adjoining warehouse. Only those items that appeal to the senses e.g. perfumes and electrical items, will feature in the display areas.

Supermarkets will redefine their business as operating in the “tech” sector as opposed to retail. We will continue to see the emergence of specialised tech companies such as Ocado. The latter is a good example of such an operation. It commenced operations in 2000 under the generic name of “Last Mile Solutions” and was backed by John Lewis Partnership – a well-known UK retailer.

It was a very significant evolution in my view as it married the basic principles of logistics with a customer-centric philosophy of offering shoppers a wide range of items at low prices. It fundamentally changed the trajectory of retailing: moving it away from the notion of retailing to supply chain management with an intense focus on the customer.

It currently (October 2020) has a market value of £21.7 billion. To put this in perspective, this is higher than Tesco – valued at £19.9 billion as of October 2020.

Some commentators that the global retailers and operators such as Ocado were stimulated into action by the initial move of Amazon into the food retail sector with its acquisition of Whole Foods Markets in 2017.

If we look at the traditional business models employed by the food retailers we can see that generally they have revolved around discounting and low prices, increasing the quality of own brands, diversifying away from food into such diverse areas as finance, pharmacies and insurance.

Arguably the most successful operators in the future will be those companies who sharpen their expertise in logistics and supply chain management. We have already seen upgrades in performance during the course of Covid. For instance Tesco has doubled its online capacity to 1.3 million online order deliveries. Asda has likewise improved its capacity to deal with over 700,000 orders weekly by the end of the summer of 2020. Such developments have led to the creation of thousands of jobs in the picking, packing and delivery areas of the business.

Critics of this development argue that there would appear to be no long term strategy at the heart of the food retailers operations. Some posit the view that it is only a ploy to keep increasingly promiscuous shoppers loyal to that supermarket group.

Others argue that it does not make sense to tie up the assets (bricks and mortar stores) with associated high rents and lease agreements. Instead they should be outsourcing or partnering with third-party operators such as Ocado.

Are we going to see a decline in investment in “bricks and mortar” grocery stores going forward?

The evidence from the UK suggests not. In 2020 developers and food retailers spent over £1.1 billion on investing in such stores. This is slightly lower than the ten year average of £1.4 billion.

Retailers such as Amazon and Alibaba have redesigned their store operations. In the case of Amazon they have developed the Amazon Go concept where shoppers are tracked by lasers and leave the store without having to queue up and pay (money automatically transferred from their accounts). Alibaba has over 200 of its supermarkets redesigned to reflect the changing technology trends. Staff pick items from the shelves, assemble the orders and place them on a track that operates over the heads of traditional shoppers in the store. They are shifted to another area of the store where couriers on mopeds then deliver them to the customers in as little time as thirty minutes.

The trend towards “tech”, “customer-driven” supply chains and robots appears to be inexorable.

Our old friend Asda, under its new owners, intend to insert an Asda format in many of its Euro Garage forecourts and work on the concept of creating mini distribution hubs within its portfolio of physical stores.

Interestingly it has established partnerships with companies such as The Entertainer. This company will take over the aisles that are devoted to toy products in the Asda stores. They will have full control over the ranges to be displayed, merchandising decisions and pricing. It is anticipated that this “test-and-learn” approach will be pursued with other organisations.

Arguably this addresses one of the shifts in consumer behaviour: the trend towards shoppers completing multiple shopping missions in a single trip.

In summary Covid had accelerated the move towards online grocery shopping. Uncertainty about when a vaccine will be readily available to society is likely to exacerbate this trend over the next couple of years.

The scale and size of physical supermarkets and hypermarkets will encourage the major food retailers to reappraise the value and contribution of their vast store portfolio.

Let’s see what happens going forward.

Discussion questions

1. Are retailers in danger of misinterpreting consumer behaviour when it comes to the food sector?
2. Are we going too far when we argue that food retailing in the future will resemble distribution hubs as opposed to traditional supermarket formats?
3. How important are cultural differences in terms of influencing consumer behaviour? Would this supermarket of the future work in your region?

Relationships are at the heart of successful marketing campaigns. The nature of such relationships differs, depending on the expectations and demands of both parties. If we think of a continuum, at one end we experience transactional relationships. These are characterised by a lack of commitment and loyalty. Costs typically drive the decision-making. At the other end, we experience strategic partnerships between the two parties. Trust, cooperation and collaboration drive such relationships.

Nike’s relationships with its independent sports retailers, who make up a figure of around 30,000 worldwide, brought me back to some of the theories and concepts behind relationship marketing. It provides us with a “ready-made” case study of the challenges of managing relationships and managing change.

Nike and Adidas are the two dominant sports brand across a number of categories in the sports clothing, footwear and accessories sectors.

In the case of Nike, it sells through wholesalers, its main channel. However, from 2012 to 2018, its reliance on this channel declined from 83% of total global sales to around 68 %. It sells through over 30,000 independent retailers. Since 2018, it has decided to reduce its dependence on such retailers. We examine this in more detail in later paragraphs.

When you think about it, no manufacturer wants to use intermediaries to sell its product. For one thing, they take margin out of the total price of the product. For another, they are in many cases independent, and do not sell on an exclusive basis. This can lead to a conflict of interests, unless they are sufficiently motivated to do so. However, the sheer scale of the challenge of getting product to the consumer in many cases makes it impractical to eliminate intermediaries.

Since mid-2017, Nike pursued a policy of moving more aggressively to a policy of selling direct to the consumer (DTC). Senior executives refer to this policy as the “Consumer Direct Offense” strategy.

This strategy focuses on main cities in countries, greater focus on innovation and an emphasis on the social media and digital platforms.

Pursuing such a strategy inevitably poses problems for the small independent sports retailers. Nike, and to a lesser extent, Adidas, have introduced policies which appear to threaten the existence of many small retailers. They have introduced targets by way of a minimum annual purchase obligation. Failure to meet such targets has led in many cases, to the termination of agreements. Ace Sports, a London-based sports retailer, has done business with Nike for over thirty years. In 2019, it failed to achieve its £8,600 minimum purchase obligation. It was given two days’ notice of its contract being cancelled.

In addition to such practices, Nike restricted access to its innovative products and delayed delivery of items.

Harking back to the different approaches to managing relationships, such tactics ensure that Nike perceives such relationships as being transactional in nature. Using more pragmatic language, some people have accused them of acting like the typical schoolyard bully.

Yet, you can counter-argue that Nike is pursuing a strategy that fits in with the desire to generate more margin and profitability by selling direct to the customer. In the sports sector that is not performing as strongly as the latter part of the past decade, Nike generated profits of $18, billion in 2019. This represented an increase of around 9.5%.

Lest we think that it is only small independent retailers that are suffering, multiple chain sports retailers also experience difficulties.

Sports Direct, one of the largest sports retailing operators, encounters major problems with both Nike and Adidas.

Over the years, it has specialised in acquiring sports brands, generating useful margin and subsequently lowering prices on Nike and Adidas products. Typically, its stores reflect a Spartan atmosphere; more akin to a discount store. This does not appeal to Nike in particular, who emphasises the need for a positive and strong customer experience. They do not trust him to represent the Nike brand, as they would like. Therefore, Sports Direct fails to gain access to the “desirable” and innovative brands from the duopoly of Nike and Adidas. In the UK for instance, both brands generate around fifty-five per cent of sales of trainers.

If you look at the brand values of Nike, you will see that it places great emphasis at being in the forefront of design and the use of innovative technology. While it still wants to do business with a selective number of independent multi-store retailers, it applies stringent standards.

Sports Direct, via its owner Mike Ashley, has re-designed some of its stores to meet such standards. By contrast, one its main competitors, JD Sports gains access to a wider and more attractive range of Nike and Adidas merchandise. On our continuum of relationships, JD Sports is at the “strategic partner”

Nike and Adidas have been accused of retaining control over their key, innovative products, thus ensuring that they generate the appropriate margins instead of the independent retailers.

Ashley has referred this perceived favouritism to the Competition Authority.

Competition legislators will only intervene if they perceive that there I an agreement between two or more parties that effectively restricts healthy competition. They can also take action if they perceive a supplier that is in a position of market dominance (usually if it holds somewhere between 40 to 50 per cent of total market share), and is abusing its position. So far, in the context of the UK market, it has not intervened.

Nike is clearly moving inexorably to a DTC sales and marketing approach. It applies a selective approach to the use of independent sports retailers.

It increasingly focuses on its own retail stores, particularly flagship ones in key cities, and its own Nike Direct online channel.

This generates an environment where it has much greater control over its key merchandise and, by implication, its margins.

The strategy however creates conflict within the independent supplier network. This leads to problems such as a loss of morale, or in the worst-case scenario, closures. After all most people who visit such retail stores look for either Nike or Adidas brands. If popular brands such as the Vaporfly running shoe are not available, they will go directly to Nike.

Adidas has adopted a less aggressive move in terms of terminating contracts with its retailers. Some of the latter have demanded a face-to-face meeting with its representatives. If they demonstrate that they are willing to invest in their stores and allocate more prominent positions and presentations of the Adidas brands, then they are more likely to get their contracts renewed.

The food sector in general and the relationships between supermarkets and their supply base has provided much debate, analysis and discussion in the academic and business media.

This perusal of Nike’s approach to its relationships with independent retailers also indicates the perennial challenge of managing change. In this case, the shift away from extensively using such intermediaries and adopting a direct to consumer model.

Let’s see what happens over the next year or so.

Whenever I look at the fortunes and travails of Marks and Spencer, I am constantly reminded of that old Chinese concept of yin and yang. Based on the Chinese philosophy and religion of Taoism and Daoism, it posits the view that forces which appear to be opposing or contradictory, such as day and night or winter and summer are actually interconnected and interdependent. Such forces are complementary rather than sources of conflict. In other words, shadow cannot exist without light.

All very philosophical, you might say. What relevance does this esoteric concept have for a retailer such as Marks and Spencer?

You might argue that the clothing part of its business represents the “dark swirl (yin). Whereas the food element projects the yang (brightness, passion and growth). It is arguable however, as to whether they complement each other. In my view, both aspects of the business possibly create more problems than solutions. Should they remain in clothing? Should they divest away from clothing and focus only on food? Should they close down?

In previous blogs, I accused M&S of falling into the trap of becoming increasingly irrelevant to shoppers. I argued that over the past fifteen years or so, it has lost its way in the “fashion / clothing sector and has been relatively successful in food.

Despite changes in the CEO position and within senior management over the past decade, it has failed to recover its former position in clothing and has begun to lose its previously hard won success in food to a range of operators such as Gregg’s, Just Eat, Uber and Deliveroo

To be fair, it has tried to alter this decline, particularly in clothing. This included the use of Holly Willoughby: a well-known presenter of a daytime TV show, largely watched by older women. The actor, Helen Mirren has also endorsed their ranges of clothing.

In my view, such initiatives only serve to accentuate the increasing irrelevance of M&S. Whom precisely are they targeting? They appear to address the older, mainly female demographic. They also target younger female shoppers. Is this not a contradiction in terms? To quote a well-used phrase. If you were a female between the ages of eighteen to twenty-five, would want to shop at a place that is used by your mother or grandmother? The answer is most probably “no”!

My concern is that this issue of positioning and targeting has been a perennial problem for the past two decades. Yet, M&S has failed to grasp the long-term significance of failing to put in place a coherent strategy.

2019 did not bring any improvement in the competitive position of M7S.

In December, it announced the planned closure of around twenty of its larger stores, including the iconic 100,000 square foot Marble Arch store in central London. Interestingly many of these stores contain four to five storeys. This creates possibilities for renting the space for residential and / or office purposes. Are we to interpret this to mean that M&S will enter the property development / real estate market?

In January 2020, M&S posted improved Christmas results when compared to the previous year. However overall revenue from the UK market fell by 0.6 per cent, to £2.8 billion. Food sales rose by around 1.5 per cent.  When we drill more fully into these figures, it becomes apparent that shoppers responded to the range of promotions and lower prices in the food category. While sales may have edged upwards slightly, overall margin from this sector fell.

Revenue from international business increased by 2.3 per cent.

Also in January, M&S launched an athleisure range, aimed primarily at the younger, female shopper. Labelled as “goodmove”, the range consists of around 150 pieces, mainly in the “leggings” category. Optimistically, you could argue that this is a sensible move, as the athleisure segment has grown exponentially over the past decade – mainly driven by sports retailers such as Sports Direct. You could equally argue that this is a very late response to this sector. It also does not directly address the problem of its lack of identity with the younger female shopper (18-25).

Some commentators tale the view that too many of its stores are cluttered up with many unfashionable items that struggle to appeal to even the older female segment.

As alluded to earlier, the food area, while increasing its sales, has compromised by lowering prices and engaging in promotions such as “Dine in for £10”.

On a wider scale, the online area of the business significantly lags behind other retailers. It requires major work in the area of IT development.

On a more positive not, it entered into a deal with Ocado – one of the most successful online retailers in September 2019. M&S acquired a fifty per cent stake in the company. This means that Ocado will stock M&S products by September 2020. This is dependent on the permission of Waitrose, who currently holds a contract with Ocado.

While this can be interpreted as a potentially wise move, there is no doubt that the food sector, particularly the delivery component, has generated fierce competition from such unlikely players as the supermarkets and Amazon.

We have noted that M&S has entered the “discounted price and promotions” element of the market. Does this potentially threaten its former image of being a quality retailer in both clothing and food?

The move to reduce the number of its larger store would appear to make sense. A cursory look at its plans for the future suggests that M&S will rely more on the shift from big stores to the weekly food shop.

It already operates a range of “Simply Food” convenience stores. Perhaps this area might generate greater profitability going forward. At present, the Simply Food stores make up 729 of the overall 1045 stores. The remaining stores (314) sell both food and clothing / home products.

It has also lost its place in the FTSE top 100 companies in the UK. This highlights the increasing danger of slipping even further into the “nonentity” category.

The last decade in particular witnessed the ever-increasing power and presence of retailers such as Primark and the fast fashion development. In my view, the rise of fast fashion retailers has dramatically changed the landscape of fashion retailing. This is in sharp contrast to the 1970’s, 80’s and 90’s, when M&S was seen as the”darling” of UK retailing. My abiding image of that time was its approach to management. Virtually all of its Directors and senior managers were white, male, ex public school and conservative, both in terms of their views and in their dress. Women were an extinct species within this environment.

While things have changed somewhat over the intervening decades, the suspicion remains that M&S has systemically failed in clothing and that it will never capture the younger female segment.

Perhaps it should focus instead on the over forty –five market. After all, this is a growing demographic. It also recognises that you cannot be “all things to all people”.

In the food category it has shown evidence that it can create innovative ranges of food. Whether they can continue in this vein in the future is problematic. Perhaps a focus on the vegan segment and sustainable food may create an opening.

I have a sense of foreboding about the future prospects of Marks and Spencer. Let us monitor their progress over the next couple of years.

What is in a name? A question that we often ask about various things in life. In the context of marketing, many of us relate this question to the concept of a brand. When we mention brands such as Apple, Coca Cola and so on, they conjure up various perceptions, opinions and beliefs. The stronger the brand equity, the more positive the perceptions and viewpoints.

In late 2019, Sports Direct owner, Mike Ashley recommended to its shareholders that the company should re-brand as Frasers. He justified this move because it reflected its “elevated” strategy. It also focused on the changing profile and customer proposition of the group.

Initially I was surprised by such an apparent major change in its overall positioning in the marketplace.

Why? Well mention the name “Sports Direct” and many people will associate it with low prices, heavy discounting, cluttered stores and so on. Surely, such a strong brand would not “fit” strategically with upmarket brands such as House of Fraser?

Ashley, we should note, acquired a number of various retailers, in an aggressive acquisition strategy during the couple of years leading up to this name-change. These included such a diverse spread as Evans Cycles, Jack Wills, Sofa.com, Game Digital, Flannels and House of Fraser. The latter two retailers traded as up-market retailers. It could be argued that these acquisitions fundamentally changed the portfolio of retailers owned by Sports Direct.

In the case of House of Fraser, Ashley purchased the operation for £90 million in 2018, as part of a rescue deal. This reflected his approach to doing business. Around the same time, Debenhams also underwent major financial hardship. Ashley always sought out opportunities where bargains could be acquired – such struggling, well-known retailer brands. This bid did not work out.

Shortly after acquiring House of Fraser, Ashley expressed regret at the purchase. He inherited a struggling brand, the associated debt and over fifty outlets with expensive leases.  He went so far as to state that the problems were terminal. Subsequently he announced that he planned to “roll out” a chain of luxury high street stores, named Frasers. These outlets would carry a range of beauty, sports and luxury fashion items.

In some of the closed House of Fraser stores, Ashley began to stock them with discounted Sports Direct merchandise and re-opened them for business. He argued that it made sense to re-brand some of the other stores as Frasers, in order to reinforce the image of a new and luxury mini-retail chain, selling more expensive and exclusive labels. This appeared also to support his long-term vision of turning the Group into the “Harrods of the High Street”.

The overall Sports Direct Group has a market value of around £1.8 billion. Ashley justified the re-branding of the Group’s name as Frasers Group to reflect its changing circumstances: based on moving away from a sole dependence on the sports items, to that of a lifestyle brand.

As we mentioned earlier, the original Sports Direct brand has constantly attracted criticism from various stakeholders over the years. As well as being perceived as selling cheap and low-price sports trainers and clothing, it received heavy criticism for the low pay of its staff (many on zero hour contracts) and overall working conditions. Ashley’s background as an opportunistic entrepreneur, initially operating in market stalls, never fully disappeared as his business empire grew.

His acquisition of Newcastle United football club consistently attracted criticism from it fans. Such negative comments revolved around his lack of understanding of football, his unwillingness to pour money into the club and his attempts to change the name of the stadium to “Sports Direct”.  Critics also accused him of using the perimeter advertising as an opportunity to promote Sports Direct. To be fair, some argue that Ashley simply applied the basic principles of running a business to the football industry and treated his ownership of the club as a business asset to be exploited accordingly.

Disputes with fellow board members and accountancy firms (over auditing the corporate accounts) further reinforced the perception among some commentators, that Ashley was “damaged goods”.

In summary, Ashley would appear to have run a very successful sports apparel brand in the case of Sports Direct. It has continued to make money. However, in his quest for further development, he acquired an eclectic range of other retailers to build up his empire over the past few years.

His main motivation appears to revolve around the desire to shed the overall image of being “cheap and cheerful” and move into more upmarket and exclusive areas that broadly address the lifestyle and luxury dimensions of the retail sector.

What are we to make of such a strategy? In fact, we might begin by posing the question as to whether or not there is any evidence of a planned and strategic approach to the development of the Sports Direct (now Frasers Group) brand in the first place.

A cynic might suggest that the acquisition of the retailers mentioned in the preceding paragraphs came from opportunistic and accidental motives. Hence, the position that it currently finds itself in: operating in a range of apparently diverse retail businesses.

Other commentators might argue that it reflects the entrepreneurial and pioneering approach of Ashley: always seeking out opportunities from potentially “high-risk” ventures, and willing to “put his money where his mouth is”, to back up such a strategy.

In some ways, the strategy poses more questions than any “ready-mad” answers.

Arguably, Ashley has thrashed many of the basic principles of branding and positioning. For instance, how can you maintain consistency, clarity within your communications to your customers, if you utilise a standard name: Frasers, to encompass a range of different retail brands?

Is it credible to suggest that you can sufficiently differentiate your value proposition when your core brand is locked into the discount, low price segment of the market, while at the same time trying to project some of your brands in the exclusive and more upmarket segment?

By retaining the different brand names such as Flannels and sports Direct, is Ashley in danger of confusing the respective target markets with mixed messages?

Many commentators argue that in order to reposition a brand, it is essential that internal change is critical. Unless the group changes its approach to its treatment of workers and working conditions, it will be almost impossible to change peoples’ perceptions and attitudes to the brand. A simple change of name will not achieve this objective.

Somebody once said that the true test of successful brands and how they are developed is based on what people say about you, when you are not in the room. This explicitly reinforces the view that a simple name change will have little impact on people’s perceptions. Rather, it requires a fundamental shift in corporate culture from within. There is little apparent evidence that this is happening within the overall group.

Within its core business (Sports Direct), the Fraser Group faces intense competition from retailers such as JD Sports. Is there a danger that Ashley, by moving more fully into the general, lifestyle market, will “take his eye off the core business” and ultimately run the overall group into the ground? Let’s see.

As we start 2020, the ongoing debate about the future prospect for the high street continues apace.

I have discussed this topic in previous blogs and one consistent pattern emerges from a review of the evidence: that there is no real future for the high street, with one or two exceptions.

As we enter 2020, I thought it would be timely to generate further discussion on this “well-worn” thread.

Experts predict that over 7,000 stores will close in 2020, leading to job losses of around 125,000 positions in the retail sector. The bulk of these closures will come from retailers that operate ten stores or more. Such observations are based on the following trends. A proposed increased in the minimum wage, business rates and the infrastructure surrounding many of the locations in the typical high street.

The period leading into the Christmas season usually provides a sound indicator of what is likely to emerge in the New Year. Footfall figures would appear to indicate a four per cent decline on the same period for 2018. Major retailers such as Debenhams, a high-profile casualty of 2019 announced in early January that it intended to close nineteen of its intended fifty stores divestment. Around the same time as this pronouncement, the UK government indicated that it intended to raise the minimum wage six per cent; to £8.72 per hour.

The business rates that retailers pay for the right to operate on the high street are predicted to rise by 1.7 per cent. This will generate an extra £95 million from the larger retailers.

By contrast, Amazon UK Services (responsible for handling fulfilment centres and customers) paid £1 million on a £2.3 billion turnover.

The issue of business rates engenders much heated discussion. Its critics argue forcefully that it places a high strain on the cost to retailers of doing business on the high street. This is particularly annoying, they argue, because it create an uneven playing field: online, pure-play retailers are not subject to this form of tax. This leaves them in a stronger position to compete, given the relenting pressures on managing costs and margins.

In response, the government states that it has addressed the problem by helping smaller stores. In particular, they argue that retailers with a rateable valuation of less than £51,000 had their business rates reduced by over one-third, with the discount rate increasing to 50 per cent by April 2020. Cynics claim that many small retailers do not pay business rated anyway and this distracted people from the key problems.

Local councils (who are responsible for generating revenue to run their respective cities and regions) have taken a pounding as the high street continues to stagnate. Many of them invested heavily over the years in attracting retail property developers to establish shopping centres. If we continue to see stores closing on the high street, this valuable source of revenue will dry up, leaving large deficits to address on the part of the local authorities and councils.

Retail experts have undertaken government-sponsored evaluations of what can be done to improve the lot of the high streets. One in particular, Mary Portas, generated a number of recommendations to address this problem. They included the following initiatives.

• A designated sum of money to be allocated to specific towns and cities in order to develop and improve the infrastructure
• Investment in public transport to attract shoppers into the high street
• Reductions in the cost of parking in such areas, in order to make it easier to access shops
• More creative design of the high street e.g. innovative and unusual shops
• Reduction of business rates
• Themed events in the high street such as Christmas markets, live music, festivals and so on.

Many of these recommendations were not taken up by the respective stakeholders, leading many commentators to conclude that there was a lack of willingness to focus on the key obstacles to rejuvenating the high street.

In my view, the evidence of stagnation and decline is visual. Please walk around any major high street in your town or city and assess what you witness. I suggest the following will “jump out” at you. A preponderance of charity shops (who receive very cheap rent agreements in order to make the high street look “busy). Betting shops (indicating the popularity of gambling), derelict spaces that appear to be falling down in many cases. Parking wardens pursuing the hapless car-owner with the zeal of religious zealots. Badly lit up spaces, particularly when darkness falls. Beggars and chuggers harassing pedestrians as they pass through. A preponderance also of payday lenders and pawnshops exists on the high street. Furtive activities (such as drug dealing) taking place down back alleys. Need I go on? It leads to the inevitable question. Why would anyone in their right mind go to the bother of visiting the high street when everything is available to them online?

However, I need to be more realistic and objective in my assessment. There are always two sides to an argument.

Proponents for rejuvenating the high street argue that online retailing does not provide an engaging and positive experience for shoppers. In many cases, the design and layout of the website makes it difficult for shoppers to navigate their way to their ultimate destination (i.e. what they are looking for).

Others argue that online shopping is not tactile: it struggles to make use of atmospherics (a common feature of “bricks and mortar” stores). This results in a “sanitised and clinical” shopping experience.

The academic literature and research suggests that the best response from the high street should be grounded in the customer experience. Specifically retailers should capitalise on the ability to invest in “shoppertainment” and accept that they will never compete directly with pure play online retailers on issues such as price. Instead, by focusing on the merging of the online and offline experience, combined with technology, they can continue to attract shoppers to their respective physical premises.

In this situation, I refer you to John Lewis. This retailer revamped one of its major stores (Southampton) with the focus on providing what it labelled “experience playgrounds”. Specifically it created spaces in the store to offer customers cookery classes, gardening talks, beauty makeovers and advice on technology. Senior management see this as a precursor to future developments across its portfolio of physical stores.

Therefore, if we are to follow the examples of John Lewis and other retailers such as IKEA, we will increasingly see physical retail outlets and the high street becoming entertainment centres. This may provide the opportunity to reduce the increasing gulf between online and offline shopping.

The UK government recently announced yet another initiative by making money available to rejuvenate fourteen designated towns in England. Is this a case of “more of the same”?

In my view, governments, retail property developers and retailers will also need to “step up to the plate” and fully embrace the concept of “shoppertainment” if this strategy is to generate dividends going forward. Creating such entertainment venues in badly designed, shabby and expensive physical spaces such as the high street will not necessarily bring shoppers back to the high street. A recent report by the Centre for Retail Research indicates that an average of 2,750 jobs per week in the retail sector will disappear in 2020. Whether the concept of “shoppertainment” will work in the long run is problematic. Let us see.