STUCK IN THE MIDDLE WITH YOU

My recent blogs, for the most part have tended to be pessimistic in the extreme. I have focused on retailers that are in decline: some of them terminal. I continue this unhappy trend by looking at department stores in general and Debenhams in particular in this blog.

Recently Debenhams, a bastion of the UK department store sector announced that it was closing ten stores with immediate effect and forty more over the coming months. With over one hundred and sixty stores dotted across the UK it has been a retailer exuding history and heritage for decades. Earlier in the summer of 2018, House of Fraser also went into terminal decline. In the USA another iconic department store, Sears announced closures. Is nothing sacred anymore?

Department stores have been around since the middle of the nineteenth century. They represented the innovation of those times, leading right up to the 1970’s in Western Europe and the USA. They were the precursor to the shopping centres and malls.

Their unique selling proposition (USP) has revolved around the fact that it is a “one-stop-shop” carrying a wide range of brands in an eclectic mix of product categories. Shoppers can explore the offerings over a wide shopping space and over a number of different floors. What’s not to like about this?

Well the reality is that the inevitable rise of online channels, social media platforms and location-based marketing has shattered, if not irreversibly damaged this hitherto strong differential advantage.

Time-poor shoppers find the concept of trekking around a department store to be unduly daunting and stressful. Why put yourself through this misery when you can shop in relative peace from the comfort of your home, place of work or on the train or bus into work?

Different sub-sectors of retailing: fast fashion and electronics, to name but two, provide a much wider range of items in a specific category than a department store can hope to deliver.

Their cost structures are lower, particularly those with no physical presence on the high street. Their taxes are also lower and in some cases non-existent.

As department stores grew in size (in terms of physical space in an individual store and in scale of operations) many shoppers see a badly laid-out store, with the constant drudgery of going up escalators and floors to find the required department.  The worst of them are almost like a maze!

In previous blogs we have discussed the cost structures that have damaged stores such as Marks and Spencer and House of Fraser. I do not plan to revisit this in detail again. Let us focus instead on other issues that have led to the potential demise of department stores and discuss whether or not they can instigate measures to improve their prospects going forward.

As we have discussed in my book, one of the biggest apparent crimes that a retailer commits is that of being “stuck in the middle”. By this I mean that they are not seen as a premium player or a discount player in their retail sector. This reduces the ability to develop a clear point of differentiation when compared to their competitors. This makes it difficult for the shopper to identify a clear reason as to why they should patronise this store and give it their repeated custom.

What can we take out of this observation? I would suggest that being “stuck in the middle” is the ultimate recipe for blandness, boredom and a muddled value proposition. In most retail sectors shoppers are looking for excitement or something different to what is there already. Middle of the road retailers fall down between the cracks. If we consider the concept of positioning then it becomes almost impossible to create such points of differentiation.

In the case of department stores in the United Kingdom, we can see that premium retailers such as Selfridges and Harrods most certainly do not fall between the cracks. They put forward innovative initiatives that help them to create a position in the minds of their respective target markets.

Put simply they focus on experiential customer journeys when shoppers make a visit to their stores. This is reflected in the way in which they make use of retail space. They work on the principle of providing a range of activities that are not necessarily focused on the purchase of items. They indulge in some of the following by way of illustration. Dedicated events such as masterclass cooking classes, juice bars, restaurants and so on. The toy departments introduce a range of multi-sensory features to enhance the experience.

None of these are necessarily unique in my opinion. We see many such activities in shopping malls for instance. However they address the fundamental need for many shoppers: in interactive and positive shopping experience. Whether or not this is a long-term way of sustaining their businesses is debatable. What is to prevent competitors in the non-department store sectors introducing better “experiences” for shoppers?

Premium department stores also have worked more proactively to develop the omni-channel experience. With varying degrees of success they are striving to provide a relatively seamless and integrated experience for shoppers across their touchpoints during the purchasing process.

Middle of the road department stores such as Marks and Spencer. Debenhams and House of Fraser have failed to grapple with experiential customer journeys to the same extent. They have also been more reactive than proactive in their quest to develop omni-channels.

The net result is they have struggled or in the case of House of Fraser gone out of business.

In my view it is inevitable that even successful department stores will have to rationalise their physical store operations to reflect the changing trends.

By contrast they can focus more fully on their “flagship” stores. These stores allow them to portray their “best-in-class” value proposition: innovative brands, new initiatives and so on. If the trend towards omni-channels continues apace then it is likely that the flagship, “bricks and mortar” store will continue to play a role in the customer journey.

This weakness with department stores even extends to one of their traditional metrics for measuring performance, sales per square foot”. This approach takes on decreasing relevance as footfall to department stores declines and eyeballs on online channels grows.

There has also been (relatively speaking) little meaningful investment in the department store sector. When allied to the high overhead costs we can say that this has led to the decline.

Some stores have addressed in-store elements such as in-store WIFI, self-service kiosks, and staff tablets and so on. Again they have been relatively slow in relation to other retail formats to embrace such technology. Constantly playing “catch-up” in not the best way to succeed.

The concept of a “one-stop-shop” across a very large, potentially confusing space, arguably is not the way to go in light of trends and developments in the retail sector.

Let’s watch this space!

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ACER

2018 has not proven to be a stellar year for retailers – particularly in the UK. A continuing decline in people’s incomes, many closures of outlets on the high street, ever-increasing costs and taxes all mean that retailers have continued to struggle. This has been exacerbated by the ever-increasing move to online shopping. The pure-play online retailers also hold significant advantages: no high leasing costs associated with physical properties and no exposure to business rates.

Amid all this doom and gloom, one retailer stands out in my view and is worthy of further analysis and appraisal. That retailer is, not surprisingly an online operator and I am referring to ASOS.

This company was established in 2000 and in the space of eighteen years has proved to be consistently successful. Figures released in October 2018 showed full-year profits to be up by twenty-eight per cent (£102 million), with UK sales rising by twenty-three per cent (£around £860 million).

The name: ASOS stands for “As Seen on Screen” and reflects the focus that the retailer places on the role that celebrities play in setting the tone and style in fashion trends. Initially it focused exclusively on such designs but over the years has broadened out the range to cater for diversity.

Its stated mission is to “build ASOS into the world’s number one destination for fashion shopping twentysomethings”.

Interestingly it has appeared to have made little impact in key geographic regions outside of the United Kingdom (7.4 per cent). For instance it holds a market share of 1.6 per cent in the European Union and 0.5 per cent in the USA. This indicates that there are great opportunities for further growth as we look into the next five to ten years.

Its continued success and growth prompted me to “dig a little deeper” into the reasons for its success. What is it doing that has led to that success? What are other retailers NOT doing?

I would certainly highlight the innovative nature of ASOS. “Innovation” is a term that is bandied about by many commentators. It is applied to companies in the same way that a footballer is deemed to be “world class” after a couple of impressive performances in two or three games. In most cases the term is devalued. Being truly innovative is essentially putting it at the forefront of every decision and initiative that is introduced by a company – not an isolated activity. A perusal of ASOS suggests to me that they have managed to earn the term “innovative” right throughout their continuing development since 2000.

Let us explore this further.

Technology represents one critical dimension of its overall strategy.

Before social media and mobile marketing became popular ASOS recognised their relative importance. They were one of the first retailers in the fashion business to recognise the importance of influencer marketing. They established a group of over one hundred “twentysomethings” (ASOS Insiders) who posted their personal preferences on social media. They also launched the ASOS brand magazine, containing high quality content and an opportunity for readers to order directly from the online magazine. This has built up over 800,000 subscribers world-wide.

The use of technology has featured more prominently in recent years.

For instance it recognised that its web site ordering, fulfilment and returns policies had to be “leading edge”. This is magnified by the sheer scale of the operation. It carries 85,000 to 90,000 items on its channel and introduced an average of 5,000 new items each week.

A key feature is the way in which it deals with returns. The young Generation Z shopper (born at the beginning of this millennium) demands quick refunds if they are unhappy with something they have purchased. It has invested in appropriate technology to manage quick responses to dealing with returns and building in a status-tracking feature so that customers can monitor progress.

Much of the work of online retailers such as ASOS revolves around logistics: the process of dealing with managing inventory and delivery. It has invested in distribution centres in Atlanta and Berlin in the last couple of years – an indication of where they see the likely potential for future growth and development.

In October 2018 it launched a voice search system for its shoppers to find items on the website. A shopper can initiate a conversation by using ENKI – a chatbot, on Google. It helps the shopper discover new lines (in both womenswear and menswear). The ASOS owners argue that this enhances the points of engagement between the retailer and the shopper and leads to a more seamless shopping experience. ENKI essentially finds products for shoppers and visually displays them on their smartphones.

It is also building on its technological capabilities by introduceing new languages on its websites, improving the detail in its recommendations section by developing new algorithms. It is also developing AI (Artificial Intelligence) to further improve the conversational interfaces. This together with the average of 5.000 new items that are introduced each week, arguably does place ASOS at the forefront of innovation.

The cornerstone of ASOS is all about engaging with and creating a social welfare dialogue with their customer base. This appears to work; judging by the financial performance of this retailer.

ASOS has committed to spending around £250 million annually to reinforce its position as an innovator and trend-setter in the fast-fashion sector.

Allied to the use of technology is the focus on creating a series of designs and items that set the trend for the “twentysomethings”. While still reflecting celebrity it has expanded its collections to all forms of fast-fashion.

In the summer of 2018 ASOS reinforced this aspect of its strategy by launching a new label: Collusion. This again is aimed at the Generation Z segment. In this case however the designs are gender neutral. This was launched with the help of influencers: one hundred Generation Z shoppers. The Collusion collection is picking up the trend towards unisex designs. Arguably Zara has already addressed this issue. However this tended to be reflected in the styling aspect. By investing so heavily in this label ASOS has gone deeper into the identity of the concept. This is captured in a quote from the ASOS CEO. Collusion is a “200 piece collection for a new generation united in their pursuit for inclusivity and representation”. The collection generally focuses on athleisure and casual wear. The former is picking up in the trend toward people wearing clothing that doubles up as leisure wear and training / gym gear.

It also adopts an innovative approach to pricing in general and discounting in particular. It is by no means the cheapest online fashion retailer. This is reflected on on-off, stand-out branded products, which are sold at a premium. Roughly five per cent of the items fall into this category.

Instead of applying a discount policy across all of its items ASOS has created what it called an “outlet section” as part of its online store. This is updated on a daily basis and can cover a few thousand items. The discounts can go up to as far as seventy per cent. Arguably this approach draws customers to visit the site on a frequent basis as they are likely to find constant changes to the discounted offering.

In summary there is a lot to like about ASOS and its value proposition. By putting its money where its mouth is, it has become a consistent innovator over the years. This places it within the potentially “game-changing” category in the fast-fashion sector. More importantly it gives it first mover advantage in many cases and provides it with a window of opportunity. It also takes its competitors some time to play “catch-up”.

To use colloquial terminology I describe ASOS as an ace retailer: one that gets to the key issues in terms of creating, delivering and maintaining a successful business proposition. What do you think?

POISON IN THE AIR

Concerns about the environment have been bubbling away in the general and business community for the past couple of decades. In early October (2018) they came to the forefront once again with the publication of a major UN report on the future threats to the planet.

Specifically the UN Intergovernmental Panel on Climate Change produced a report which indicates there is a high risk of global warming if it passes 1.5 C degrees. If it goes beyond this figure then there are major threats of drought, floods and “all things nasty”.

This report has its genesis in the 2016 Paris Agreement and appears to reinforce the widely-held fears of governments and policies about the continuing way in which we are damaging the environment.

Coincidently and around the same time as the publication of this report, the UK government questioned some of the practices of fashion retailers about what specific measures they were implementing in order to address the environmental and social impact of the items that they sell to their customers.

They wrote to ten of the top fashion retailers (M&S, Next, Primark, Arcade, Asda, TK Maxx & Homeservice, Tesco, JD Sport, Debenhams and Sports Direct outlining their concerns and questions.

This sector is valued at around £20 billion to the UK economy.

This reawakened by interest in this subject – a topic that we address in some detail in one of the chapters in my book.

As we discussed in that chapter the environment touches upon almost every aspect of a retailer’s business operations: from transportation to recycling; from working conditions to pay and through to the materials that are used in clothing. It is the best example of how to define the word “ubiquitous”.

If we look at the literature on the retailer’s response to the environment we can see that many of them have adopted a proactive and planned approach. For example in the UK, Marks and Spencer was one of the first to develop and implement such a plan. Many others have followed.

Cynics have suggested that many retailers pay lip service to the environment: indeed some have been accused of using it as an attempt to “greenwash” people into believing that they are instigating initiatives when in fact they are, at worst, misleading them or at best, cultivating a “good news story” in order to place them in a favourable light.

The UK government has challenged fashion retailers to examine and re-assess their respective approaches to the design, production and discarding of clothing.

I am always intrigued by the role that the consumer plays in this process.

I will give you an example. Over the past twelve months or so I have conducted classes on this topic with a wide range of students (under-graduates, honours students, MSc and MBA candidates) in the UK, Europe, South-east Asia and the Gulf Region. I have asked each group to specify which of the following categories they belong to: environmentally aware shoppers, neutral or couldn’t care less.

In total I would have posed the question to over seven hundred students. While I appreciate that it does not necessarily represent scientific and publishable research, it nonetheless provides an indicator as to people’s views and opinions.

What was the result? In all classes and in all international centres, about ten per cent indicated that they were concerned about the environment, about sixty percent suggested that it was not something that concerned them and thirty per cent highlighted that they couldn’t care less about the topic.

What are we to make of these views? From a marketing perspective I would suggest that the various stakeholders have under-estimated the challenge of convincing and converting people’s attitudes before we might see evidence that shoppers are likely to change their shopping behaviour and habits.

While not necessarily challenging the exhortations from governments and institutions such as the UN, I would argue that it is not sufficient to “blind” people with all sorts of scientific data and evidence in a directional and in some cases, condescending manner. For many of us such messages go over our heads.

Specifically in the case of retailing shoppers need an incentive to switch their purchasing of clothes away from items that damage the environment.

This takes us to the heart of the matter. It is a reality that if people are to purchase eco-friendly clothing items, they will have to pay more for the privilege.

Retailers have also had to grapple with the issue of cost. However many have realised that if they examine and assess each aspect of their supply chain, they can pinpoint areas where savings can be made in areas such as recycling, energy and more efficient modes of transportation. In other words, while there may be initial costs associated with revamping transportation or introducing various initiatives within each individual store, benefits will accrue.

An example of this is where retailers work with third-party operators such as suppliers and freight forwarders in order to address environmental issues. In the latter case some of the more proactive freight forwarders are introducing technology to calculate carbon emission levels for their retailers. This initiative can break down the analysis by the mode of transit, the supplier and the location. They can provide information on what the statistics are equivalent to. For example 5 tons of CO2 emissions equals half of a person’s home energy.

Marks and Spencer have set a target, in their Plan A 2025 initiative of becoming a zero-waste business by that date.

Retailers are also reviewing their key performance criteria when selecting suppliers. The latter will increasingly have to meet stringent targets with respect to their use of eco-materials and transportation modes.

While all of these initiatives are being adopted in an increasingly focused manner by retailers, I still contend that not enough is being done to work more closely with perhaps the most important constituent stakeholder: the shopper.

Most of us do not like being told what to do or apparently being foisted with an increasing list of directives from policy-makers.

This is best illustrated in the use of plastics in many of the materials that are used in fashion retailing. Every time one of these items is put into the washing machine it releases micro plastic fibres. These find their way into the environment and collectively, over time, can damage the oceans. Do many of use care? How much of this does not register with us?

Many of us, particularly the younger demographic, actively participate in “disposable fashion”. We DO NOT purchase a shirt or blouse to last us for a few years (like perhaps our parents once did). Instead we wear it for a couple of times and dump the item in our bins. They eventually clog up landfill sites.

When we factor in the amount of merchandise that is dumped or discarded by retailers in such landfill sites, we begin to get an idea of the likely damage to the environment.

Can we convince people that we should only buy material that is less damaging, but more costly? Can we argue that we should buy clothing that will last for the longer-term? When many of us want to buy items that provide instant gratification but are not seen as something that remains in the wardrobe.

It will take time to change such views and retailers will have to become more creative in encouraging shoppers to alter their shopping behaviours. In my view it will take a generation to do so. What do you think?

THE HOUSE THAT JACK BUILT

In mid-September 2018 and after two years in development, Tesco opened two new stores under the brand name of “Jack’s”.  Called after the original founder of Tesco, Jack Cohen and precisely one hundred years after he launched the Tesco concept, this new brand hit the high street.

What is the essence of the brand and who is designed to compete against?

Many commentators see it as an attempt to challenge the continued growth of Aldi and Lidl, the two German discounters. They have more than doubled their combined market share of the UK grocery market to 13.1 per cent.

Around 2,600 products will feature in the typical Jack’s store. This compares to around 1,500 or so items in an Aldi and Lidl store.

A key element of this new retail concept is the focus on “Britishness”. Around eight per cent of the products are sourced within the UK. The British flag appears prominently on the packaging. Of the 2,600 items, 1,800 will be branded as Jack’s. The remainder will contain “big name” brands such as Kellogg’s, Coca Cola and Lea and Perkins Worcestershire sauces.

The décor and layout of the Jack’s stores are broadly similar to Aldi and Lidl: wide spaces between the aisles, products which are stacked on pallets and aisles devoted to promotions on big name brands as well as an aisle which features promotions on homeware items called “When it’s gone; it’s gone”. To underline the minimalist nature of the stores, polished cement floor will be employed: in contrast to terracotta tiles which are prominent in traditional Tesco stores. Other initiatives include the concept of “Fresh Five”: a fruit and vegetable offer which changes fortnightly. This is suspiciously similar to Aldi’s “Super Six” promotions. Is this a form of imitation as opposed to innovation?

Workers will not wear a Tesco uniform. They will earn more than their Tesco counterparts on basic pay: £9 as compared to £8.42 and £8.85 at Aldi. Crucially they will not earn the normal staff discount or annual bonus.

Interestingly it adopts a “local pricing” strategy build around the strapline of being “the cheapest in town”. This implies that it will be the lowest on price, compared to Aldi and Lidl in any given town. This is a sharp departure from the strategies employed by Aldi and Lidl. Their respective models are based on the principle of standardisation. Pricing decisions are taken centrally at their Head Offices. The Jack’s model, in the context of pricing, effectively gives autonomy to store and regional managers.

It intends to use three hundred and fifty of its regular Tesco suppliers to stock the stores. This allows it to leverage its existing power and influence and derive some cost savings.

Two stores were opened in mid-September, essentially old Tesco stores that had been “mothballed”. The plan is to have around ten to fifteen stores in operation by early 2019.

This has become a bone of contention among retail analysts. Some argue that it is a very slow roll-out and will fail to make a sufficient footprint to seriously threaten Aldi or Lidl. The essence of this argument is that you are better off making a big bang – with numerous store opening as opposed to “dipping your toe in the water. To be fair Tesco has committed over £20 million on the development of the brand over the past two years.

The counter-argument to their approach is that other supermarket groups have tried similar brand launches and failed. For instance Sainsbury’s opened a number of Netto stores (Danish food retailer) in 2014 but closed them down two years later because they made little impact.

In terms of positioning and identifying a point of differentiation it is focusing heavily on its “Britishness”. This is reflected in items such as Cornish camembert and Derbyshire craft beer. Also all milk-based items are to be sourced from within the UK.

Commentators (some cynics perhaps) see this launch as an opportunistic attempt to leap onto the “Britishness” dimension, roughly six months shy of Brexit. Some argue that the nationalistic (jingoistic) dimensions that are likely to gain in strength as the March 2019 deadline approaches, will allow Jack’s to make a significant impression on the high street. That might be going a bit too far perhaps. Is it a template based around the notion of Jack’s being “a bargain shop for Brexit? It will stock a couple of categories of product that are not demonstrably British: bananas (which are climate dependent), and Italian pasta products.

Some fear that cannibalisation will occur: any sales generated in Jack’s may come from existing Tesco customers simply switching over. Overall net sales increases may be minimal. The CEO of Tesco feels that this is not an issue to be unduly concerned with. He argues that “I’d always rather cannibalise myself than have someone cannibalise me”. This suggests that he expects some cannibalisation but as long as it is only regular Tesco customers shifting to Jack’s rather than Aldi or Lidl customers then everything is all right. This is a contentious perception in my view. What do you think?

Interestingly existing Club Card holders cannot use their privileges in Jack’s stores. This is probably a good move as it explicitly recognises that Jack’s is a separate brand. Again, what do you think?

As Tesco roll out new stores (10-15) over the next few months, a key feature of the strategy is that they will use stores that have been closed in the past couple of years.

The intention is not to set up a web-based channel for Jack’s shoppers. Instead Tesco has developed a payment app which shoppers can use when they make a shopping visit to a store. This is similar to the strategies employed by Aldi and Lidl.

Senior management in Tesco have been quoted as expressing the view that Jack’s is designed to “appeal to the economically challenged that need a bargain and the affluent shopper that seeks a bargain”.

It is too early obviously to make any pronouncements about the likely success or otherwise of this venture. I would make a number of observations however.

The slow roll-out of Jack’s stores either smacks of undue caution on the part of Tesco or an opportunity to “test” out the concept and make adjustments accordingly. If it “fails” over the next year to eighteen months, then Tesco will likely “pull the plug”. However it will not represent a major blow. Relatively speaking the company has not spent much on the launch; with the use of existing stores or ones that have been closed.

If it fails, it will give them “a bloody nose”.

There is an obvious danger that is could be making the classic mistake of aping the competition and failing to provide any real point of differentiation between Jack’s and the Aldi / Lidl’s of this world. “Me too” products very rarely if ever make any impact. We have to ask the following question. Is there sufficient differentiation to attract customers to this concept? I am not fully convinced.

There is a tendency for shoppers to make more use of “top-up” shopping. Aldi and Lidl have benefited from the convenience they provide to shoppers in the form of small product ranges, small stores and ease of access. Jack’s falls into this category but may not make any inroads on these established discounters.

The emphasis on Britishness might appeal to people who support Brexit and, in the event of a disorderly and messy exit from the EU, might be seen as tangible evidence of a “siege mentality”. This might generate some sales but is it likely to create long-term benefits?

Let’s review the case in a future blog.

NEVER KNOWINGLY UNDER-BRANDED

The John Lewis Partnership has been one of the enduring retail success stories of the past twenty years or so. Until recently it was right up there as one of the most profitable retailers. Recently, mainly due to the shift from bricks and mortar, the increases in business rates and the general struggles of Department stores, it has encountered a rocky patch. This is likely to be reflected in a profit warning in his interim results to be presented in mid-September 2018.

Coincidently it has also undergone it first major brand-refresh in seventeen years. This attracted my attention as it can provide some interesting learning points for us as we study retailing in general and branding in particular.

What does “re-brand” entail? How is it likely to potential impact on the future direction of the business? Let’s examine these issues in greater detail.

The John Lewis Partnership involves two “strings to its bow. The John Lewis Department stores and the Waitrose chain of supermarkets. The main points of differentiation across the two operations have focused on its “partnership” model and an emphasis on customer service and quality products.

In the case of the partnership model the emphasis is placed squarely on the role played by its employees – referred to in all cases as partners. It is also reflected in the way in which they are remunerated: each year a proportion of the profits are shared out by way of bonuses across the partners. This approach has often been highlighted by business consultants in general and Human Resource specialists as an innovative mechanism for motivating and rewarding loyal staff. Problems may arise however when the level of profitability slows and there is no mechanism for paying bonuses.

The John Lewis Partnership is re-branding itself by inserting the “& partners” alongside its logos – resulting in John Lewis & partners and Waitrose & partners.

Cynics might suggest that this is a cynical attempt to seize upon its traditional emphasis on its partners, at a time when its ability to pay bonuses is restricted due to a decrease in profitability. An even more cynical view would be that management is using this approach to demand more from its partners in an environment where the National Living Wage has been increased and where it has cut its staff to allow for the wage increases that are necessary to meet the new demands placed on them by the government.

Critics of “branding gurus” also might argue that simply adding a couple of “vacuous words” to the logo and fascia is unlikely to have any real impact on revolutionising its retail strategy.

The counter-argument revolves around the need for retailer brands such as John Lewis and Waitrose to focus on its key points of differentiation, particularly in a sector which has and continues to undergo major changes in customer behaviour and technology.

An acid test for adjudicating on the appropriateness of a re-brand is the amount of money the company is allocating to the proposed changes.

The John Lewis Partnership plans to spend upwards of £500 million over the next three years on product and service innovations. In particular it will address the need to come up with unique products, more personalised service to its customers and expanding its range of own-labels from thirty to fifty per cent of overall revenue across the two businesses. It also plans to sign agreements (in the case of John Lewis & partners) with a range of relevant international brands to further reinforce its reputation for selling quality products.

In order to address the re-focused pre-eminence of its partners, it envisages a major overall in terms of how to enhance the quality of the shopper experience. For instance all partners will be equipped with iPads and an app which will allow them to send suggestions via email and SMS to customers. They will also engage more proactively via social media platforms with comments and suggestions that reflect the personal preferences and perceptions of shoppers.

In the case of John Lewis & partners their roles will also change. In the case of relatively complex items such as beds, computers and nursery products, partners will in effect become product coaches and advisors. This focus on expert advice is seen as a critical dimension in terms of enhancing the quality of the customer experience.

If we move to Waitrose & partners we will see greater focus on enhancing the roles of partners. They will present themselves as wine and cheese experts, fruit & vegetable facilitators, healthy eating specialists and coffee baristas. This, management argues, will not be just a genuflection to the concept of retail as theatre: partners will be provided with the necessary training to allow them to perform as proper experts, as opposed to playing at being gurus!

The essence of brand equity in my view revolves around the basic principles of trust and confidence on the part of customers and the extent to which this is reflected in their ongoing loyalty and commitment.

We must remember that in both cases (John Lewis and Waitrose) it has long held a strong reputation for service and product quality. This has allowed it to de develop a strong level of brand equity. By achieving this status it also means that loyal customers are willing to pay a premium for items purchased in both dimensions of the overall business This means in theory that they are less resistant to the vagaries of recessionary periods.

In many ways the new strategy proposed is a reinforcement of its existing brand essence.

The partnership also plans to work more closely with its suppliers in general and its farmers in particular. They are seeking improvements in quality while at the same time being conscious of the necessary changes they need to make in order to address more general environmental concerns.

For instance by the end of 2018 they plan to stop using black packaging for meat, fruit & veg and fish products. By 2019 they have set a target of eliminating such packaging totally.

It explains away the impending profit warnings by arguing that major investments in logistics and IT have placed some strain on its resources and that there will be long-term benefits accruing from such initiatives.

It remains to be seen if they can achieve its improvements by focusing on the “people” factor. We are not privy to internal marketing research which they may have conducted. The re-brand” appears to be predicated on the belief that its core shoppers will respond in a very positive fashion to the enhancements in the customer shopping experience that are expected to flow from the initiatives.

Likewise the two businesses will also be expected to drive such enhancements across its online channels.

Is this a minor tweaking of existing core differentiators? Or is it the precursor to a major rejuvenation of the two brands? It is too early to make a coherent observation at this stage. Brands, like humans, need an occasional “freshening up”. Given that it is seventeen years since the last “re-brand” it may be the right time to make such changes. Let’s see what happens over the next year or two.

BURN BABY BURN

Burberry, that iconic UK fashion retailer – made famous by its hallmark trench coats, was in the international retail news in July 2018.

It captured the attention of the mainstream UK newspapers when they discovered that it had destroyed over £29 million worth of last season’s inventory. It did so because it wanted to essentially protect its brand equity and heritage and because it was fearful of such inventory falling into the hands of grey channels. The latter are unauthorised channels, not sanctioned by a retailer to sell stock. They provide a threat because they sell stock at seriously discounted prices. It can be argued that this ultimately damages the credibility of a brand – particularly one that is positioned at the premium end of the market. In the case of Burberry around £10 million of the inventory came from its cosmetic supplier – Cody. This supplier was introducing a new range of stock and Burberry clearly had no need for the excess stock from the previous season.

We should note that Burberry experienced brand damage back in the early noughties when it became the “butt” of jokes because all sorts of unsavoury characters – referred to as “chavs”, were to be seen strutting around in the hallmark check scarves. Its loyal customers and opinion formers were not impressed with the apparent thrashing of the brand.

The popular newspapers expressed outrage that a company such as Burberry could adopt such as wasteful approach to dealing with inventory. Surely, they argued, this is symptomatic of greedy companies who refuse to allow merchandise to be sold to people willing to pay for it?

Environmentalists also levelled accusations against Burberry, arguing that the incineration process was a sure-fire way of damaging the environment. A spokesperson for Burberry was quick to assure sceptics that they implemented an environmentally approach by working closely with incineration specialists in order to harness the energy from the process of destroying the merchandise.

Further investigation by the newspapers revealed that this is not an isolated practice. Many fashion label retailers such as H&M also adopt similar practices. In the latter case over 15 tons of H&M inventory was burned in 2017.

Richemont; the luxury branding conglomerate destroyed over £421 million worth of watches from brands such as Cartier, Jaeger and LeCoultre, across its European and Asian markets.

Nike deliberately slashed thousands of its trainers in order to ensure that they could not be re-sold on the grey markets.

Operators such as Kering (which owns Gucci and Bielenciaga), along with H&M arguably adopted more proactive strategies in the context of sustainability. They entered into a scheme called “Worn Again”, where raw material can be converted into yarn to make fabrics and garments. Other retailers also sell off unwanted stock to internal staff.

These examples are good illustrations of what commentators refer to as the “circular economy” – where there is a proactive attempt on the part of companies to re-use stocks.

The journalistic view is that by burning last year’s unsold inventory, Burberry can stop their iconic brand falling into the hands of the “wrong people” via unauthorised channels. These grey channels arguably cannot be eliminated – much like scalpers who re-sell tickets for sports events and concerts.

With better technology, such as RFID it is possible to trace the movement of inventory across the supply chain and beyond. Arguably retailers should be in a stronger position to identify unauthorised channels and their sources – thereby reducing the threat to some extent.

At first glance, burning items would appear to be a drastic way of dealing with a particular problem. Wearing our “marketing hats” however we perhaps need to take a more rounded view of such an approach.

From our analysis of building brands indicates that companies invest large amounts of money in terms of building brand awareness, attracting customers and retaining them. Put simply, strong brands do not emerge as if by magic. They are carefully crafted and marketing to defined market segment. It takes time and money to develop brand equity, to the point where customers are willing to pay a premium for the right to use or wear the particular item. This is particularly the case with luxury, “high end” brands. Anything that potentially threatens this status is likely to damage the brand; in some cases irrevocably.

Building on this line of argument, marketers have a responsibility to protect the brand and have to make decisions that potentially have side-effects, such as deliberately destroying inventory in the process. What are the alternatives? Any suggested initiatives are likely to still damage the brand at best or run the risk of excess items being sold at heavily discounted prices. This destroys the essence of what luxury brands are all about: aspiration, exclusivity and being a member of an elite community. These are potential benefits that some shoppers are willing to pay a high premium in order to bask in the reflected glory of such products.

If luxury brands are consistently available at “knock-down” prices is it not unreasonable to expect a decline in their benefits? It has to be said that the preponderance of online channels does not help. It is more than likely that individuals can track down luxury items far more readily than a decade or so ago.

The onus of course is on the branders to police such activities and take appropriate legal action against offenders.

My concern about the issue of burning inventory is more about managing the manufacturing process and the supply chain than it is about branding issues per se.

To my mind, excessive inventory is a strong indicator that forecasting processes are inefficient, leading to a build-up that inevitably leads to wastage. Many retailers respond to this by using “mark-downs”. This involves selling items at discounted prices in order to shift inventory and generate cash for the business. At the “high end” of fashion retailing however, this is difficult to justify as a strategy. As noted earlier, brand equity erosion is likely to result. It also conditions shoppers to refrain from purchasing immediately and to wait until the expected time when the retailer lowers price.

Luxury brands are all about creating exclusivity and scarcity: not about widespread access or availability.

The real criticism of Burberry lies in their apparent inefficiencies with respect to supply chain management in my view.

Retailers such as Zara have perfected the art of managing the supply and demand equation. They do not release large piles of inventory into the supply chain – instead focusing on small amounts of individual items. Their systems and procedures revolve around quick response. If some items are moving quickly off the shelves, then individual store managers can generate more inventory very quickly. Nothing is produced until firm orders or demand patterns are identified. This does not eliminate the need to carry stock. However it dramatically reduces the need to build up buffer stock.

To me, burning excess stock is a firm indication that the supply chain procedures are too lax and loose. More focus in needed on managing the forecasting process and aligning demand with supply.

What do you think?

THE SIN OF IRRELEVANCE

In this blog I revisit the case of Marks and Spencer. I hasten to add that I do not have a phobia about this retailer; as I have featured it in previous blogs of mine. I do so because in many ways M&S represents a barometer of how many previously large and successful retailers have been performing in recent years.

When I started to teach retailing in the early 1980’s M&S was held up as one of the shining stars of the retail firmament. It was very successful, appealed to the middle income groups in the UK and seemed to define what quality in clothing was all about, at affordable prices for this segment of the population. It was admired for its approach to managing its supply chain. In the 1980’s it ventured into international retailing with decidedly mixed results. This seemed to be a manifestation of wider problems. As we moved into the “noughties”, M&S struggled to compete with newer entrants such as Zara: the fast retail operator. Zara shattered the conventional approach to fashion retailing.

Traditionally retailers in this sector plotted out their designs for the various seasons a year in advance; did the deals with suppliers and so on. This approach of course left them open to the vagaries of the shopper. What if the pre-designated colours and design failed to be as popular as anticipated? What if the summer “never arrived” in the UK and winter and spring lingered well into August? This resulted inevitably in losses as inventory failed to move off the shelves.

Zara introduced fast-fashion, where designs and merchandise were altered every three to four weeks.

M&S attempted a number of strategies to overcome these challenges. They introduced sub-brands such as Per Una to position it as the doyen of the middle classes. In doing so it lost focus and in my view has drifted firmly into committing the sin of irrelevance. This I believe is the greatest sin that any organisation can make. It raises serious issues about who it actually appeals to.

M&S has punted the view that it is a fashion retailer that appeals to every woman, from seventeen to seventy. How ludicrous is this approach in an era that has been driven by wider choice, more affordable fashion and the importance of individuality. This has been in place for well over a decade or so. As a fashion pundit recently said, “middle-aged women do not sink into cardigans”. They have wider choice and demand more fashion-oriented clothing.

M&S has signally and consistently failed to understand the basic mantra of successful marketing: that you have to bring a focused, targeted and relevant value proposition to the chosen segment(s) of the market.

It does not take rocket science to realise that trendy and professional young women for instance will be comfortable shopping in a retail outlet that is also trying to attract their mothers and grandmothers to the same venue.

Such a blurring of appeal inevitably leads to confusion and mixed signals.

The problems continue unabated for M&S. Results in May 2018 suggest that its share of the UK clothing market will drop from 9.7 per cent to 7.6 per cent in 2018. Primark is likely to overtake it as the UK’s leading clothing retailer.

Meanwhile M&S plans to close over one hundred of its full-line stores (clothing and food halls combined). Its profits have dropped to just under £7 million. Over the next four years around one-third of its clothing stores will close.

It spent over £150 million in 2014 on revamping its website, with mixed success.

More worryingly its food sales have dropped by -.6 per cent during the first three months of 2018. This was an area that in recent years had performed well and counteracted against the poor trading performance of its clothing division.

In an earlier blog I advocated that it should pull out of clothing and focus instead on food – an area where it had built up a reputation for good quality and innovative food selections. It would appear that this area has also stalled in the face of serious competition from a diverse range of operators such as Subway and coffee shops.

As is the case with many formerly successful retailers it would appear as though M&S has been slow to respond to the changes taking place in the retail sector. This is evidenced in its recent series of sales and profits reports.

For the past decade or so, commentators have constantly raised questions about the value proposition put forward by M&S and the lack of a coherent direction. To some extent the food element of its business has propped up the clothing sector.

I have queried the relevance of M&S remaining in the clothing sector. Is it time to question its future existence as a retailer? Has it lost its relevance in the market? Is it irredeemable?

Let us pour over some of the causes of its failure.

Clearly it has too many retail outlets. Closing one-third of its three hundred full-line stores is a step in the direction. But is it too late? Many of the stores have been criticised for looking outdated, in terms of the merchandise that it stocks and the overall appearance. Bringing in coffee shops is only a partial attempt to improve the stores. You could argue that there are too many coffee shops in the high street and in shopping malls anyway! Many of its stores have been in the same locations for years: adding to a perception of staleness and a lack of innovation.

The food halls account for around forty-six per cent of overall profits. This sector also generated much higher margins than the clothing sector. M&S food is perceived as being high in price relative to its competitors. It has over seven hundred Simply Food store on top if its food halls in its mainline stores. Some rationalisation is needed in addition to a review of its offerings and price points.

The way forward would appear to be through its online channel. However until recently it too nearly five seconds for its website to load. This is way behind its competitors. Much more needs to be done to even catch up!

If it belatedly has come to the conclusion that you cannot appeal to everyone in terms of age, size and gender, who should it appeal to? This is arguably at the heart of the problem. Will young people be attracted to some new (yet another remake) approach to fashion design? Will older women be attracted back? Should it specialise in selling knickers? After all one – third of the UK buys its undies from M&S.

It is debatable if it retains much by way of a strong brand equity. I would agree that there is still a residual effect but it is fast running out.

The corporate ethos of M&S has always been built around a strong degree of corporatism and bureaucracy. Male dominated boards in my view do little for helping the organisation to resonate with the changes in the retail space that require them to more flexible and leaner than was the case in the heydays of the 1970’s and 1980’s.

It will require more than a major overhaul to save M&S in my view. Let’s monitor their progress.