COPY CAT

The mundane world of food retailing in the UK market was rocked by a recent rumour about the future strategy of Tesco earlier this week (early February 2018).

This came about in the business press when they informed their readers that Tesco was about to launch a new range of discount stores to directly challenge the ever-growing threat of the two major food discounters in the UK market: Aldi and Lidl.

The backdrop to this development in interesting. The Kantor World Panel survey of market shares and sales figures for the quarter ending January 2018 showed that Tesco improved slightly to achieve a market share of 28 per cent. Aldi and Lidl respectively returned market shares of 6.9 per cent and 5 per cent. The sales of the latter retailers rose by 16.2 per cent and 16.3 per cent respectively.

When the figures of Aldi and Lidl are combined it is clear that they have overtaken Morrison’s (one of the “Big Four” retailers) and edged it into fifth place. Aldi on its own overtook the Coop in 2017 in terms of market share.

The impact of the deep and long-lasting recession has led to the inexorable rise of the discounters. Shoppers, faced with a never-ending decline in real incomes initially tried out the value propositions of the discounters. Many were surprised by what they saw and experienced and continued to direct some of their shopping in these stores.

The other major trend is that the concept of the “big weekly shop” has declined. Instead people are shopping more frequently during the week, using two or three different food retailers and shopping more locally.

In the context of this background perhaps it is not surprising that Tesco may react by establishing a separate discount brand format to address the threat of Aldi and Lidl.

At present £1 out of every £8 spent by shoppers on food retailing goes to Aldi and Lidl. Estimates suggests that the discount sector is likely to grow by 49 per cent between 2018 and 2022 and that £1 out of every £7 will go that that area.

In another connected event Tesco got approval from the competition authorities to merge with Booker – a major distributor, wholesaler and retail operation towards the back-end of 2017.

What are we to make of this move – if it eventually happens? It appears that something is afoot as some of Tesco’s own brand suppliers have been asked to sign a noon-disclosure contract before they can contribute to the new venture.

Firstly this concept has been tried before. Sainsbury’s entered into a venture with the Danish discounter Netto, a few years ago to launch a discount format in some of its existing stores. Ultimately it failed. Sainsbury’s divested out of it because it under-estimated the level of investment required and the inability to gain a quick critical mass of such stores.

Tesco arguably are in a stronger position. They have over 6,000 stores across all of its formats including “One Stop” and “Express” outlets. If the Booker merger goes ahead it will also have access to a range of other stores and outlets. Some of the latter could be re-badged under a new discount fascia.

This rumoured move has implications in a number of different areas.

For instance does the food grocery market in the UK need a Tesco Light version to compete with already well entrenched discounters such as Aldi and Lidl? The trends as noted earlier, suggest that the demand for discount retailers in this field is growing. Arguably this is a strong indicator that opportunities exist for another entrant.

Will Tesco not damage its current brand image and equity? While it is certainly not regarded as a discount retailer, competing instead on issues such as reasonable prices at good quality levels. It has invested heavily in its own brand part of the business. This is most notable in the case of its Farm Labels. Moves in this area included the design of packaging which appeared to suggest that these were premium food products from genuine farms with appropriate “folksy” names, redolent of the pleasant English countryside. This was not the case in reality. Tesco was accused of creating the names of the farms and also in the case of its Willow Chicken range using repackaged meat that was already being supplied to Lidl.

If it were to come out with another fascia, using a different brand name would it not be in danger of confusing its shoppers and sending “mixed signals”.

Some commentators have highlighted the danger of cannibalisation. In other words it simply divert people from its One Stop and Express formats to the new stores. The net effect would be felt in little or no increase in overall sales coupled with a significant degree if investment that would be needed to provide it with a footprint in the market.

Other observers have noted that a new corporate philosophy and culture would be needed in order to succeed in the discount space. They point to the experience of the big airlines who attempted to take on the likes of low-cost operators such as Ryanair and EasyJet. BA struggled because it did not understand the economics and culture of working in the low-cost, low-price segments.

From what information that I can gather on the topic it would appear as though Tesco would be engaging in a “copycat” strategy. It proposes to stock these new outlets with around 3,000 items (similar to a typical Aldi or Lidl store). This contrasts with around 30,000 to 40,000 items in a typical Tesco supermarket format.

You might seriously question what this new proposed value proposition would offer shoppers that is not currently provided by the likes of Aldi or Lidl? It would stock brands that are not well known – again similar to the core strategy of Aldi and Lidl.

In the case of the two discounters, they would appear to be going away from the hard discount model, where they only stock cheap and relatively unknown items to a softer version of discounting. This is evidenced in items such as whiskeys, chocolates and even Champagne.

There is no doubt that it has the financial resources and available retail space in the form of outlets to attempt such an ambitious project. This is critical to success, if the experience of Sainsbury’s and its ill-fated venture into the discount space is to be believed.

In my view Tesco would have to identify some point of differentiation from Aldi and Lidl in order to make any sort of viable impact. It is difficult to see where this might be likely to occur.

It is possible that it could attempt to provide a limited range of product categories that would be priced even lower than Aldi and Lidl.

However it would appear to me that Tesco does not have the existing capabilities to do this from the point of view of corporate culture and the cost disciplines that would be necessary to effect such a strategy.

What do you think?

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CLICKETY-CLICK

On the face of it the subject for this blog sounds somewhat mundane: a look at the issue of “click and collect” in the context of retailing. However I was encouraged to consider it as a result of hearing about Zara and its recent opening of a dedicated “click and collect” store directly opposite one of its outlets at the Westfield Shopping Centre in the UK.

The background to this topic revolves around the challenge of delivering on the so-called “last mile” of the purchasing process. In essence this refers to the time when the shopper takes physical possession of the purchased item.

Traditionally this occurred in the physical outlet. We went to a physical store to consider the purchase of an item. Once satisfied that it met our needs we would complete that purchase and either take the item home or have it delivered.

Over the past ten years or so retailers have had to grapple with the substantive challenge of meeting the shopper’s needs and expectations with regard to that “last mile”. This has been further driven by shoppers making use of a number of different channels to engage with a retailer as they go through the buying process.

The omni -channels concept has led to the philosophy of retailers providing a seamless experience for shoppers across the different touchpoints.

This takes us to the process of collection and delivery.

Zara, with their approach are pursuing a strategy that is different to what the majority of retailers are doing in the “click and collect” area.

Most retailers have a section within some of their physical outlets where shoppers can call in and pick up their items.

However such as an apparently simple task is not quite as easy as it seems.

The main motivator for shoppers to collect their items is driven by some key influences. These include speed and convenience and cost. Some shoppers want to be in control of the delivery of items. Waiting for companies such as Royal Mail and DHL injects some uncertainty for shoppers – particularly if they have experienced some inconsistencies such as deliveries not arriving during the promised window.

A study by Bell and Howell (2017) also indicated that 78 per cent of respondents indicated that they preferred to pick up items in order to save on potentially larges shipping costs.

Therefore retailers have to ensure that they operate a click and collect system that meets the expectations of shoppers.

Zara’s introduction of a 2,000 square foot “pop-up” store is a departure from conventional models. Orders placed with Zara before 2pm will be available for collection each day.

This approach is based on the rationale that shoppers can benefit from a dedicated space for picking up items. Contrast this with many retailers who in fact create an environment where customers calling to collect have to mingle with regular shoppers, deal with queues at check-outs and may indeed have to queue at dedicated collection points at peak times during day or periods during the week.

This in many ways challenges the ability of retailers to meet expectations with respect to speed and convenience. For many customers, ordering online means that they can avoid the hassle of having to physically visit stores to browse, discuss issues with sales assistants and the inevitable queues. In the worst case scenario it defeats the whole purpose of online shopping and adds a layer of inconvenience.

Zara, with its dedicated model does not miss the opportunity to tempt customers into making purchases. It displays a small range of menswear and womenswear across he way from the collection points.

It also makes use of mirrors with RFID to technology to allow customers to view coordinating and complementary items, adding further temptation to make a purchase that they had not originally intended when they arrived to simply collect items.

This approach minimises the problem of having to mingle with people engaging in conventional shopping and browsing activities and speeds up the process of collection.

Contrast this approach with some other retailers.

The House of Fraser in its main store in London has located its collection point on the third floor. Customers have to make their way up a number of escalators before they arrive at their destination. It has six collection points available.

Debenhams, in its new store at Stevenage has operates on two floors. The collection area is located on the first floor. In order to create a mood of calm and reassurance it contains a desk with armchairs around it and an orchid placed on the table. It also provides teasers by having a range of items. Debenhams also provides fitting rooms which are located near to the merchandise.

Retailers have also experimented with other options. Instead of locating collection points within their stores they may use third party operators such as Collect+.

In this case they sign up with Collect+. This company has signed up over 5,000 convenience stores and corner shops. Once customers receive a code for their purchases they can present it to a designated convenience store and collect the item.

Other retailers have mode use of third-party operated pick-up points or indeed train stations or underground stations.

In essence retailers are going beyond the traditional collection points. Of course another option is to deliver direct to the shopper at a nominated location such as a house or apartment, office or a friend’s house. Amazon has taken this concept to another level by experimenting with drones. We have discussed this in a previous blog and as I write, tests are still on-going.

It is important to note that click and collect no longer provides a point of differentiation for a retailer. In the era of omni-channels retailers can no longer avoid the issue. Shoppers demand flexibility in delivery. Rising expectations also leads to perceptions that next day delivery in many cases is not acceptable.

The evidence also points to the importance of click and collect.

For instance 72 per cent of UK shoppers use click and collect (Interretailing report: 2016).

The same report also indicates that 58 per cent of the top five hundred retailers offer such as service.

Interestingly 65 per cent of shoppers who collect items also make additional purchases (Cybertill: 2016).

Also the above report suggests that 17 per cent would abandon a purchase if the click and collect option was not available to them.

Managing the process of click and collect can represent considerable challenges for retailers. For instance during the Christmas period for 2017, Marks and Spencer found that two-thirds of all items ordered online has to be routed through click and collect.

Dealing with queues and waiting times presents the most difficult challenge.

Some commentators argue that by bringing people back to the high street it can rejuvenate shopping. Personally I am not so sure in the context of the UK. Parking and parking charges pose a significant obstacle and cost.

Zara’s dedicated pop-up collection store is an interesting response to the challenge of meeting that “last mile” in the process. Let’ keep an eye on further developments in this superficially mundane but challenging area.

Dumb or Dumber

I don’t know about you but as I get older I am becoming ever more cynical and grumpy! This is especially the case when I look at how many companies and organisations behave in relation to their customers.

I became especially cynical at the beginning of this week (January 15th, 2018) when I read of the activities of Tesco with respect to its Club Card. What did they do to annoy me? I am not even sure I should have become annoyed because I do not hold a Club Card and never have.

On Monday January 15th Tesco announced that it was making changes to the way in which card-holders could redeem the various rewards. It was captured in the following statement that appeared online.

“We’re simplifying the Club card rewards you can collect through the majority of our Reward Partners. Previously, you could either get 2x, 3x or 4x the value of your Club card vouchers – but starting from 15 January 2018, we’re making everything 3x the value. “So you won’t have to keep checking whether you’re getting 2x, 3x or 4x the value depending on which reward you’re claiming; everything will be 3x.”

(Read more at: https://inews.co.uk/inews-lifestyle/money/tesco-devalues-clubcard-vouchers-in-rewards-scheme-revamp).

The main argument used by Tesco for this change was that it had listened to its customers who were arguing for a more straightforward and simple system. Ostensibly it was practising sound marketing: listening and responding to customers. Closer reading of this message did not convince me.

Let me explain firstly how the Club Card system works.

Card-holders earn one point for every £1 spent in a Tesco store or online. Each point is worth 1p. Once £1.50 is earned by the card-holder it can be converted to shopping vouchers which can be either spent in the store or online. Alternatively the customer can save up the vouchers and use them as part of the Tesco Reward scheme. Under this option over one hundred reward partners have signed up with Tesco and allow voucher-holders to spend the vouchers with them. A few partners allowed up to twice the value, others three times and some more four times the value of the vouchers. Hence the argument that Tesco used to simplify the system.

The reward partners are quite diverse: including London Zoo, Halfords Condor Ferries, HMS Belfast, Virgin Balloon Flights and Pickford’s Removals. Popular restaurants such as Prezi, Pizza Express and Zizzi also featured in the rewards programme. Card-holders who saved the vouchers for this scheme typically were able to use them for days out, weekend breaks or simply eating out in some of their favourite restaurants.

The changes announced on January 15th were to be introduced with immediate effect. This caused outrage among the card-holder base. Those who have been collecting the vouchers for the current quarter (which ended on January 25th) immediately saw the value of their vouchers decrease. One such customer compared it to being the victim of a pickpocket. “I had vouchers worth £400. Now they are only worth £300.

To further compound the problem and heighten the outrage, Tesco announced that around fifty-seven of the partners had pulled out of the reward programme or were about to do so in the coming weeks.

As a cynic – particularly of many marketing initiatives introduced by companies, I immediately “smelt a rat”. Mind you, you do not need to be any form of retailing or marketing expert to arrive at that conclusion! To my forensic eye this appears to be a clear (and none too subtle) move to engage in a cost-cutting exercise. It seems particularly offensive as it targets the loyal Tesco customers.

It also follows a pattern adopted by many companies – particularly in the services and retail sector, who follow a policy of using loyalty cards as a form of reward. At some point in the process senior management recognise that such an initiative is becoming more expensive to operate. It may also be the case that so many people have signed up for loyalty cards or air miles, that it quickly loses the veneer or exclusivity. This is particularly so with airlines, who constantly review their rewards policy and also introduce changes that are apparently detrimental to the customer.

I discovered this recently when a ferry company that I have used for many years sent me an email outlining that more points would be required than before, to enable me to retain my gold card. Of course the content of that email was “dressed up” in such a way as to make me feel that I was going to benefit from such changes. In reality it meant that I would have to make more ferry bookings in order to retain my card.

Of course such views captured in the earlier paragraphs represent only the perspective of the customer (albeit this should certainly count in terms of making decisions). Companies such as Tesco have to balance a number of decisions, given that they operate in a cut-throat retail sector which is driven by low margins and constant pressure to reduce costs.

You might also query whether or not loyalty cards still have the same relevance and resonance for shoppers. Although the initial response from social media reflecting the views of Club Card holders (which total over 16 million) would support its popularity.

It can also be argued that developments in location-based marketing and social media mean that retailers can now offer more personalised and customised offerings to shoppers. They may not focus on the word “loyalty” but they can still offer rewards and incentives via the new technology and the “big data” which they have available to them.

Also it can be argued that shoppers may be “worn out” with the myriad loyalty cards on offer from retailers and other companies operating in the services sector.

That said I would argue that the way in which Tesco has handled this change to its existing arrangements was a public relations disaster.

Firstly they introduced it without any prior warning and with immediate effect. This is guaranteed to irritate shoppers who hold the Club Card. Could it have been done more compassionately and staggered over a period of time. For instance allow the voucher holders to redeem their rewards up to the end of September. This would avoid the “sudden sharp shock to the system”. Many comments on social media focused on the instant devaluation of the vouchers.

Also no attempt was made to sign up new partners to the rewards programme by Tesco. Instead it quickly became clear that partners were pulling out of the arrangement. This in my view signalled a level of dissatisfaction with the arrangements and an unwillingness to commit to any further changes.

Is it an example of duplicity and shoddiness on the part of Tesco? Part of me wants to believe that it was a necessary measure to remain competitive in the face of heavy competition. The other part of me suggests that it was at best a patronising and insulting way in which to convey a message that ultimately reduces the benefits to the card-holder.

Short-term gain (in terms of reduced costs) may be at the expense of losing loyal Tesco shoppers. There is evidence to suggest that in grocery shopping, people are now visiting two or three food retailers in order to benefit from special deals and offers. The days of shopping only with one retailer may be over. Anything that threatens the loyalty of shoppers may drive them elsewhere. Let’s see!

BIG MAC

No series of blogs on retailing would be complete without some focus on McDonalds: that doyen of the food retail sector. I recently read an article on this venerable operator in the Financial Times*. The author made an assessment of its re-designed strategy that it has rolled out across the US food retail sector. It raised a number of observations that I thought could be useful in helping us to see the challenges and opportunities involved in repositioning a retail brand.

If we carried out a snap street survey asking people the most-recognisable brands in the world: I would bet a pound to a penny that McDonalds would feature in the top five iconic global brands.

Since it opened its first outlet back in 1955 arguably McDonalds has attracted massive publicity world-wide. Much of the media coverage has tended to polarise opinions. Some people argue that the concept of convenience food at relatively low prices revolutionised the way we eat. The global growth and expansion of McDonalds is arguably a testament to this viewpoint. It is estimated that McDonalds feeds over seventy million people per day.

On the other hand many people feel that McDonalds has spawned the growing levels of obesity – leading to unhealthy eating, overweight individuals and ultimately the precursor to health problems.

In response to these criticisms McDonalds in the early noughties revamped its food menu – focusing on healthier elements of food such as salads and chicken. While this partially addressed its overall image, its reputation undoubtedly took a hit. More importantly from a revenue perspective it began to lose out to its competitors. This was graphically demonstrated by the loss of over half a billion customer orders between 2012 and 2015. This rammed home to senior management that an overhaul was required to reverse the decline in its home market: the USA.

Let’s look briefly at the structure of the retail food sector in this market.

The US restaurant industry has remained stagnant over the past three or four years (in terms of visits to restaurants). This has been caused mainly by grocery price deflation, which has made a stronger argument for people to cook and eat at home.

McDonalds had fallen into the problem of a lack of focus and relevance for many US consumers.

As of 2014 in the USA the structure of the food sector was changing. Established food retailers such as McDonalds and Burger King were being threatened by new competitors such as Chipotle Mexican Grill, Chilli’s and Applebee’s. Such entrants were typical of a new sub-sector of the food retail sector – referred to as “fast casual”. Their main value proposition emerged from the financial crisis of the early part of this decade. They positioned themselves at a few dollars per meal higher than McDonalds and Burger King. In so doing they appeared to “catch a wave” which resonated with consumers who had a little more in their pockets and were attracted to this slightly more premium offering. A focus on healthier options on the menu also appealed to a more health-conscious individual.

Zero growth across McDonald’s outlets across the US, Europe and Asia also set alarm bells ringing among senior management.

In 2015 it recruited Steve Easterbrook, an English accountant to oversee a revamped strategy to arrest the decline in sales and reputation and re-establish McDonalds in the US market.

Faced with such apparent major threats and a shift in eating habits, one might assume that McDonalds would opt for a radical approach to change. Did this happen?

Not really. Easterbrook adopted the mantra that his mission was to re-invent McDonalds as “a modern, progressive burger company”. In assessing one of its main Chicago stores (which was seen as a pioneer for the revamped approach”, the author of the Financial Times article made the following observation.

A glass case displays freshly baked apple pies and croissants. Smiling employees, dressed all in black, carry trays of burgers and fries to minimalist tables.”

This represents a change in approach to store and menu design. However it does not represent a radical change. Its overall value proposition still revolves around low prices and convenience.

Easterbrook availed of the services of the BCG Group (Management Consultancy Firm) to assess the eating habits of the US consumer. Interestingly the study indicated that the missing McDonalds customers had shifted to other burger chains such as Burger King and Wendy. This was critical because it suggested that consumers were not deserting the fast food segment in favour of the fast casual sector: rather they had deserted McDonalds.

While this might suggest a long-term problem, Easterbrook took the view that these customers could be enticed back to McDonalds, provided it came up with a relevant value proposition.

The strategy focused on the need to adopt a less aspirational focus and address the “day-to-day basics” of fast food.

It came up with the following adjustments.

  • Cutting prices for coffee and sodas
  • Serving breakfast all day
  • Offering mobile ordering and delivery
  • Improving the quality, if not necessarily the nutritional value of its food options on the menu.

The FT article describes this as an approach which is based on “fixing the familiar”. This advocates the need to avoid tampering too dramatically with the menu. It is a case of “sticking to the tried and trusted” with minor amendments where appropriate (in terms of menu design, outlet design and service delivery).

Lower prices was essential as well. In response to rising commodity costs and wages, many franchisees raised prices and the concept of the dollar value menu quietly disappeared in 2013. The combined impact of this move damaged McDonald’s value reputation. By contrast Wendy’s and Burger King consistently focused on deals for its customers.

Easterbrook adopted an interesting approach to pricing. He focused on discounts as a core component of the menu, typically offering $1 and $2 for coffee and soda. It also offers more variety at the high-end of the menu spectrum.

Making a genuflection to its health-conscious segment, he has promised to take out antibiotics from its chicken meat and corn syrup from its bread buns. It is also beginning to introduce fresh beef to its quarter pounders and replacing butter with margarine.

In summary this new approach has attempted to capture a balance between low price and higher quality. In 2018 the new approach to pricing will feature items on the menu at $1, $2 and $3 dollar price-points.

At the higher end the focus is not necessarily on healthier options. In other words it does not result in lower calories. It is more about using wholefoods across the menu. I suspect this will still antagonise critics of McDonalds. However arguably its does not lose its authenticity as a brand. In the USA at any rate, people still like fast food.

The results of this change in strategy have been impressive. In the USA many restaurants ensure that supply always exceeds demand. However in 2017 McDonalds has experienced a rise in customer visits in the second and third quarters of 2017 with comparable sales increasing between 4to 7 per cent in each quarter.

The article focuses on the US market. What is happening in your country? How is McDonalds performing relative to its competitors? As an exercise I challenge you to check out the situation in your part of the world.

TWO LITTLE BOYS HAD TWO LITTLE TOYS

One of the most successful “Big Box” retailers in the world: Toys R Us, filed for bankruptcy in the USA in the summer of 2017. It has been in existence for over sixty-five years. This represented the nadir of this type of retailer. Similar retailers such as Blockbuster, Circuit City and Sports Authority also ran into difficulties and faced a similar exit from the retail scene.

I suppose we should not be surprised by such a development. I have always argued that the retail sector is a fickle one. In some cases the retail life cycle can be very short.  Some commentators argue that every fifty years or so retailing goes into a major shift in disruption and revolution. Perhaps the developments over the past few years in technology and changes in shopping behaviour have caught up with retailers such as Toys R Us.

“Big Box” retailers or “category killers” as they are sometimes referred to became very successful in the 1980’s.  Very large physical retail spaces allied to a focus on one category of product has worked well for category killers. Essentially they set out to be the recognised place to go for the particular category of product that they sold: in this case toys. This focused approach allowed such retailers to offer lower prices, due to being in a strong bargaining position with suppliers. They also offered a far greater selection of items in that category; thereby making it a “one stop shop” for customers making their seasonal or holiday purchases for their kids. It positioned its value proposition as being the “authoritative toy retailer.

It focused on a combination of price and quality, linked to a very comprehensive selection of items across all categories of toys. In essence: “the place to shop for toys”. Such a strategy was designed to put the small independent toy retailers out of business. In many ways this worked very well and we saw the demise of many favourite, traditional toyshops in the United Kingdom.

Category killers operated successfully for over three decades or so. However in the last ten years we have witnessed major changes in the value proposition being offered by new entrants to different retail sub-sectors. This combined with the growth in online retailing and the adoption of apps, smart phones and social media platforms, has fundamentally altered the way in which shoppers engage with retailers.

Some commentators argue that Toys R Us committed the classic mistake of well-established and successful businesses: they were too slow to adapt and the brand lost its relevance. Certainly they cannot blame economic variables such as recession for their decline. In the USA for instance holiday sales have grown by over six per cent in 2015.

It attempted to respond to these developments in 2014 when it launched what it called the TRU strategy. This was supposed to take it back to the customer in terms of relevance. It focused on clearer pricing strategies in the store, improvements in simpler promotional offers and a better and more relevant in-store experience.

Significantly it was very slow in developing its online retail business and more critically also slow to integrate both physical and virtual platforms. This has led to the criticism that it failed to recognise in time the fact that consumers have largely become hybrid shoppers. In other words they use a number of platforms to engage with a retailer throughout the purchasing process (problem recognition, search, evaluation, purchase and post-purchase).

Our old friend Amazon since its pioneering inception has conditioned and educated shoppers world-wide to engage in this hybrid shopping behaviour. Contrast Amazon’s approach with Toys R Us. In the case of the former it provides flexibility, speed in ordering and delivery of the item(s) and above all adaptability across its management of all aspects of its supply chain.

Category killers such as Toys R Us on the other hand are still frozen in the mind-set of cluttered stores and queues at check-outs.

More critically retailers such as Amazon, Target and WalMart have crossed over and across to many categories of product: including toys. As a consequence the “big box” concept has come under serious threat – perhaps a fatal one.

To be fair to Toys R Us it has plans to radically change the in-store experience. This has concentrated on focused interactive and engaged initiatives for parents and kids when they visit the store. For instance Geoffrey, the iconic Toys R Us mascot will greet shoppers as they enter the store. Shoppers can also point their smart phones at selected items on the shelves. By doing so this will activate a personalised experience. Barbie will tell her story to the shopper.

Augmented reality features are also being introduced to heighten the engagement and interaction. Live toy demonstrations will be provided by trained staff. They will also be given more freedom to take toys out of their wrapping and packaging to encourage kids to interact with them.

Critics might say that these initiatives, while welcome in terms of making the retailer more relevant and responsive to shoppers is too late. Large toy retailers such as Hamleys in the UK have been doing these things for a number of years.

Critical challenges involve slashing the levels of debt that it has sustained in recent years. It will also have to face the harsh reality of having to improve pay conditions for its staff.

Integrating its digital content into its stores is also at an early stage in its development: competitors have addressed this already.

The pessimist would say that it has “missed the boat”. For instance do we really need such a large physical space any more to sell items? Other retailers have redefined the purpose of physical space. Now such areas are used to build relationships with shoppers, provide solutions to their perceived problems and offer services to them. It does not matter whether they buy items within the store. Effective loyalty programmes allied to a solid reputation for customer service can direct shoppers to buy from their other retail channel platforms.

Arguably Toys R Us should go the way of other retailers such as IKEA.

In this case IKEA has begun to introduce smaller “showroom and display” physical spaces. Maybe Toys R Us should open up small playrooms and allow kids (and parents) to play in there.

Currently Toys R Us is undergoing a major rationalisation of its physical stores. It is closing around a dozen such outlets in the UK.

To its credit we should acknowledge that it has recognised (eventually) what the problems are and has plans to address them (as discussed in earlier paragraphs in this blog). The major concern is the levels of debt which it has incurred and the high volume of depreciating real estate which lies at the centre of its operations. It is a huge millstone that is tied around its neck and is likely to push it down and into oblivion. It faced a looming deadline of having to pay back $400 million of its overall $5 billion long-term debt.

Let’s see what happens in the coming months.

BACK TO THE FUTURE

Occasionally in these blogs I focus on what might happen in the future by way of issues that are currently trending in the social media and press. Many of the big issues have already been aired in previous blogs such as the potential demise of physical stores and the impact of drones.

I was interested in a recent article that I read which put forward the view that we could see the end of supermarkets over the next ten to fifteen years or so*. This intrigued me as a retail commentator because it would suggest that one of the longest-standing and most successful business models in retailing might be under threat.

Let us explore this further.

The article suggests that technology once again is at the forefront in this potential threat to the established supermarkets. It would not appear to be built on wild speculation as various concepts are currently being tested.

The gist of this new concept is based on new online shopping technology that could see prices to the grocery shopper fall ultimately to around one-third of what they currently pay.

Major grocery suppliers such as Unilever, Mars and Reckitt have agreed to sell some of their big brand items directly to consumers via a high street digital channel which is scheduled to be launched sometime in 2018.

This will envisage hundreds of brands such as Walls ice-cream, Durex, Dettol and Dolmio sauces being made available at bargain prices.

This website will allow the branders to decide their own prices using blockchain technology to connect shoppers directly to the products.

The potential “win” for suppliers is that if this business model takes off it will mean that they no longer have to engage and negotiate with supermarkets over price. This has always been a contentious issue and as we have discussed in the text, can lead to confrontational and combustible relationships.

Effectively this model eliminates the supermarkets. We have seen this happen in many sectors over the years, most notably in the travel and airline business and also in the insurance sector.

The model is built around an online shopping portal channel. This is supported by an outsourced network of third party operators that deal with management of the inventory in various distribution centres and delivery drivers who will provide the last mile of the supply chain strategy,

Customers will be charged the wholesale price plus additional extras to cover storage and delivery. If we factor in the absence of supermarkets in this business model, we can see how the shopper is likely to benefit from considerable savings. Typically the latter raise the price by as much as fifty per cent to cover such costs and their profit margin.

This model even allows the potential for manufacturers to charge wholesale prices than they would with supermarkets. Remember supermarkets, because of their power, leverage a large degree of pressure on them to comply with their needs and requirements. This usually revolves around squeezing them as tightly as possible to get the best possible price.

The use of blockchain technology allows for a continuously updated digital database of who and where shoppers are and what they are buying. Unlike traditional shops they do not need to be managed by a central administrator; the database automatically updates and manages itself.

Like the typical online retail channels shoppers sign up for such services.

So what are we to make of this new retail business model? Is it likely to be a game-changer?

Let us consider some of the pros and cons.

Firstly it would appear to eliminate what has become for many shoppers out there, a very boring and tedious task. In Britain this amounts to the traditional weekly visit to the supermarket: consisting of spending around an hour in the store, getting bashed by trolleys and noisy kids, loading up the car and getting in and out of the store – usually with the inevitable parking difficulties.

Secondly many of us are now acclimatised to shopping online. Some of us rely on online shopping with supermarkets via their respective online retail channels. This proposed model would appear to be a further extension of ordering groceries online.

Convenience is clearly a critical issue for many grocery shoppers: we live in a pressured environment and could be labelled “time-poor” as a consequence.

The lure of lower prices, particularly to the extent that is being speculated in the press is also attractive to many shoppers.

In terms of value we can see convenience and lower price coming together to offer a potentially attractive shopping proposition for customers.

The adoption of apps such as the one being developed by US technology firm INS create just such a convenient environment. If it can deliver prices at around one-third the current ones then what’s not to like about the model?

The model employed by supermarkets arguably has not changed over the decades: large volumes of product sold in large physical spaces. This is costly in the context of the move towards online shopping.

What are the potential difficulties associated with getting this model accepted in the market-place?

Firstly supermarkets are large and powerful players in grocery retailing. They are likely to respond with fury and employ aggressive counter-strategies to ward off this threat. Their margins, although relatively low in general terms still allow for price reductions. They can offer the largest grocery suppliers further attractive deals in order to discourage them from becoming involved in such an arrangement.

Secondly many shoppers still prefer to engage with the physicality of visiting stores, inspecting items on the shelves and interacting with them. This is unlikely to disappear anytime soon. The trends with respect to online grocery shopping suggest that this will take some time to win over everyone to this mode of grocery shopping.

Companies moving into this space where they eliminate the need for supermarkets will need “deep pockets” in order to fight off the anticipated and sustained response from the supermarkets. They will have to dangle” a number of carrots” in front of suppliers in order to encourage them to participate in this initiative.

Arguably only companies such as Google, Facebook or Amazon would have the financial capability to fight the supermarkets over a prolonged period of time.

Shoppers are changing. It is possibly that this model may gain some traction looking ahead to the next decade to fifteen years. I personally doubt that we will see the disappearance of supermarkets anytime soon.  None the less it is likely that we will see a number of initiatives in the area of grocery shopping which will increasingly be built around the challenge of reducing the dependence on supermarkets.

(* Morley, Kate (2017) “New online shopping technology could see the death of supermarkets”. Daily Telegraph, 1/11/2017).

HIGH NOON ON THE HIGH STREET

In this blog I revisit a favourite topic of mine: the future of the high street. In a previous blog (Time to Say Goodbye) I reflected on attempts by various individuals and organisations to revive the high street. The general thrust of this blog was that it was becoming increasingly difficult if not impossible to achieve this task.

Perhaps the most focused approach emanated from Mary Portas. She has established a reputation for flair and entrepreneurship in the retail sector and in the early part of this decade also achieved some fame as a TV personality, running her own programmes about analysing current retail businesses and providing advice as to how they might be turned around.

A natural follow-on from such programmes was an invitation to carry out an investigation and come up with a report on how the high street might be turned around.

The context for this initiative was clear. Since the 990’s and noughties, the high street appeared to be in irreversible decline. The inexorable growth of internet shopping clearly playing a significant part in this development. No longer did “time-poor” shoppers have to drag themselves with the same frequency as before, to physical shopping units in the high street. Instead of visiting shops during their lunch-time, they could place their orders from the comfort of their office, home or on their way into and from work.

The large retailers, across the different sectors: food, clothing, electronics, furniture, toys and so on, continued to beat the smaller shop on key factors such as price and range of merchandise. Put simply smaller shops, typically to be found on the high street could not cope very well with such threats, apart from offering a more personalised and intimate shopping experience. This advantage was in danger of being eroded further as lower prices continued to drive shoppers away from the high street to the internet and to out-of-town shopping centres.

A walk up and down the typical UK high street in any typical town or central business district area would typically identify the following characteristic. Betting shops, charity shops and boarded up, derelict outlets and a general atmosphere of poverty and hopelessness. This was the case a decade to fifteen years ago. I made the same walk around my high street recently and it is even more prevalent and hopeless. If anything it has got worse.

This is despite the fact that we are told the recession of 2009 is finally ebbing away and that more and more people are in gainful employment.

Mary Portas came up with a report which made a number of recommendations.

The government made available a sum of £1.2 million to spend on twelve towns in the UK in order to implement the initiatives proposed in her report. I go into more detail about some of these ideas in the earlier blog so I will avoid going over old ground.

Her main themes revolved around making the town centre / high street more attractive as a destination for people to visit and shop. Something akin to the Christmas markets (very popular in parts of Europe) was highlighted. This would allow interesting outlets and pop-up stands to emerge, selling unusual or “craft” oriented items.

She strongly recommended the abolition of parking charges. From her investigations she realised that a major “turn-off” for shoppers visiting town centres was: inadequate parking, exorbitant charges, the ever-presence of traffic wardens, only too happy to issue tickets and the reality that five minutes at most would be available to visit a shop and make a purchase in order to avoid a fine.

She argued for more realistic approaches to rents. Many landlords operated a policy of upward only rental agreements, in some cases annually. This made many rents unrealistic for small, independent retailers.

Business rates were also seen as being prohibitive.

The problem for small retailers was exacerbated by the arrival of the large retailers in the high street. Many actually launching new concepts which had the appearance of being independent retailers but were actually part of the major retailer’s operations. Such retailers could afford the rentals and this only served to push the costs higher and higher.

Five years or so on from this report and its recommendations what has happened?

The news, (if you are a supporter of high streets and their rejuvenation) is not at all positive.

Across the twelve towns which participated in the study, a net loss of around 969 outlets was recorded. This is graphic evidence that the initiatives introduced by Portas were ineffective.

In addition to the long recession and rental issues, other factors such as a rise in the living wage and spiralling property prices have made even large retailers such as Next struggle on the high street. They are forced to rethink their property portfolio in light of the increasing growth of online channels.

The major reason for the failure of the initiatives in my view has to be put down to a lack of commitment from the government. During this period they reviewed the business rates and this led to a substantial increase (for many retailers) in what they would have to pay. This attracted major criticism and the government attempted to “water down” the effect of this by allowing them to appeal. However as with most appeals, it became tangled up in bureaucracy and delays. The net effect is that some retailers could not absorb such increases – leading to more of them disappearing off the high street.

This lukewarm approach was also reflected in the attitude of government to doing away with parking charges. Instead they supported initiatives such as “ten minute grace periods” and a more lenient approach by local authorities of the towns. Of course in practice this had little effect. Local authorities have become increasingly dependent on income from such sources. Without adequate support from the national government it was never likely they would embrace such recommendations with enthusiasm.

The sum of £1.2 million was also in my view very little if some of the more ambitious elements of the Portas report were to be implemented. Even recruiting a sufficient number of retail experts (which was not feasible, given the budget) still meant that volunteers would still have to play a major role in implementing the initiatives.

So where does that leave us and more importantly the high street?

Some high streets have improved. Those that fall into this category have succeeded because of a partnership approach between all of the key stakeholders such as retailers, landlords, local authorities and developers. Treating the high street as a form of leisure destination is probably the way to go in the future.

We always say in marketing that any product has to have a point or a couple of points of differentiation. Otherwise why would anyone purchase such as product? Likewise with the high street. It has to offer something that is different from the value proposition that a shopper can experience on the internet or at an out-of-town shopping centre. Unusual craft and artisan type outlets in a pleasant setting (live music, eateries and coffee shops) can go some way to providing this different type of shopping experience.

Unless we see greater flexibility on the part of local councils we will not see much progress in these directions.

Politicians and local council members in my view have no understanding or appreciation of how small independent retailers operate. Their approach to business rates appears to reflect the view that this is a major source of revenue: it does not take into account the practical realities of having to deal with the harsh realities of spiralling costs in an environment which is ever more competitive. The opportunities for entrepreneur to make a living a sinking by the day.

While some exceptions will always occur, we have most probably seen the death of the high street.