In the text-book we looked at franchising as a mechanism for expanding a retailer’s operations both in a national and international context.

One of the most challenging aspects of retail strategy revolves around the issue of how to achieve a critical mass in terms of the scale of operations. How quickly can you grow the business in terms of the number of outlets?

We are all probably aware of the potential benefits. The larger the scale of operations then the more likely it is that a retailer can benefit from getting better discounts and deals from suppliers. A retailer can also spread the cost of doing business across the outlets and benefit from synergies and so on.

Franchising is seen as a quick and relatively low-cost way of achieving such a position.

The traditional franchise model is based on two key features: an initial “up-front” payment by the franchisee (the individual who wishes to become a partner / member of the franchise arrangement) and an annual percentage of sales that is paid to the franchiser (the company / individual who has established the original business idea and developed it into a successful investment proposition). The success of the concept is based on the belief that the franchisee benefits from the established brand proposition and the expertise of the franchiser in terms of help and support provided by the latter. It also works on the principle that it gives the franchisee the opportunity to own his / her business and a clear incentive to work hard to make it work. The franchisor benefits from gaining access to a wider geographic region and thus begin to benefit from a larger scale of operation.

I was brought back to this topic recently when reading an article about Majestic Wine: the largest specialist wine retailer in the UK. Originally established in 1980, it has expanded to over 200 stores in the UK and two in France. In 2015 it acquired Naked Wines to enable it to expand its operations.

Let me stress that it does not currently operate a full franchise model: none of its stores are franchised out.

However it has begun to introduce what its CEO Rowan Gormley refers to as a “franchise – light concept. Gormley was previously the CEO of Naked Wines and when this was acquired by Majestic Wine he subsequently became its overall CEO.

In his new role he embraced the philosophy of putting the customer and his staff first.  In response to the customer he developed a multi-channel strategy with “click and collect” and online sales, simplify the pricing strategy and improve the design of the store to make it more “customer-friendly”.  In response to the staff he felt that it was necessary to create a climate which could better incentivise his store managers.

Motivating store managers was seen as a particular challenge. In 2015 around twenty-three per cent of them left: mainly due to the restrictive nature of bonuses (they could only earn up to a maximum of £1000 and were earning a salary of £28,000.

This raises a more general question of the challenges of retaining staff in a sector which is pressurised to manage costs and salaries in order to remain competitive, particularly in the face of the ever-present threat of discounters.

The traditional “command and control” model is predicated on the practice of everything remaining in the hands of top management: where decisions on strategy are passed on to middle and junior management for implementation with little or no consultation.

Gormley challenged this approach by introducing what he termed the “Majestic Partners Programme” in 2016. This is based on the principle of allowing store managers to take responsibility for more control over the management and day-to-day operations of the business.

This is reflected in the store managers making decisions on issues such as staffing levels, opening hours, which product line to carry, discount levels and tasting products for use within the store.

Such a strategy can potentially allow them to earn around £50,000 based on performance. This is a significant improvement on the average earnings of £30,000 for the typical store manager.

This “franchise light” approach buys into some of the underlying features of a traditional franchise model. For instance it passes over some of the operational decision-making to individual store owner. By taking responsibility for areas identified earlier the manager is in a position to directly influence his / her income from the business.

While not having any responsibility for overall strategic decisions, never the less it can be argued that such responsibility can act as a major incentive and provide a strong indication that the store manager has an influence on the future of the individual store and by implication the overall business model.

It also provides a major incentive to stay with Majestic Wine and grow the business.

More importantly (for the store manager) it means that no up-front fee is required in order to participate in the business model. Thus one key element of the traditional business model is ignored.

One of the criticisms of the traditional franchise model is that there is conflict between what the franchiser wants and what the franchisee gets.

The franchiser does not want an entrepreneurial individual who typically likes to take some risks and above all resents being told what to do. In short they want someone who will diligently follow and embrace the underlying value proposition that has been embedded in the business.

However people who might invest in such a business (particularly if they have some independence and flair) find it difficult to operate in a situation where there is no “wiggle-room” for introducing new ideas or behaving in an innovative way.

The “half-way house” approach introduced by Gormley at Majestic Wines possibly overcomes this dilemma. It enables store managers to increase their income levels while at the same time broadening their range of management and customer service skills. In the longer term this arguably makes the overall business of Majestic Wine more profitable and sustainable.

As against that it can be argued that some of the successful store managers will most likely move onwards and upwards or even establish a rival business proposition.

On balance I like the approach adopted by Majestic Wine as it avoids some of the pitfalls of the typical franchise arrangement. It should certainly improve the qualities of the store manager.

Gormley expects to have around fifty to sixty per cent of the store portfolio operating the “franchise-light” model over the next year to eighteen months.

He recognises that not all store managers would be keen to participate in such a framework and be burdened with the responsibility for such decisions.

Successful managers who improve the business are likely to seek further reward by gaining promotion. If such a procedure or opportunity is not available then they will move to another company.

Gormley’s overall philosophy revolves around the “test and learn” model. Let’s keep an eye on this business over the coming years.

THE PRICE IS NEVER RIGHT

We have examined the issue of retail pricing strategy extensively in one of our chapters in the text. I was drawn back to this topic recently when I read an article recently (True cost of Amazon pricing revealed: The Times; 9^th September 2017, p7, Andrew Ellson).

This article addressed the general issue of dynamic pricing, something which I hasten to add is not new. Service sectors such as airlines and hotels have used the practice for a number of years in an attempt to get the balance between supply and demand more in their favour. Where a company is selling a perishable product (i.e. it cannot be stored or inventoried), such a strategy, based around changing the price of the service constantly – sometimes upwards, sometimes downwards, can help to optimise sales and the margins.

Amazon, our old friend, which is usually in the forefront of pioneering endeavours, has arguably taken the practice of dynamic pricing to another level. This is reflected in the practice of changing the price of items much more frequently than is the case with hotels and airlines. The author of the article mentioned above cited a study which suggested that the price of an item could change very dramatically over a period as short as a week or a day. In the case of one item the price varied by as much as forty-five per cent over the course of a week.

Further details of this study revealed that over the course of a one-year period and based on a random selection of one hundred items including books, DVD’s and so on, prices fluctuated by up to as much as two hundred and sixty per cent between the highest and lowest price points.

As we might expect prices changes tended to be linked to certain events that related to the items. For example if a film was a success then the price reflected that level and degree of popularity. Seasonal events such as the onset of summer, Halloween and Christmas also played a significant part in the re-formulation of prices.

In essence it is the disparity in the price changes, the frequency of such changes and the scale of the change (on a wide range of items) that has taken dynamic pricing to a new level. You might say that such bewildering change only serves to confuse and potentially annoy shoppers. Ellson quoted the example of a Waeco fridge that featured on the Amazon website. On August 3^rd 2017 it was priced as £400. On August 6^th it was advertised at the price of £580. A week on from that date it had dropped back to a price of £398.

On average the one hundred products that featured in the study changes price every five days and in the case of one item the price changed by as much as 300 times during the year.

What are we to make of this from the perspective of retail marketers and as shoppers?

From the perspective of businesses in general and retailers in particular the ultimate challenge is the charge the maximum that people or companies are willing to pay for the product or service. Reality intrudes and suggests that this is not always possible or indeed desirable at certain times.

For instance retailers entering new markets or new product categories may have to engage in some promotional or discount pricing in order to make inroads in that market. Some retailers target a particular segment such as the low-income sector. This inevitably means that high prices are a “no-no” and low prices / high volume is the order of the day in terms of the cornerstone of the retail strategy.

However dynamic pricing in the context of changing prices frequently on the basis of market conditions and on the amount of data that is captured on an individual’s purchasing and demand patterns can enable retailers to maximise their revenue and margins.

As mentioned earlier we see this with airline tickets and hotel rooms. Uber, the taxi company bases its business model on charging customers what they think they are willing to pay, weather conditions, time of day and driver availability to name but a few influences.

At music festivals, where people are dehydrated and suffering in the heat, you can charge as much as £5 – £10 for a large bottle of water and not too many will complain. The need to quench their thirst overcomes any misgivings about paying such a high price.

For the shopper one inevitable conclusion is that they have to become more “savvy” and more precise in terms of how they go about monitoring prices on the web. If you lean towards this type of practice then it can be argued that you can benefit from the effects of dynamic pricing. If you can identify the occasions when prices are likely to drop then you can take advantage of such market conditions to benefit from lower prices.

However human nature and consumer behaviour suggests that many of us at best do not have the time or inclination to engage in such disciplined practices. Many of us are lethargic about such matters and only engage in purchases when we need to. By that time the price will most likely have taken a hike.

Think about how you purchase an airline ticket. How many of us plan ahead and buy a ticket three to four months ahead of the flight time? I thought so. In my case I tend to leave it to a week or so before I intend to fly. The software and algorithms used by airlines to analyse demand patters will ensure that prices are on an upward trajectory at this stage in the purchasing cycle.

Again we see the confluence of big data and technology. Amazon has long been the pioneer in this area and once again we are witnessing it driving forward the boundaries.

While many commentators argue for clarity and transparency in the area of pricing, it can be argued that Amazon’s approach is opaque and confusing.

In the fields of sport and entertainment, organisations are embracing dynamic pricing with some degree of enthusiasm. Fans are faced with a bewildering rate of change as they are presented with differing prices by the day and by the hour.

It can be argued that price leaders such as Amazon are in the ideal position to develop dynamic pricing strategies. I would make the observation that they are no longer applying such a strategy indiscriminately. Using big data and sophisticated software they are adopting a more targeted approach to individuals and with product categories. Analysis of shopper interest metrics such as sales performance and online abandonment rates, can provide retailers like Amazon with prescient data upon which to activate focused dynamic pricing strategies.

There is no doubt that shoppers will have to “acclimatise” to further and more extensive applications of this pricing approach. Those of us who remain in the lethargic and disinterested category are likely to end up paying more for items than those who adopt a more disciplined approach.

We can debate (and we have done in earlier blogs) the efficacy of dynamic pricing. As retailers equip themselves with ever-more sophisticated software and gain access to increasing amounts of big data, it is likely that they will be able to further improve their profitability.

ZANY ZARA

As the new academic sessions are about to begin, I thought it might be useful to re-visit a retailer that we featured extensively in the text-book: Zara.

When I was a student and then a lecturer the iconic and most successful brands tended to revolve around IBM and Dell. They were used extensively to highlight how a company can generate success through business models that differed from the competition and generated sustainable competitive advantage. They both subsequently struggled: in the case of IBM it almost went out of business as it ceased to become relevant to a changing market. It subsequently retrenched and evolved into a successful operation once again; albeit radically different from its original incarnation. Dell likewise went through extensive re-definitions of its business.

Zara has been arguably the most successful brand in the world over the past twenty years or so. It features extensively as a case study in all strong business schools and particularly in specialised retail classes.

I thought it might be opportune to carry out a “rain-check” on its present performance and see if it is showing any sign of any diminution of its success. Is it likely to follow the law of inevitability which suggests that over time even the most successful brands will decline and possibly go out of business?

Let’s briefly recap its business model.

Zara is part of the overall company called Inditex. This organisation owns a number of successful retail operations including Massimo Dutti, Pull & Bear and Berscha to name but a few.

It has overall global turnover of around £21 billion and operates around 7,000 stores world-wide.

Zara operated around 2,000 stores and as of Aprila2017 recorded a turnover of £5-6 million.

The business model essentially changed the way in which retailers operate when it started off initially.

Instead of designing items based on the four seasons model (Spring, Summer, Autumn and Winter) it worked on the principle of creating excitement for its customers by constantly introducing new designs and items every three weeks or so. It also produced very little stock in the case of each item. Currently it makes 60,000 copies of each item. This means an average of 30 for each one of its 2,000 stores.

Its real success rests with its supply chain and production system. It can replenish any of its stores anywhere within a three to five-day time-frame. Store managers track the trends and where a particular item is selling well, they contact headquarters in La Coruna and its rapid replenishment system kicks into play. Everything revolves around the twin principles of speed and responsiveness.

Even where an item sells out across the stores, it does not necessarily produce more. Instead it works on the principle of creating more interest and excitement by evolving that particular item into a similar cut or colour.

It challenges the basics of marketing which suggests that we give the customers what they want. In Zara’s case it does so but does not generate large levels of inventory that are likely to cost money in terms of lying around in distribution centres and eventually having to be “marked down” in order to get rid of excess.

It employs over 700 designers in La Coruna who act on feedback and marketing research that is fed back to them in order to synchronise designs with trends and colours.

Sixty per cent of its products are sourced close to Spain. This further speeds up the supply chain process and allows Zara to deliver on average two fresh deliveries of items to its individual stores. A sophisticated electromagnetic system allows Zara to track each individual litem as it moves through the supply chain.

I would stress that the ley learning point from the Zara model is that it is not about being a retailer. How do you describe Zara? It is a leading edge supply chain integrator which has developed a process for doing business that is very difficult to copy.

Is it still successful? The answer is unequivocally YES!

It recorded a 14 per cent increase in sales in April 2017 which, if assessed on a like-for-like basis amounted to a profit increase of between 8-9 per cent.

Has it adapted its model in recent times? After all the overwhelming evidence from the world of business indicates that, like a successful sports team, it cannot stay still in the face of an ever-changing world and the competition.

The key issue in my view is how it has responded to the inexorable move towards online shopping.

Zara made its first move into e-tailing with its “Zara Home” range of items in 2007. It extended this development with its clothing section in 2010. Interestingly Zara does not identify the breakdown in sales between its “bricks and mortar” stores and its online channel.

The general thrust of its direction however still appears to position “physical” stores at the forefront. This is reflected in a recent development in La Coruna where it opened a much bigger stores than is the norm. This stores is around 54,000 sq. ft. and replaced four smaller stored in and around the city.

This development is somewhat at odds with other retailers who have embarked on a rationalisation process of its existing stores in the face of the threat of online shopping. An example of this practice is Macys: the American retailer.

Commentators have differing views on the new approach of Zara.

It can be argued that one of the core principles of the Zara model revolves around the excitement created in the physical stores as a consequence of the frequent changes in merchandise. Shoppers visit Zara store much more frequently than is the case with its competitors. If Zara embarked on a conscious strategy of closing stores and shifting aggressively to its online channels it is possible that it would lose one of its core differentiating factors.

By developing bigger stores that effectively become flagship operations it can be argued that it can heighten the excitement for its core shoppers. It can also entice shoppers who do not live within a reasonable distance of such stores to make greater use of its online channel. Thus it does not compromise on its physical stores and avoids the accusation that it is ignoring its e-tail operations.

This is an aspect of Zara’s business model that we should monitor closely over the coming couple of years. The organisation has a large cash reserve and it perhaps not in a position where it is forced to reduce costs by closing stores.

It is difficult to replicate the “excitement” factor on an online channel and in my view its present approach captures “the best of both worlds”. However as we know from retailing nothing remains the same and we should be prepared for the unexpected.

For now Zara continues to grow in terms of sales and profits globally.

TWEEDLE DUM, TWEEDLE DEE OR SOMETHING DIFFERENT?

Since I started the blogs to stimulate discussion on issues raised in the text I have always tried to take a longitudinal view of their contribution. In other words I like to revisit and expand on earlier blogs about issues and retailers.

That “hardy annual” UK retailer, Marks and Spencer is always worthy of revisiting and revising. I was tempted to go back to this retailer recently when I saw that clothing sales had experienced an increase at the end of 2016. This suggested that perhaps it had reversed the seemingly irreversible downwards trend in recent years: where food sales gradually overtook clothing and home sales.

More recent figures published in July however suggested a slight decrease of around 1 to 2 per cent (depending on whether they were based on like-for-like sales or adjusted.

As we know statistics can be “bent” to suit a particular narrative and Marks and Spencer is no exception.

On the one hand the CEO, Stephen Rowe was delighted with the clothing and home performance particularly as sales in this category appeared to increase by 7% if full price was taken into account. This meant that the role of discounting and promotions played a lesser role in stimulating sales (clearly a positive feature). In the past couple of years Marks and Spencer has been criticised for an over-reliance discounting.

That said, overall clothing sales still declined in spite of some favourable underlying conditions in the first quarter of 2017. For instance Easter fell later in the year than usual, the Eid festival took place earlier in the year and the prevailing weather conditions in the UK during Easter and early summer were favourable and conducive to encourage shoppers to spend money on summer clothing.

You may have noted from an earlier blog of mine on Marks and Spencer that I have put forward the notion that it should consider the nuclear option of pulling out of clothing and focusing instead on the food sector. I am not alone in this view although I fully recognise that it is a controversial view and one that is likely to be torn apart by many retail commentators and so-called experts.

My argument in that earlier blog was based on the view that the clothing sector has changed out of all recognition to the climate faced by M&S back in the 1970’s and 1980’s. Much has happened to irrevocably change the business models and way of doing business in the clothing sector. The main change has been driven by pioneers such as Zara and H&M who have revised the way of doing business: creating a fast-fashion and fast supply chain system that provides the shopper with more variety at lower prices than could be sustained by the more inflexible and traditional models (four fashion seasons, slow supply chains and decisions made a year to eighteen months in advance of the particular season).

We have also witnessed a polarisation of retailers operating at both ends of the spectrum: high price and quality versus low price at an acceptable quality level. As we discuss in chapter six of the book a retailer in the fashion sector does not want to be seen as a “piggy in the middle”. Mid-range, mid- level retailers have consistently struggled to make an impact. This is based on the simple view that if you are caught in the middle it is next to impossible to develop and sustain a relevant point or points of differentiation. This is what has happened to M&S in my view, within the fashion sector. It has tried numerous launches and re-launches such as the Autograph collection, Indigo, Collezione and North Coast labels. None of which has made any significant impact as regards turning around its fortunes in the fashion sector.

It has also struggled to carve out a relevance for younger shoppers, arguably the most vibrant and lucrative segment of the fashion market. It is still seen by many such young, professional females as a retailer that sells items that only their mother or grandmother would wear. This is analogous to throwing a party in your flat and inviting your friends as well as their parents and grandparents along to!

The other irreversible trend over the past fifteen years or so has been the emergence of the supermarkets in the fashion sector. They too have created ranges of clothing that are of an acceptable quality and at a low price. This has been very attractive for many categories of shoppers (low income, families and so on). Their growing significance has also been exacerbated by the prolonged recession since 2007 and the continuing decline in real incomes generated by pay freezes in the public sector in the UK.

Marks & Spencer has experienced more success in the food area however. Currently 60% of its revenue comes from this area and only 40% from clothing and home categories.

There has been an inexorable trend towards changing the direction of M&S. For instance in late 2016 it announced that it would be closing over eighty of its stores in the UK. This could be interpreted as an admission that in the longer-term it needs to reduce its involvement in fashion.

Of course it could also be argued that it is a recognition that there is a need to eliminate physical space from the retail operations and focus instead on online channels.

I would argue that M&S has successfully carved out an identifiable and recognised niche in the area of food. Whether this has been by accident or design is a moot point. However in any event it has bought into the “changing behaviour of consumers in the past decade. Let’s take a simple case in point.

Many of us do not work in the conventional ways in which our parents did. Do we work from nine to five each day with a lunch-break of an hour in between? Of course not. Even in the bureaucratic public sector, people and organisations adopt a much more flexible position. People work from home or they come in early and nip out for a sandwich at 10am or 10pm. Food on the go has become the norm for many people. It is here that M&S has done well.

It produces an innovative (and changing) range of popular food items at levels of high quality ant mid t0 high price points. This has given it a clarity and relevance that is totally missing in this clothing and home categories.

We should also note that the food sector by far exceeds the clothing sector in the UK. In the case of food (including alcohol) it was estimated to be worth £114 billion in 2014. By contrast the clothing sector was worth around £63 billion. This might suggest that in the longer-term greater opportunities arise to capture more business in the food sector.

While this sector is still very competitive (with specialise food operators such as Sub Way and Pret a Manger to the fore), I argue that M&S has a clear positioning strategy in focus.

Does it really need the baggage of trying to also compete in the fashion sector? In some ways this is analogous to an elephant trying to compete with a gazelle in the running stakes. With the move away from large format and “large space” retail operations, surely it would be better for M&S to direct their innovatory approaches to delivering food options in much smaller physical spaces? The virtual space? Or through other operators such as petrol and service stations? In fairness this is what they have been trying to do in the past few years. By divesting from high-cost physical spaces it can become more nimble and flexible in anticipating and responding to changes in the environment.

Of course as long as the clothing and home sectors still remain somewhat profitable, the decision to divest would be a difficult and potentially painful one for senior managers.

However I would end by observing that the heritage of M&S is to be found in the food area. When it opened as a bazaar in Leeds in 1864 it did so as a food operator. It did not sell clothing until after the First World War.

Let’s continue to monitor M&S to see the next instalment in the story!

The title of this blog is not about a megalomaniac attempt to take over the world on my behalf or the consequence of a bad dream. Instead it might best describe the attitude and desire of that famous entrepreneur: Jeff Bezos – founder of Amazon when it came to is recent acquisition of Whole Foods the mid to high-end US grocer.

A little background to this acquisition.

In June 2017 Amazon acquired Whole Foods for around £10.6 billion. Although it had made some previous and tentative ventures into the world of grocery retailing about ten years ago (the purchase of WebVan being an example, albeit a failed on), this represent a serious and determined move to consolidate its presence in this sector. It is the biggest ever deal for Amazon and judging by the business press coverage is seen as a potential “game-change” for the future of this sector. Prior to this acquisition Amazon has registered a very small presence in the grocery business in the US: it is estimated to have around 0.6 per cent market share.

By acquiring over 440 stores in the USA and around 40 in the UK it clearly widens the footprint of Amazon in this area.

The reason why it has attracted such media coverage is because it has generated a range of different theories as to the rationale for this move. We will tease out a few of them in this blog.

Perhaps the simplest observation is that it represents a reversal of Amazon’s onward march towards domination in the online retail space and might signal that there I life still in the traditional “bricks and mortar” grocery retail arena. However in my view this is simplistic and naïve.

The reality is that for the past decade or so retailers have grappled with the challenge of provide a range of channel options for shoppers. More recently this has morphed into the concept of having an omni-channel presence – where shoppers should enjoy a seamless and integrated experience in their dealings with a retailer. The concept of remaining as a “pure-play” retailer in either bricks or mortar or online is reducing.

As we know Amazon is one of the most aggressive players in terms of innovation. This applies to all aspects of its business model: from big data management, the application of technology right through to the vision of Bezos which is most accurately captured in his desire to build an “everything store”.

Over the past decade this has evolved through buying parts of the supply chain it did not already own – for instance initially it relied on third party delivery companies such as UPS. Now it has its own delivery systems across shipping and air. In the latter case we are currently witnessing its testing of how drones could be profitably used to expedite delivery via a range of options such as click and collect, direct to a locker or storage or to a person’s home or office – all within a two-hour turnaround.

Therefore the acquisition of Whole Foods opens up the opportunity for Amazon not merely just to gain a physical presence but the leverage the strengths of this company across its existing operations. Let’s examine this in more detail.

Whole Foods has encountered a slowing of sales and profits in recent years. It is not a low-price, discount retailer however. Instead it is seen as a premium retailer which focus on a range of quality and healthy options for an affluent and young target market. This might be contradictory in terms of how many people see Amazon (a place where you can buy items at lower prices than the competition). It can be equally argued that it allows Amazon to expand it range of items in the grocery sector to include a more sophisticated range of fresh food items and therefore make itself even more appealing to this “affluent” shopper.

Let’s not forget that it has already innovated in this space with Amazon Prime and amazon Prime Fresh, where shoppers are willing to pay an annual subscription (£75 in the UK or $99 in the USA) for this delivery service.

Rather than being perceived as making a grab for simply a greater physical presence in the grocery space, it could in fact be argued that it could be seen as more of an opportunity to consolidate its stranglehold on the online shopping arena.

Let’s be careful about making the jump to the assumption that this acquisition signals a reverse in the inexorable move towards online shopping and instead marks some form of recognition that the bricks and mortar space is going to witness an upsurge or shift in popularity.

After all in the USA the last few years in particular has witnessed the decline in visits and usage of shopping malls (the term “ghost malls” has come into vogue to capture this phenomenon). For most retail categories the upcoming generation, weaned on online shopping, social media platforms and apps, are unlikely to switch away from this ingrained behaviour and jettison it in favour of a return to physical shopping to any significant extent.

A recent study by Alltech with young shoppers (20 year olds plus) captured a revealing comment. When asked if grocery stores and supermarkets are still important one person responded thus: “Yes they are very important – for old people”. This may give us an interesting insight into this segment’s perception of grocery stores!!

Consider this. Over 23 million US shoppers live more than a mile away from a grocery store. Fresh food and fruit is largely inaccessible to them. Amazon with its innovative approach to delivery is capitalising on this. Likewise the acquisition of Whole Foods store gives it a local dynamic and more importantly access to data on these shoppers. This can widen the reach of Amazon and increase its range of items – particularly in the premium (mid-to upmarket grocery category.

In the UK, with Whole Foods having approximately 40 stores, a similar strategy can also ensue.

I would argue that despite the relatively poor financial performance of Whole Foods in recent years) it still has a strong brand perception and presence with the affluent 20 – 30 year old shoppers, and older). Let’s look at the relative strengths of both parties.

Amazon demonstrates its capabilities in the following areas: innovation and its aggressive approach to implementation, a very strong delivery capability and its masterful management of big data.

As well as a strong brand profile Whole Foods brings it reputation for high quality items and a strong set of relationships with existing suppliers. The harnessing of these strengths is only likely to lead to further improvement.

Will Amazon retain the brand name and the brand values? In my view it should certainly retain the name and most of the stores. It may make a number of adjustments to the portfolio of items – still largely focusing on the premium image but with some adjustment to lower prices in some categories, although this could create problems if it moves too aggressively in this direction.

With aggressive technological developments in areas such as facial recognition likely to emerge in the next few years, Amazon will continue to improve its delivery mechanisms and speed up the convenience issue in its Amazon Go stores.

The competition in the form of established grocery retailers such as Wal-Mart, Tesco and so on will have to respond. Likewise online pure-play retailers such as Ocado will be nervously looking over their shoulders.

The only certainty is that a “do nothing” response is not an option.

I have always been attracted to the challenge of setting prices for products and services. Why? Well mainly because it is probably the most neglected and misunderstood aspect of retail marketing strategy. However things are changing rapidly.

In recent months here in the UK the business and daily press have become obsessed with the concept of “surge pricing”. The term has been portrayed by commentators and journalists as the “latest “in-thing” or “whizz” that shoppers are about to become exposed to. I would like to de-bunk this argument and in this blog I express some observations that hopefully put the concept in perspective and context.

The term apparently describes the notion that retailers are likely to do away with the concept of “fixed pricing”, which has been the practice for many decades. Instead prices will rise and fall in an ever-bewildering number of changes during the day to reflect rises and falls in demand. The reason why it is gaining more traction is built around the confluence of big data and technology: a theme which is a recurring feature of my book and my previous blogs.

However, let’s get real here. Call it what you will – surge pricing, dynamic pricing, peak time pricing or whatever. It has been around for a long time, particularly in the services sector. Most of us have experienced such variations in pricing with airlines and hotels for quite a number of decades. It is particularly appropriate in services, where you cannot store or inventories services. Once the flight takes off (whether at capacity or half-capacity) the opportunity is gone to sell extra seats. We refer to this as one of the consequences of “perishability”.

Of course in traditional retailing, as shoppers, we are constantly exposed to promotional prices, discounts, special offers and so on. However a number of developments have increased the frequency of such strategies and in particular the practice of varying prices in a frequent or dynamic way to reflect demand or the lack thereof.

Companies such as Amazon have taken the practice of dynamic pricing to ever higher levels of sophistication. Again I take you back to the confluence of technology and data. By capturing a raft of information about the individual shopper and by making use of technology to developed detailed algorithms to project and forecast demand, companies can reflect this in the pries that they charge for their products.

This has been further helped by the use of e-pricing within the “bricks and mortar” stores. This has been going on for a number of years in European countries such as Germany and Scandinavia. This is visibly identified by the increasing use of Electronic shelf labels (EPL’s). This has recently entered the lexicon in UK retailing.

Let’s reflect on this development for a second or two.

Traditionally one of the biggest challenges facing retailers was to implement price changes. Paper-based shelf labels had to be changed manually by a vast number of people across the store portfolio. Imagine the length of time it can take to fully implement changes across five hundred store outlets for example? Also reflect on the potential for human error: again a large number of individual doing such a mundane task. There are bound to be errors. Also not every store will work to the same level of expected efficiency when it comes to making the changes. It could potentially take a few days before every store in the portfolio has addressed the changes.

Now reflect on how it is so easy for online retailers to make and implement price changes. What may take a few days in a “bricks and mortar” store can happens within an hour or two of a strategic decision to effect a change in price on a number of different items.

Now, through technological developments, prices can be altered with bewildering frequency across the traditional physical outlets.

Surge pricing, it is argued can lead to higher margins for retailers because it can allow them to reduce waste: in the form of excess stock at the end of each day. This is achieved by altering the price of items to reflect demand patterns and also lead to operational efficiencies by spreading the shopping more evenly during the day.

A good example of this was an experiment by Marks and Spencer in 2016. It reduced prices on its food items up until 11am each day and then increased them during the peak “lunch-time” period (when people call in to buy a sandwich or salad). Petrol stations in Scandinavia have used similar strategies to manage demand by increasing the price of fuel at peak times and reducing it at off-peak periods.

The notion of a “one piece fits all” approach is coming under increasing attack and is seen as being implausible – given the array of data and technology available to retailers.

What are the benefits to shoppers who might be faced with varying prices when visiting their local supermarket or fashion retailer? Well if you are prepared to shop during off-peak hours you would certainly benefit from lower prices. This might mean making a visit to the store at 11am on a Monday morning or 11pm at night.

If retailers go even further and link your personal data and shopping preferences and patterns to a personalised form of pricing, then you may also benefit from lower prices gain some reward through your continued loyalty.

In essence shoppers would have to readjust their shopping habits and this may take some time before they become conditioned to such “surge pricing” tactics. For instance in Scandinavia petrol stations are engaging in such practices by changing prices at different times during the day.

Retailers probably gain more from this exercise. The do so through more effective management of inventory and through achieving cost efficiencies by more effectively managing resources e.g. front-line staff.

It also makes it easier for retailers to make more effective price matching offers and get these changes up more quickly via electronic shelf labels.

In theory it addresses the ever-increasing need for price transparency.

The fact is that UK retailing is only in the nascent stages of implementing the technology when compared to countries such as France. In the latter case retailers there are in a position to changes prices over 90,000 per day if they so desire.

For bricks and mortar retailers it allows them to compete more effectively with pure play online retailers. They can effect price variations potentially as quickly as them, thus reducing the gap between them.

If you are getting cheesed off with the implications for shoppers there is good news, at least in the short term. Retailers, particularly supermarkets, faced with the bewildering range of items and the sheer size of the number of the stores which they operate, are only able to drive changes with such frequency on about 20 per cent of the changes that their computer systems and algorithms recommend.

It will also take time to combine personalised, individual pricing for each and every one of their shoppers.

Once again the combination of technology and data is driving change.

Remember this. The concept of surge pricing is not new. What is innovative is the potential that it offers to retailers. For shoppers, if we wish to benefit from it, we will need to become conditioned to it and adjust our shopping habits accordingly.

Haggling over prices has been around for centuries. To some extent this notion of surge pricing reinforces this practice: shoppers will become used to such variations. The idea of a standard fixed price may disappear. Let’s keep an eye on this development.

Interesting times ahead for Lidl – the German hard discount food retailer. Forty years after its “alter-ego” Aldi entered the US market, Lidl opened its first store in Virginia in the past couple of weeks. It plans to roll out another twenty or so by the end of the year and in the next twelve months plans to have one-hundred stores across Virginia and North and South Carolina. It has further plans for developments in Texas and other north-eastern states.

This is an interesting move because the US grocery market is highly competitive: long since dominated by giants such as Wal-Mart (which holds around 22% of the national market), Kroger and Target. It is also a sector which has experienced a downturn in demand and is dominated by a focus on ever-lower prices. Arguably the market is experiencing over-capacity in terms of the number of retailers operating in this space.

Retailers have anticipated this rumoured entry by Lidl. For instance Aldi has spent £5 billion on a major overhaul of its stores and has continued to open new outlets across the nation.

For me it is an interesting move for Lidl precisely because retailers in Europe and particularly the UK have constantly failed in the US market. As far back as the 1980’s Marks and Spencer experienced a major failure. More recently Tesco, with its “Fresh n Go” concept also encountered a sobering lesson. In the latter case it claimed to have done extensive research on the US food shopping patterns, preferences and so on, yet miscalculated the market and was forced to bow out in an embarrassing manner.

In addition Amazon has also made inroads via its Amazon Fresh concept and the ever-present growth of online retailing.

In our chapter on retail internationalisation I stressed the importance of learning by doing and learning to adapt, when retailers enter international markets. Cultures and shopping patterns can vary considerably. What might work well in Germany or Sweden may “bomb out” in Australia or Malaysia because of a fundamental lack of understanding of these existing differences. I was intrigued by this comment made by the CEO of Lidl US; Brendan Procter.

“It’s about what we have to do to adapt to the market” (quoted in Lidl opens first US stores as new era in food retail begins. Supermarket News (Jon Springer).  June 2017.

This view captures the essential challenge for any retailer contemplating entry to an international market – particularly one as complex and challenging as the USA.

Lidl is often portrayed as a secretive and intensely private operation. While Aldi has med the earl move into the USA many commentators put forward the view that Lidl displays more innovation and ingenuity in terms of its overall business model.

In the light of previous failures such as Tesco it might be beneficial to identify and assess the approach adopted by Lidl as it takes on the established and hardened retailers in this sector.

Firstly it has made adaptations to the size of its stores. Typically the US Lidl store centres around 36,000 square feet – of which 21,000 square feet represents the selling space. This means that it is around 35 per cent larger than its typical European store. This reflects the emphasis placed by US food retailers on selling space (much larger and carrying more items than Lidl).

It also has altered its exterior design. In the USA it has arching walls of floor to ceiling made up of glazed glass and extensive use of red brick in its construction. This is in sharp contrast to its European stores which are essentially made up of extensive use of aluminium panels. Research showed that this latter type of design conjured up an image of a typical car dealership in the minds of American shoppers.

Each store is designed around six aisles, with the first one containing the most popular items that are typically purchased by shoppers. Upon entering the store the shopper sees the bakery section in the corner. Lidl makes use of free samples to tempt and surprise shoppers and encourage them to make a purchase. At the end of each of the six aisles Lidl places its promotional offers. This is based on lower prices but emphasising the quality of the items. In this area they focus on using promotional pricing to attract and retain shoppers and educate them to how these offers work. For instance they make use of prominent signs with the slogan “While they last”. This focuses on the message that the items will not be available for very long at those prices. In similar fashion they rotate prices on selected non-food items such as clothing, again focusing on the short-term availability of items at promotional prices. They change the focus of the items each week or so thus focusing on the element of surprise.

“Fresh5” offers focus on 3 items in the Fresh veg and fruit and 2 items in the meat and seafood categories.

These promotional offers are typically around 12 per cent to 30 per cent lower than competitor’s prices.

Recognising cultural differences, Lidl includes a section carrying refrigerated craft beers – a popular and growing category in the USA.

Ninety per cent of items stocked are private labels. This represents a challenge as traditionally US shoppers have been suspicious of such brands – preferring the more recognisable national and international alternatives. However Lidl reckon that this perception is changing as shoppers become acclimatised to lower prices. Focusing on the quality of such items is also seen as a way of changing these views even further.

Lidl works closely with suppliers to ensure that they can meet the designated price-quality levels.

The smaller stores, linked to the smaller back-office requirements also can generate savings and efficiencies.

More importantly Lidl have picked up a trend where the average US shopper finds it increasingly irritating and time-consuming when attempting to navigate around larger stores that carry a wider ranges of items. The smaller and more focused approach in Lidl’s view makes for a more productive and efficient shopping visit.  This is based on the simple principle of “less is more”.

In order to capture the attention of the shoppers Lidl has signed up the German supermodel (with an American passport and high recognition in the US) Heidi Klum. She has designed an exclusive clothing range to tie in with the market entry.

As we might expect, the opposition are not sitting back. Aldi plans to open a further 900 stores by end 2018.

Wal-Mart continues to run price-comparison tests to close the gap with rivals such as Kroger, Publix and Albertson. They are also pushing suppliers to deliver on lower costs and lower prices.

Whole Foods is pushing its 365 chain of stores which focus on low costs and organic foods.

Lob in Amazon Fresh and you have a potent cocktail of aggressive competition.

We have to ask ourselves the following questions.

Will the focus on higher quality at a lower price work in the USA?

Have they picked the right states to launch this brand?

Have they acquired sufficient knowledge and understanding of the market to enable their adaptations to work and generate the business?

Have they established differentiation points that are meaningful and relevant to the US shopper?

Can Lidl ward off the anticipated moves of their main rivals in this market?

Let’s see what happen over the next eighteen months or so?

A key theme in the book is the ever-changing nature of retailing; in particular the relationship and interaction between the retailer and the shopper. This is manifested in the issue of personalisation.

We see this facet everywhere in every-day life. I am never ceased to be amazed by the obsession, not to say fetish that many young people have about their self-image. This is evidenced by the bewildering amount of times they change their profile on Facebook or their endless enthusiasm for taking “selfies” at every available opportunity.

I am not a psychiatrist but I guess an analysis of such behaviour would elicit the response that it is the desire to be unique and be able to differentiate the “self” from friends and colleagues.

This behaviour is also manifested in the quest for personalisation in retailing in general and in shopping behaviour in particular.

In the old paradigm retailers put together a set of offerings that were made available in physical stores for people to browse and make their purchases.

Amazon was in my view the trend-setter in moving away from this rather static and rigid formula. It offered items online but, making use of relevant technology, algorithms and data built on shopper’s initial purchases to get “deep down and personal” with them. They did this initially by providing extra help and guidance through the medium of reviews, shopper’s comments on their experiences of the product and so on. This inevitably led to more focused, personal and customised services, where messages and promptings 9mainly through emails) ensured that Amazon could almost shape, direct and “groom” shoppers towards items that reflected previous purchases. In short we witnessed the emergence of the era of personalisation.

Of course this raises issues as to whether such behaviour is unethical or invasive. We will briefly revisit this later in the blog.

In this initial phase such personalisation tended to occur almost exclusively within the context of online shopping. However in the past couple of years we have witnessed a raft of pure-play retailers and onmi-channel retailers also moving inexorably towards in-store personalisation.

This has occurred mainly through the confluence of technology and “big data”.

It can be strongly argued that this is the “holy grail” for retailers. What’s not to like about a situation where they can engage in predictive strategies based on personalised and focused data that can make shoppers more amenable to shopping with them? What’s not to like about designing and developing a promotional package of brands that are relevant to shoppers and where there is clear and unambiguous evidence that they like such items (based on past shopping behaviour)?

To this end we have seen the emergence of many data and technology firms that specialise in analysing “big data” about shopper’s behaviour and providing expert advice and guidance for retailers.

One such company is RichRelevance Technology. They carried out a detailed survey of 2,000 shoppers based in the UK and the USA in 2016. The focal point of the research was to assess whether shoppers found in-store technologies creepy or cool. The findings make interesting reading. For instance they found that in relation to the following technologies shoppers reacted thus.

Technology which scans products      62 per cent – cool

Open to receiving pop-up offers on devices when entering store – 52% – cool

Fingerprint technology to help with payment and automatic delivery – 47.5% – cool

Digital coupons – 43% – cool

Facial recognition software that targets customers in-store – 75% – creepy

Sales assistants greeting shoppers by name as they enter the store – 75% – creepy.

While shoppers are largely willing to provide basic information on age, gender and so on, they are more cautious about parting with details about income levels, spending habits and so on.

As always I inject a note of caution about such research: it is only a snapshot of one particular point in time and as we know, things move and change rapidly in the context of retailing.

However the results suggest that shoppers express some reservations about technologies such as facial recognition to a large extent. The reality is that retailers are using and may make more extensive use of such technology. An example of potentially invidious use of such technology can be found in the following example. What if a retailer, by using facial recognition, can automatically identify very important customers when they enter a retail outlet?

This category could be described as shoppers who spend a lot in the store, who are attracted by new product lines from luxury branders and who demand a high level of personal interaction and attention from store sales assistants. What’s not to like about a retailer using technology that immediately identifies such a shopper on a store assistant’s tablet and automatically brings up that person’s shopping history, brand preferences and attitudes to special promotional offers?

The shop assistant can immediately drop into a sales pattern where the individual is personally welcomed and greeted and is presented with new offers and lines that the retailer can be sure is relevant and will appeal to that shopper. Is this an invasion of privacy or the maximisation of the shopper’s and sales assistant’s time and efficiency? Ponder on that for a moment. The retailer is more likely to generate a sale and also use the opportunity to cross-sell or up-sell. The shopper (who is already in potential buying mode) is likely to feel wanted and loved by the personalised nature of the interaction with the retailer (via the sales assistant).

Less intrusive examples include interactive outlet maps which pop up on the shopper’s smart phone and which identify those areas within the store that contain items that the shopper has purchased before. This saves the shopper needless effort in trying to identify where these items are located and introduces a degree of personalisation that is potentially welcome and non-intrusive.

What about a situation where a male shopper is standing next to the shirts section in a menswear shop and suddenly on a digital screen the following pops up. “Hi Sean, here is our new line of pink shirts from Ben Sherman that has just arrived” After this pops up the person is exposed to a range of such shirts – with prices and special offers, appearing on a personalised digital screen. This is triggered and generated again from data that the retailer holds on your previous purchases of shirts in that store. Is this invasion or innovation? Is it intrusive? An irritant? Or is it a great way of personalising and deepening the relationship between the retailer and shopper?

My view for what it’s worth is that it can be either intrusive or helpful – depending on the relationship between the perceived benefits and costs to the individual shopper.

Potential benefits can revolve around time savings, potential discounts, extra loyalty points and potentially getting an early opportunity to purchase new lines ahead of regular customers. “Costs” include intrusion, the feeling of “big brother” endlessly influencing your behaviour and so on.

We need to get used to this type of personalisation. It is not going to go away and the “kids” of today are embedded already in this type of technology.

For “oldies” like me we need to get used to it.

As someone who has a big interest in all things to do with supply chain management I quickly realised that decisions made in this space have a major and long-term impact on the customer. By extension I see major overlap between supply chain management and marketing management.

Nowhere in my view is this more prevalent than in the case of the retail sector.

Let’s reflect for a moment.

If you make a perusal of retail articles and coverage in the business and academic press over the past few years you cannot fail to notice that retail strategy, particularly in the case of the large retailers has shifted its focus to what we call “the last mile”. This refers to the gap between when shoppers make a purchase and when they receive the item.

Traditionally of course shoppers made a purchase in a store and picked it up from a shop assistant. We have moved on a long way from that type of purchase situation. Online shopping delivery originally revolved almost fully around postal delivery – largely reliant on the national postal service. That has been superseded by a range of delivery options which have been driven by changing patterns of consumer behaviour when it comes to shopping.

As we have noted in the book, many shoppers are “time-poor”; they no longer have the time or enthusiasm to visit retail outlets. This has extended to their expectations about when and where they should pick up or receive the items purchased either online or if they deign to visit a store to make a purchase.

In the last couple of years shoppers are now exposed to a bewildering array of delivery models and options that have been developed by retailers in response to the changing needs and expectations.

We have discussed the concept of omni-channels in some detail in the book and I do not intend to revisit the general trends in this area within this blog. However I make the strong point that the “last mile” is very much part of the shopper experience and has great importance for the successful implementation of the omni-channel strategy.

A study referred to in this link (http://www.netdespatch.com/news/its-do-or-die) gives us an indication of the responses of retailers to the issue of delivery. Among its findings it reveals that 42 per cent of retailers surveyed would be happy to work with partners to meet the expectations of the shoppers (120 retailers surveyed). It also identified the fact seven in ten retailers do not make use of locker services as a pick-up option for shoppers.

The survey identified three barriers in the following order of importance.

1. Cost.
2. Technology
3. Collaboration issues.

The last barrier interests me (the first two are obvious). This suggests that fundamental problems such as an unwillingness to share information can scupper any plans to drive efficiencies in the “final mile” management.

Another survey also highlights some interesting findings (http://www.retailtimes.co.uk/gap-between-retailers-delivery-models-and-customer-demand-widens-temando-survey-reveals/).

This study focused on responses from around 200 UK retailers of different sizes and considered both their strategies in the area of delivery frameworks and the expectations of shoppers.

From a shopper’s perspective around 86 per cent have or indicated that they would use a time-slot delivery option. However only 38 per cent of the surveyed retailers offer this particular option. Around 78 per cent stated that they would like same day deliveries and 47 per cent of them indicated that they would pay a premium for this service. 80 per cent favoured in-store collection and a quarter would be prepared to pay a premium. However only 55 per cent of retailers offer this particular option.

The issue of cost is an interesting one. While the study (see the above paragraph) suggests that a feasible number of shoppers see no problem in paying for specific services, 60 per cent indicated that they have abandoned a purchase because of a lack of transparency or confusion with respect to the details about specific charges that are associated with the delivery option.

85% of retailers acknowledge that by offering multiple shipping options they are in a stronger position to meet the needs and expectations of their target market.

The main obstacle to improving delivery options in this survey was highlighted as a lack of back-office and channel automation.

What are we to make of these evidence-based surveys?

Firstly it reinforces the importance for retailers of addressing the post-sales aspects of the shopper experience. It is not sufficient to provide an omni-channel strategy which provides a consistent and seamless shopping experience in terms of the pre-sales and sales areas. Lack of transparency with regard to the costs associated with delivery, a lack of multi-shipping options and collection points will undoubtedly weaken the retail strategy and encourage would-be shoppers to migrate to competitors.

There is also a perception which can be gleaned from the above surveys that some retailers see the challenge of developing delivery models as being a major cost centre as opposed to an area for potential advantage and as a point of differentiation. Despite evidence to suggest that increasingly complex options are the way forward some retailers still have not moved “last mile management” higher up on the strategic agenda.

We have discussed the potential use of drones in earlier blogs and I do not wish to revisit the topic here except to say that they are still being tested and their use in retail delivery is still some way off.

More interesting developments include crowdsourcing as a means of building up a delivery model. The Uber concept which shook up the taxi business world-wide has spread to retail delivery models. Uber Rush supplies suitably qualified drivers to take part in the delivery process. Other companies such as Instacart have also emerged and are largely based on crowdsourcing principles.

This approach actually addresses the cost issue and means that retailers can outsource this part of the process. The downside of course is retaining control over such a disparate range of drivers and third-party operators. This could lead to inconsistencies in delivery promises and ultimately rebound on the retailer.

Put simply retailers are looking at all avenues to explore in their quest to provide a customised, differentiated and diverse range of “last mile” delivery frameworks.

A recent example can be found in a collaboration between Ocado, the online retailer and Marks and Spencer. The latter retailer has been notably slow in becoming involved in online food delivery but appears to have woken up to the inexorable trend. M&S has also been dubious of the cost effectiveness of online delivery methods. This is not surprising given that some commentators estimate the cost per customer to be around £12 in the UK.

However their views are shifting as the food area increasingly is the key aspect of their business operations: they continue to experience difficulties in the clothing area.

They are not alone. Morrisons has been involved in collaborations with Amazon Fresh and Ocado. Interestingly Ocado has specified in its contract with Morrisons that it cannot work with other supermarket groups. Of course this does not preclude any collaboration with retailers such as M&S.

Such collaborative arrangements are the way forward in my view, as long as there is no potential for a conflict of interest. It addresses to thorny issue of cost and can generate efficiencies for both parties.

The “hard yards” are only likely to get harder. Let’s watch this space.

My recent blogs have been somewhat depressing in that I have focused on retailers that to a greater or lesser (mostly greater) extent have failed as business proposition. I thought it might be opportune to revisit a retailer that we examined almost exactly this time last year in a blog (Yahoo Boohoo).

This retailer was one of the success stories of the past couple of years. I suggested it might be one to follow.

Let us briefly recap its background.

It is a Manchester-based company founded by two entrepreneurs: Mahmud Kamani and Carol Kane

It is a pure-play fashion retailer (online only) and targets the 16-24 teenage market (mostly female but more recently it has opened an online channel for males).

Its value proposition is based around the following features.

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

The vast majority of its suppliers are based in the United Kingdom. This endorses the concept of “proximity-based” sourcing in theory allows for greater flexibility in the management of its supply chain operations – something which is essential in the context of a retailer launching thousands of new merchandise over the course of any given year.

Following a profit warning in 2014 it subsequently invested heavily in digital marketing activities to re-boost its potential. This was of the order of around fifteen per cent of its turnover.

It appears to have worked.

At the end of April 2017 it boasted of a fifty-one per cent increase in sales and an almost doubling of pre-tax profits on its year-on-year performance. During this year it made major investments in warehousing space and in general infrastructure. It plans to generate further improvements in its website design and in terms of increased customer service in terms of response times and overall flexibility. It also experienced major growth in its international sales: such as an increase of £40 million in the USA and fifty per cent growth across the European market.

This evidence indicates that Boohoo does not appear to be a flash in the pan. It has laid down long-term investment to ensure future growth.

Any evaluation of a pure-play retailer such as Boohoo reopens the debate about the need for physical retail space. This argument has been going on for a few years now. Many commentators argue that retailers still need a presence on the high street in order to allow shoppers to engage physically with the items of merchandise. In the case of fashion retailers this revolves around the perception that such items need to appeal to the senses. How for instance can a shopper touch and feel and item of clothing? If they can’t then surely it is difficult to assess the material, its quality and so on.

It is counter-argued that a retail store portfolio adds significantly to the overall cost structure of a retailer. In the case of the United Kingdom business rates are increasing and are projected to have a major effect on many retailers (albeit some may actually benefit). The cost of renting or leasing properties decreased somewhat in secondary locations, but prime locations still show no signs of such a decline.

The evidence shows that shoppers, particularly the younger segments are increasingly relying on the online shopping experience. Without claiming to be a guru or prophet, it does not take a genius to predict that this trend is only going to increase further. If you look at very young children you can see how comfortable they are with the various forms of what “oldies” like me call “new technology”. Project forwards to when they are active and vibrant teenagers, particularly with respect to shopping activities. In such a scenario and assuming even more developments in technology and so on, it could be argued that the concept of space: physical and virtual will be even further refined to reflect a different type of shopping activity and experience.

Supporters of the concept of pure-play online retailing also argue that it leaves such operators in a more flexible agile position that “bricks and mortar” operators: less reliance on fixed assets such as premises, and easier to change direction with regard to merchandise and designs.

One of Boohoo’s competitors; Asos has also experiences growth and success, again mainly through international expansion.

Another competitor; Missguided, has been the exception, while still returning relatively successful sales, its profits have decreased. This has been attributed to its expansion into “bricks and mortar” retailing.

Boohoo has generated its success in my view by investing strategically in digital marketing activities. It has worked conscientiously on developing its customer base through the “old reliables” of the social media. It generates average postings on Facebook alone of between 15 million to 20 million on a weekly basis.

It cultivates its shoppers with an array of support initiatives such as fashion tips, style videos and blogger articles. While this is not particularly unique to Boohoo, it reinforces the need to provide enough material to warrant shoppers visiting and more importantly revisiting the social media channels.

It has worked hard on its supply operations. This is reflected in the introduction of Boohoo Premier – an unlimited next-day-delivery service for an annual fee. It also offers collect+ returns in the UK.

Interestingly, and arguably very cleverly in a sector such as fashion and with a very young target market, it has fully embraced the concept of celebrity. This is reflected in paying celebrities to promote its merchandise on Instagram.

We should take cognisance of the role of celebrities in digital marketing.

Perhaps the most successful of Boohoo’s celebrities is the model Jordyn Woods. She resonates strongly with the target market and generates a lot of “wow” across the social media channels. Others include Bella Thorne and Kendall Jenner. Some get paid for such endorsements, others benefit from free clothing.

More recently Boohoo has bought into PrtetyLittleThing, an operation set up by two sons of Mahmud Kamani. This move fits in well with the retailer’s overall youthful image. This spreads right through to its management team.

Further investment in its mobile apps by creating country-specific ones for the USA and Australia also reinforces its focus on digital marketing.

While none of these initiatives are particularly unique or highly innovative, I would argue that when combined, they represent a strategic and focused approach and its success is reflected in the increases in sales and profitability.

One year one from my last blog on Boohoo it continues to enjoy success and remains as one of the stars of the volatile fashion sector. Let us salute them for now and keep an eye on them over the next year or so.