I spend a lot of time in bars and pubs. However that is not the focal point of this blog. I took the title of this blog from an old Australian ditty which bemoans the lack of beer in a pub in the great outback and the sad consequences for the dreary traveller upon arriving at its doorstep.

Following on from my two previous blogs on retail failures I continue in the same maudlin vein by reviewing the position of BHS, a year on from its entry into administration.

The history of this failure is discussed widely on the internet and I urge you to read the background to its demise. What seemed to be the natural demise of a failing brand was accentuated in the press by the dreadful way in which its last owner but one: Sir Phillip Green, sold it on to an individual of dubious merit. The failure to adequately protect the pension rights of its workers also drew the ire of the business press and academic community. We will not revisit that aspect of the case in this blog: but focus on the essential issue of the relevance of a brand that has failed so badly and the logic of trying to resurrect it from the dead.

Let’s investigate its demise more fully.

Prior to going into administration in April 2016 it is a fact that it had been performing badly for the past seven years: this was not a sudden death to borrow a cliché. At the time it went into administration it had incurred debts of nearly £1.5 billion.

Founded in 1928 it carved out a position over the decades as a vibrant department store focusing on homeware, lighting and clothing. It built up a solid reputation for offering affordable items, at a competitive price and at an acceptable level of quality.

This worked well up until the 1990’s. Since then it has succumbed to the prevailing long-term trends and developments in retailing – such as the internet revolution and the resulting surge to online retail channels and the increasingly more effective and efficient management of retail supply chains.

Operators such as Primark and Next encroached increasingly into the BHS space by offering similar items at lower prices. Even supermarket groups such as Asda moved into the pace by offering a range of clothing and accessories. Quite simply BHS became almost an irrelevance. For a more detailed appraisal of its death I encourage you to read an article published in the magazine called The Drum. (http://www.thedrum.com/opinion/2016/04/27/fall-bhs-brand-without-purpose)

How did BHS respond? Well like many companies it panicked and tried a number of initiatives, most of which appeared to have little rationale or forethought behind them. For instance it introduced a food range in some (but not all of its stores) and entered into a collaboration with a retailer called Claire’s Accessories in an attempt to attract a more youthful, teenage footfall through its stores.

Inevitably none of these introductions had any meaningful impact. At the title of the article in The Drum suggests, it became a brand with no purpose or to use my analogy, a pub with no beer. After all what is the purpose of a brand if it occupies no meaningful position in the minds of its target markets? It is the equivalent of throwing money on top of a burning fire.

One would expect therefore to see it slip off into the deep blue yonder.

Not a bit of it!!

The Al Mara Group, a Qatari conglomerate, prior to the demise of BHS had acquired the international and online divisions of the business operations. In September 2016 it reappeared on the scene as BHS.com.

As the name suggests its reincarnation revolved exclusively around its website and online operations in the UK. Initially it focused on a much smaller range and depth of items addressing the homeware, bedding and lighting sections only. This was based on the rationale that these categories, particularly lighting, had been the strongest feature of its previous value proposition. A couple of months after its re-launch it subsequently introduced a range of fashionwear items for males and females. It employs eighty-four people (a lot less than the original eleven thousand individuals in its previous existence.

After about six months into the venture its Managing Director Kevan Mallender expressed satisfaction with its performance, claiming sales of over £3 million and arguing that as it was effectively start-up business these figures represented success.

Let’s try to assess how well (or how badly) it has performed since September 2016.

At this stage in the blog I am going to introduce a challenge to you. Before reading any more of the content, I would like you to visit the website page: www.bhs.com and carry out an assessment of the site addressing all of the typical criteria that we use. Suggested areas include: layout of the site and ease of navigation, content, engagement, updates, quality of information on the items, payment procedures, customer service and so on.

After this please come back and read on!!

When we reflect on a brand and its relevance and value the gurus suggest that successful brands must be built around a relevant and live value proposition that registers in the mind of the target markets. Clearly BHS failed on most of the measures and prerequisites to meet such standards.

The new website has been assessed by experts and the general view is that as a value proposition via its online offerings, BHS remains a reasonably competitive position. It offers shoppers free delivery on items purchased over the value of £50. If it is under this figure the shopper pays £3.50 for delivery. That leaves it in a similar position to retailers such as Marks and Spencer. However it does not offer a “click and collect” option and does not make use of third party services such as Doodle and Collect+.

There is little content on the website apart from basic information on critical issues such as price and size options. Crucially it make no use of video content to capture the attention of the visitor to the site. This it can be argued would encourage interaction.

It has no user-generated content such as postings of experiences or customer reviews. It has no live chat feature.

It’s sign-up and register feature dominates the page and surprisingly it provides no incentive for shoppers to actually sign up. The search bar also has limitations (try it out)

In essence I would argue that the website at best resembles one that would have been common about five to eight years ago: information-led, no interactive dimensions and little attempt to sign up members.

I come back to my original point. What is the purpose of this brand? By that I mean the revised online version. Why is it revisiting the fashion space when it has been hammered by many more flexible and agile operators?

Possibly if it uses data from its previous customers it might be able to generate some degree of re-energised loyalty. However I doubt it. Shoppers have moved on: it is very difficult to lure them back unless you offer them something new and exciting. I do not see this on its current website.

In early 2017 the BHD Managing Director placed his faith in using the concept of a referral channel to build visitors to the site and subsequent sales. In this respect it entered into a collaboration with referral provider Mention Me. This concept is based on the simple idea of rewarding existing customers who encourage friends, relations and colleagues to sign up.

While this has certain merits it is difficult to believe that it will become a “game-changer”.

In summary I am very pessimistic and cynical about this “new” venture. What do you think?

We tend to become obsessed with the concept of the brand. Nowhere is this more clearly exemplified than in the retail sector. We delight in hyping up successful brands and in the context of teaching courses on retailing we feature them prominently in our discussion and analysis.

As can be seen from some of my previous blogs I obsess about once-successful brands that have fallen on hard times or have disappeared from the high street (you can read my previous blog on FCUK for evidence of this obsession).

Another such brand popped up on the business pages in the last couple of weeks: I refer to that bastion of Britishness: Jaeger. It has been around since the latter part of the nineteenth century (founded in 1884) and its origins came from the writings of a German Professor of Zoology; Gustav Jaeger. He believed that it was healthier for people to wear clothing that was made from material such as wool, animal hair and fleece. It firmly established itself in retail folklore in 1919 when it introduced a range of camel-hair coats to the market.

Arguably its key period of success was in the 1950’s and 1960’s where famous actresses such as Audrey Hepburn, Marilyn Monroe and Jean Shrimpton wore their fashion items. Since then it has undergone a number of transformations both in terms of ownership and approach to design. It has vacillated from the classic design to a more modern approach with a focus on casualwear and then back again to the classic design. Its financial fortunes have swayed backwards and forwards as well. Sadly over the past fifteen years or so it has suffered more than most of the retailers on the high street and has recorded a steady and unremitting series of losses.

Moe recently in 2012 it was acquired by Better Capital for around £20 million and since then has also made losses: it is estimated that it has recorded losses of around £63 million. In January Better Capital sought offers and set an asking price of £30 million. It was rumoured to have sold off its debt of £7 million to Edinburgh Woollen Mill, whose owner is well-known for acquiring and turning around retailer brands such as Peacocks.

In April it went into administration having failed to generate interest from buyers, although it is expected that Edinburgh Woollen Mill will eventually acquire it.

So what went wrong? Why has this quintessentially British brand ceased to become relevant?

We can point to a number of actors for its demise.

Firstly it clearly lost its way – mainly through the bewildering array of owners and their approaches to keep it meaningful.

In terms of positioning it was perceived originally as a brand that appealed to the older and more discerning shopper seeking quality with aspirational values associated with the brand. Its main competitor was arguably Burberry, although the latter retailer underwent significant trauma about ten years ago when counterfeiters made it popular with the so-called “chav” element of society. It eventually recovered its tracks to regain its position in the market.

By contrast Jaeger has not made any inroads on its losses. So what initiatives did Better Capital implement in the period between 2012 and now?

One of the problems that we should acknowledge at the outset is the readiness of an investor such as Better Capital to make the long-term investment in order to turnaround such a retailer. Typically such investors are not prepared to take a long-term view of such a brand. It has clearly fallen off the radar to such an extent that only major investment would provide it with an opportunity to survive. Although it spent some money on it is was nowhere near enough to make inroads on the brand image and its overall brand equity.

If we refer to the challenges of positioning that we discussed in the text-book, Jaeger arguably made some fatal mistakes. By constantly changing its approach – classic to casual to classic and all over again it fell between a number of stools in the minds of both its core market (older and affluent women and men). In effect it found itself between a rock and a hard place to use a cliché. It came between a premium brand such as Burberry and slightly cheaper brands such as the US retailer J. Crew. This reinforces my view that such a position is a meaningless one. It makes it difficult (I would say virtually impossible) to carve out a clear, meaningful, relevant and substantive value proposition which can easily be perceived and assessed by shoppers. It is in effect a “non-position”.

This noon-position was compounded by the practice of the new owners to consistently introduce discounting and markdowns. This is exemplified by the following practices.

For instance it introduced a policy of twenty-five per cent off all items on Cyber Monday and fifty per cent off everything on the Black Friday weekend in 2015.

Suits officially priced at £400 sold for as little as £100.

In 2015 it operated its pricing for only two out of the fifty-two weeks without resorting to discounting. In 2016 this improved (relatively speaking) to eight weeks. This in my view is the “kiss of death” for a brand which claims to be a premium product.

While everyone accepts that discounting and markdowns are inevitable for all retailers, to systematically introduce a policy of discounting to such an extent is reckless. Effectively a retailer is conditioning and educating its core customers to expect such promotions and discounts. If repeated on such as regular basis it also changes the perception of shoppers about the position of the brand. How can you claim to be a premium brand if you are constantly feeding the shoppers with such discounts?

The owners also closed the main flagship store in Regent Street, London in early 2016. This was part of a necessary overhaul of the property portfolio and can be assessed from a number of perspectives. Arguably it was the correct one as the cost of renting such as prime location probably could not be justified, given its financial performance. It opened a smaller store (2,000 square feet) on Marylebone High Street. While it is a good location it simply is too small to act as an overall flagship store. Prior to administration it operated forty-six stores: a mixture of outlets and concessions.

Notably Jaeger was slow to embrace the inexorable move towards online retailing, relying instead on its supposed strength as a “heritage” brand and maintaining its physical store portfolio. This handed the initiative to other retailers and they succeeded in encouraging shoppers to visit their websites.

It tried to lure a younger shopper to its designs and partially succeeded (but not sufficiently) regular new designs such as Jaeger Boutique and Jaeger London collections. While the latter received critical approval, this was not reflected in sales sufficient to generate the required profit to offset continuing losses.

Undoubtedly in the past year rising labour costs and uncertainties over Brexit and the declining value of sterling has not helped Jaeger or indeed many retailers on the high street.

By trying to become trend-led (creative designs) it has compromised on its classic appeal and again falls between two stools: losing many of its older shoppers and not being price-competitive to attract a younger audience.

In summary it is a mess and this is reflected in its move into administration.

What will happen?

A prospective buyer such as Edinburgh Woollen Mill can perhaps keep the brand alive by incorporating it into its brand portfolio and it may retain a few concessions. The physical stores will close and EWM may sustain it through its online retail operations.

Lessons to be learned?

Heritage brands have to remain relevant if they are to survive. To do this they need to be proactive in their strategy development and implementation. This did not occur with Jaeger – probably due to the frequent changes of ownership and personnel that were brought in to rejuvenate it. A failure to embrace online retailing in time also led to its demise.

Do not confuse your target market. Consistent discounting does not square up with a claim of being a premium brand.

Maybe we should accept that every brand has a lifespan.

RIP Jaeger!

I was covering a topic with my retail marketing class recently on retail brand development and positioning. Coincidently I was reading an article about a retailer whose brand equity was extremely high in the 2990’s and has slipped off my radar in recent years. That self-same retailer was French Connection.

A brief history.

It was established in 1972 by its founder; Stephen Marks. Its name derived from a very popular film starring Gene Hackman (The French Connection) which was released during that year. He originally started off with an import business shipping hot pants (the fashion of the 1970’s) to the UK from Paris. He then established his own brand – Stephen Marks, London where he designed jackets and suits. When visiting Hong Kong he was one of the first entrepreneurs to spot the benefits that could be achieved by sourcing products from cheap suppliers. This culminated in the launch of French Connection.

Always one for independence, Marks build up the brand, doubling the sales of the brand year-on-year for eight consecutive periods.

He then listed the company on the stock exchange but ran into problems when investors began to (in his view) interfere with the direction of the business. This led to a slowing down of sales.

He got rid of these investors and hired a marketing expert: Trevor Beattie, to provide leadership and a change in direction for the brand.

It was he who came up with one of the most iconic images of the 1990’s. They launched a range of tee shirts with the ubiquitous title of “FCUK” stamped on their fronts. They sold in their millions for around £20 and were aggressively promoted with risqué slogans such as “FCUK LIKE A BUNNY”.

Many marketing felt that the message behind the brand captured the brashness, greed and individualism of the 1990’s Britain. In essence it became a symbol for the so-called “rebellious shoppers of that period.

Inevitably as with most “hot” brands it probably became a victim of over-exposure. Over the past decade or so it suffered from that plus counterfeit products being sold under its name. It also faced major competition from fast-fashion retailers such as Zara, H&M and more recently online retailers selling similar product.

Quite simply such retailers as those listed above were able to offer fashionable clothing at prices well below what French Connection was charging in its stores and online. French Connection was in danger of becoming an irrelevance on the high street.

The problem was exacerbated the reluctance, some would say stubbornness of the founder Stephen Marks. He has consistently refused to stand down amid much pressure from investors (he retains 42 per cent control of the business).

Its overall response in recent years is to continue to close stores and also using up much of its cash reserves to prop up the business: its cash pile has dropped from £15 million to £7 million in recent years. Sales have dropped to around £155 million.

More recently in early 2017 it is rumoured to have negotiated a reduction in its rental of its Oxford Street flagship store.

Are there any good news items for this retailer? Well it operates a wholesale division which is performing respectably as well as its online retail operations (also performing well). Indeed some commentators recommend that it should split its retail and wholesale divisions, close down its retail stores and focus on the online element of its retail operations.

It also operates a concessions business which has grown from 43 in 2011 to 53 in 2016. If it were to become a concessions business only, it could be argued that it would be in a stronger position financially due to being able to eliminate the high rental costs of its store portfolio.

The reasonably healthy performance of concessions and the wholesale division would suggest that there is perhaps a strong argument to divest completely out of retailing.

The fundamental problem in my view rests with its current relevance (or irrelevance) to its target market.

Its core market traditionally has been the 20-30 female and more recently male market.

However it does not take an expert in retailing to work out that it has a major problem in connecting with this market in today’s competitive and economic conditions.

The deep recession in recent years has arguably educated shoppers to be more value conscious and to seek out retailers that can provide quality / trendy clothing at a reasonable price. For the average person in the target market French Connection does not provide this level of value. While it comes up with nice designs that are fashionable and of sound quality, it is left behind when it comes to the price points. Many shoppers rule out French Connection because they see its product offerings as being too expensive relative to the likes of Zara, H&M and Mango.

Women in this age bracket who seek trendy and fashionable items will make purchases at these competitors. However when one looks at the price points in French Connection they see items priced at the levels seen in retailers such as Karen Millen and Whistles. These latter retailers tend to focus on well-designed, lifestyle brands which can be justified by their price points. Commentators feel that French Connection cannot justify charging similar prices as the clothing portfolio for women does not justify such a strategy.

Interestingly the menswear section is more realistic in its pricing and is in line with its competitors. French Connection in this segment focuses on smart, fun designs (for example its tie range), perhaps not as successfully as Ted Baker, but the price points reflect this and performance in terms of sales is more impressive than in the case with the womenswear division.

Brand evaluation surveys also do not offer encouragement either.

It rates bottom when compared to its main competitors in the issue of value for money. The likes of Zara and H&M score far higher on this measure. French Connection scores better on quality (which you might expect).

From a brand positioning perspective French Connection appears to be going nowhere. The fashion retail market in the UK is very competitive and as we mentioned earlier, retailers such as Zara and H&M have effectively moved into the space that was once held by French Connection. Only they are doing so with lower prices while offering at the same time affordable value for money – particularly in the areas of trendiness and design.

Where next for French Connection?

As we mentioned earlier it would appear as though it will have to speed up the closures of its stores, eventually perhaps pulling out completely and focusing instead on its concession businesses and wholesale division.

The role of the founder will have to change. Due to his stubbornness he has failed to make the necessary changes and will probably need to recruit another marketing expert in the fashion business to once again transform it. The way forward may be through its online business.

Quite simply it cannot live on the past glories of the 1990’s. Otherwise it may go to FCUK!

The strategies that retailers use to design and implement pricing strategies has always fascinated me. Likewise I am also interested in how shoppers perceive and react to prices within the store and on online retail sites.

The last decade in particular has witnessed an inexorable rise in the number of special deals, price promotions and offers as retailers respond to an increasingly challenging business environment. Many of them see price as a visible and direct way in which to attract shoppers and the reality is that upwards of forty per cent of all items currently on display in a supermarket form the basis of some sort of price-related deal or promotion. The exceptions are the discount retailers (who it can be argued offer low prices anyway) who have about ten per cent of their merchandise on a price offer.

Despite all of the sophistication that we associate with retailing, special deals, sales and price discounting feature prominently. The traditional January sales period has been extended to many months of the year. Concepts such as “Black Friday” have further driven the concept of discounts and special deals to such an extent that shoppers now expect special deals and offers. Some would argue that this has raised questions about what is the real price of a product anymore. The price label attached to the item in many cases does not reflect the reality of what people might actually pay for it.

Price comparison sites have also empowered shoppers to the extent that they are far more familiar with competitive offerings and that this leaves them is a stronger negotiation position when it comes to purchasing a product.

However I would also argue that there are many shoppers (and I include myself in this) who are either too lazy or time-poor to properly check out competitive prices and in essence do their homework before making a purchase.

Conversely there is still evidence that retailers engage in a “smoke and mirrors” exercise with a bewildering array of deals and price promotions that only serve to confuse and potentially mislead shoppers.

In 2015 the Competition and Markets Authority (CMA) in the UK carried out a three month investigation of retail pricing practices following on from a complaint made by Which, the consumer magazine about retailers misleading shoppers.

Of the 150,000 products investigated they found that 800 items were subject to potentially misleading pricing. This approximates to 0.05 per cent in total. They also found that generally food retailers were serious about attempting to implement fair and transparent pricing policies and strategies.

What are we to take from this survey?

Firstly we can take some comfort from the fact that in general, retailers are not setting out to systematically mislead us and take advantage of shoppers.

Secondly there is evidence that in some cases retailers can be accused of sharp practice in this area. This often can be seen in the areas of “multi-buy” offers, “was/now” prices and shrinking package sizes.

Let’s consider these issues in more detail.

Multi-buy deals refer to situations where the retailer offers the shopper a price deal for buying a number of the same items. But all may not be what it seems. Take this example.

A Nestle Munch Bunch Yoghourt is priced a £1.

The Multi-buy offer is “2 for £2. This latter offer looks “the real deal”. However less astute shoppers may have failed to pick up on the individual price for the particular item in question. Put simply, there is no special offer or bargain here.

The “was/now” deal on the face of it can look appealing and signal that there is potentially an attractive saving on offer if the shopper moves on it.

The problem occurs however with the issue of what was the original price. If the promotion states that the price was £10 and is now £6, a shopper can reasonably expect that this represents a significant saving. However in reality the original price may never have been offered at £10 or if it was it may have appeared on the shelves for a little as one day. The original price may have been closer to £7 or £6.50.

Legislation is weak in this area. Guidelines exist but are not enforceable and legally it can be a minefield in a court of law to prove that deliberate deception has taken place. Generally the quoted “was” price should reflect the price of an item at which it is usually sold at.

In May 2016, Asda, one of the “Big Four” retailers was found guilty of misleading advertising over a particular price promotion that it ran. This involved a multi-buy offer of three boxes of Choco Squares for £3: where a single box was advertised as selling at £1.38. In fact the actual price of one box was 97p. This was deemed to be misleading by the Advertising Standards Authority (ASA). Their statement concluded that “we considered the promotion was likely to encourage consumers to purchase multiple packs of Choco Squares when previously they might have purchased only one, based on the ad’s suggestion that a genuine saving was available.”

Clearly the tendency of retailers to use such tactics increases with the pressures to discount and reduce prices.

Even in the fashion retail sector it is estimated that the percentage of markdown (reduced prices) stock in UK footwear, clothing and accessories increased from forty-six per cent in 2015 to forty-eight per cent in 2016. Clearly January represents the peak period for markdowns (55%) but the practice is omnipresent all-year round.

We are all familiar with the need for price transparency. The opportunity to “play smoke and mirrors” in the field of retail pricing is one that is difficult to ignore. It is also very tempting for retailers.

One retail expert has put forward the view that we need a new executive position at board level in the retail sector: namely that of a Chief Pricing Officer. The argument in favour of this is based on the belief that traditionally pricing decisions reside with a combination of marketing, finance and sales. Thus it can be argued that “everyone and no-one” is responsible – leading to inaccurate or confusing decisions.

The article argues that three elements need to be in place before it could work in practice.

1. The individual would need to work closely but independently of the departments that have traditionally made the decisions. This would reduce the dangers of vested interests swaying any potential decision.
2. It would also need commitment from the CEO and the CFO (Chief Finance Officer) of the retailer concerned.
3. There is also a need to invest in the pricing capabilities of the retailer. (Browne, 30 July 2015. “Comment: It’s time for Chief Pricing Officers to join retail boards”. Retail Week).

This view might be interpreted as being idealistic and fanciful. However it has the merit of recognising the need to “professionalise” the role and task of pricing decision-making” in retailing. In my view this would mirror what has happened to the profession of procurement. This function has progressed over the past couple of decades from being a clerical function to one which is seen as a strategic element of long-term planning and development in the organisation.

It might appear as though I have drifted “off-topic” with this injection of the concept of a Chief Pricing Officer. However the challenges associated with setting and implementing retail pricing strategies continue to mount. The advent of electronic shelf labels also as some significance as well. However that is for another day (and blog).

No, this is not a self-assessment form that you need to return to your psychiatrist. Nor is it a philosophical debate about your personality. The title of this blog refers to a recent strategic initiative introduced by Waterstones: the UK-based bookshop retailer.

Recent articles in the UK national newspapers allude to the fact that in recent months, Waterstones has opened three new bookshops in various towns in the UK: Rye, Southwold and Harpenden. The interesting observation here is that they are not named as “Waterstones Bookshop”. Instead they adopt names such as “Rye Bookshop, Harpenden Bookshop and Southwold Bookshop”.

Apart from a hand-written note which is posted in the bottom of the front window (which acknowledges that the bookshop is part of the Waterstones Group, there is no other attempt to link the shop to this retailer.

What are we to make of this development? Is it a case of selective memory loss? A deliberate attempt to dissociate the shops from the original brand? An attempt to mislead the general public? The newspaper articles explicitly accuse the retailer of the latter: one of deception. The tone of the respective articles makes it clear that there is something “shifty” going on here and that shoppers are being misled.

Let’s explore this view in more detail.

Those of you of course who have read chapter six of the text will realise that Waterstones is expanding its brand portfolio and is making use of separate names in the process. It already has a portfolio of physical retail stores trading under the name of Waterstones. Some of these outlets vary in terms of both size and content. For instance in later 2015 the retailer opened a store in central London which is larger than many of its outlets and contains two coffee shops, one cocktail bar, a “pop-up” cinema and space for holding small conferences or meetings.

In many of its smaller outlets it has employed a “back-to-basics” strategy, eliminating coffee shops and stopping the sale of e-books.

It has also expanded its online offering over the past two years.

What can we observe from the developments with the three new shops?

The shop in Southwold operates from a Grade II listed building and presents it’s offering very much in the manner of a small independent bookseller. It is small in size and is operated by friendly and local staff: thus reinforcing the sense of a small retailer operating in a local community.

What’s not to like about this approach? For many of us, the typical high street conveys an impression of a blandness and sameness. We find the “usual suspects” in the shape of charity shops, mobile phone shops, betting shops, Boots, and so on. Many of us bemoan the loss of the small independent retailer offering something different and original such as craft shops, specialty cheese retailers and so on.

Put simply the small independent retailer gets a bad deal in the UK. They are faced with expensive rents in prominent areas of the high street.

They are also crippled with a business rates tax which tends to favour the larger retailers. The amount that they pay is based on the rateable valuation of the property. It does not make any reference to sales or profit which is generated by the retailer. Out-of-town sites have clearly less value in terms of property prices and favours the chain retailers such as IKEA.

On the face of it, Waterstones would appear to be masquerading as a small retailer (hence the criticism from the newspaper articles). However does this warrant such negative comment or indeed is it fair?

A traditional bookshop (while not appealing to everyone) provides an attractive option when shopping on the high street. It blends in with the community and as stated earlier moves us away from the unrelenting gloom of blandness. Each shop in the case of Waterstones, has its own identify – through its name and the personalised nature of the value proposition.

Yes, Waterstones is in a stronger position to develop the concept of “the small independent bookseller” than say an entrepreneur or business owner trying to compete with the chain operators and the “Amazons” of this world.

For one thing Waterstones has much greater resources and scale of operation to sustain a number of such “non-branded” stores. It is in a financially stronger position to deal with rents and business rates.

They can also offer competitive pricing within a small independent retailing format. This is significant but in a negative sense threatens any other small independent retailer currently operating on that high street. It can be argued that the latter is not in a position to survive in the longer-term.

The approach allows Waterstones to widen its portfolio of formats in a way which is aesthetically pleasing on the eye.

How has the general public reacted? The feedback from the three stores suggests a positive view with sales being above targets.

One of the articles posted comments submitted by readers on the topic. Bear in mind that the paper concerned: the Daily Mail, is not necessarily representative of the population at large but probably attracts many middle-income readers who tend to shop on the high street and would be potentially receptive to the format introduced by Waterstones.

A perusal of the comments posted underneath the article (Waterstones is accused of sneakily opening new stores and disguising them as independent local bookshops. Read more: http://www.dailymail.co.uk/news/article-4260340/Waterstones-accused-disguising-stores-independents.html#ixzz4ZtaBepFY.) raises some interesting perspectives.

This reveals that the readers are broadly positive and supportive of the initiative. They see the move as a welcome addition to the high street and a change from the “charity shops” syndrome.

Small independent retailers adjacent to the three “unbranded” stores in the three towns voice the view that it is precisely large chain retailers such as Waterstones who have forced up rents and business rates.

While they might be accused of bias and prejudice, there is no doubt that the scale of operations of the big retailers gives them a significant advantage.

Personally I like the approach adopted by Waterstones. Firstly it widens the variety and depth of its retail format portfolio.

It provides a distinct move away from the “big retailer” format that we associate with chain retailers in general and Waterstone’s typical format.

It plays on the “retro” or “nostalgia” dimension: something that is liked by many people who constantly hark back to the days when small independent retailers were predominant on the high street as opposed to the present – where they are conspicuous by their absence.

The strategy is less likely to antagonise the general public as retailers such as Tesco and McDonalds have done, due to their ubiquitous presence in every town and city centre high street.

The strategy is still likely to damage the prospects of the traditional small independent retail bookseller however. By “traditional” in this case, I mean that the shop is owner-managed and consists of a sole bookstore.

Critics perhaps have some justification in accusing Waterstones of deceiving and ultimately misleading shoppers with such a practice. Judging by the comments of the readers posted to the article mentioned above however this is weakened by the generally positive response.

What do you think?

Our old friend Amazon.com has been at the forefront of our lives for the pat fifteen years or so. It has changed the way many of us shop and has threatened the traditional retailers, long dependent on a physical store or premises to engage with us and more importantly to encourage use to purchase something.

A decade or so ago many retail commentators and academics predicted the demise of physical “bricks and mortar” retailing: we would see the end of the high street and those cathedrals of shopping: the malls or retail centres.

Nothing so dramatic has happened. Like many other predictions: the end of the world and the discovery of aliens on Mars, retailers still haunt the high street and the popularity of shopping malls, particularly in Asia and the Gulf, continues to grow exponentially.

Amazon is the one “constant” in all of this. It has continued to grow and prosper. It has also developed a number of innovations such as Amazon Prime and its on-going work on the use of drone technology to revolutionise the way in which we receive our items.

It has also reinvented itself. Having created a value proposition which is based on the ability to shop remotely, from the privacy of your own home, office or when you are on the go, it has returned “full – circle” to the concept of shopping once again in a retail store. In 2015 it opened a number of retail bookshops in the USA. This move would appear at first glance to challenge much of the core elements of Amazon’s original value proposition. A deeper assessment (see one of my earlier blogs) identified the rationale for such a move and saw it as a repositioning of its proposition in light of changes in the market-place and the way in which consumers engage with retailers.

This fascination with changing the way in which we shop and engage with retailers has now extended to the shopping experience.

In early December 2016, Amazon opened its first grocery store in Seattle. It called it Amazon Go. At the same time, showing some of its overall intent, it registered the name in the UK.

The business model and value proposition revolves around the following features.

The store is designed round 1,800 square feet of physical space. It sells many so-called staple items, such as bread, milk and ready meals.

It uses CCTV technology and sensors to track which items shoppers pick up and place in their shopping basket. It links this information to the shopper’s mobile and processes payment. This allows the shopper to dispense with that tedious routine of queuing up to pay at a check-out or even more (for me at any rate) annoyingly having to operate a self-payment machine. It is built on the principle of “walk-out” shopping.

Essentially it is an amalgam of technologies, featuring the following elements:

• A powerful App (which has to be downloaded by the shopper), using location-based services
• QR code ID
• Integrated payment mechanisms
• Multiple sensor technology
• Artificial intelligence.

In essence it builds on earlier and more simplified systems that were introduced by retailers throughout the last decade. For instance Apple introduced an Easy Pay 2.0 product in 2011 which ultimately did not prove to be popular with shoppers and had a low “uptake”.

Self-checkouts have featured for a number of years in the US grocery market. Again shoppers, after initial uptake, have begun to move away from this technology. However it is growing in the European market. Some shoppers find them irritating: cash or monetary notes are not accepted easily by the machines and you have to re-insert them. It becomes also can be time-consuming when a shopper has more than a small number of items to process.

Amazon Go, at first glance, would appear to build on the perceived advantages of earlier self-checkout propositions.

From a strategic perspective, it is likely to take the consumer more fully into the “contactless” world of robots and technology, where there is little or no need or requirement for face-to-face contact.

Amazon should not necessarily be seen as a “trailblazer” in such developments. For instance Café X, a coffee retailer has created an automated coffee shop, replete with automated baristas to serve the customer. The response of consumers would appear to be positive, judging by its success to date.

The Amazon Go retail store in Seattle is presently open only to Amazon employees. It expects to be widened to the general populace in early 2017.

A US retail analyst has predicted the Amazon Go technology could reduce the retail workforce by as much as seventy-five per cent.

In a more general context, the British Retail Consortium estimates a reduction of around three million retail jobs in the UK market.

In response to rumours that Amazon is planning to open around 2,000 similar grocery stores in the US, senior management had denied such a possibility, stating that it is still in the embryo stages of testing and development.

Some commentators argue that the Amazon Go development is all about moving Amazon more fully into the payments systems market – which is proving to be a lucrative area. In many ways the system is like PayPal, where consumers can shop across different platforms and online merchants, using a single PayPal login.

Taking a broader perspective, it can be argued that this innovation is further proof that companies are moving away from a service philosophy which places personal engagement at the heart of the value proposition. This takes the consumer into a world of remoteness and robotics. It is questionable whether such a concept will lead to better service or lower prices (particularly in the case of the retail sector).

Clearly such use of an amalgam of technologies can help retailers address perhaps the biggest single cost input into their operations: labour. By greatly reducing the need for staff and front-line personnel, it can lead to significant cost savings. This is important in a sector such as retailing, where profit margins are so low (varying from between 1% to 5% in many cases).

Who benefits from this development? The shopper? The retailer? Both? Other stakeholders?

We might want to pause and reflect on this question.

Other issues for assessment include the following.

Does the Amazon Go value proposition / model stack up in the longer term?

Is this an example of a technology-driven product, which takes little or no account of the needs of the consumer?

Where is Amazon going with this development in the longer-term? It appears to be far removed from its original value proposition: that of an online retailer.

What impact will it have on the large food retailers such as Tesco, Carrefour, Wal-Mart, Target and so on?

Are we witnessing an irreversible decline in the concept of customer service?

Is this a potential game-changer?

I would welcome your views.

The end of January 2017 witnessed a major acquisition in the world of UK grocery retailing. Tesco, already holding around 28% of overall market share of the grocery sector acquired Booker: a large wholesaler, a supplier to thousands of convenience stores, symbol groups and a range of pubs, restaurants and fast food chains. The cost of this deal amounted to around £3.7 billion.

What are we to make of this acquisition? What is the rationale behind Tesco’s strategy and above all who will it benefit (apart obviously from Tesco)?

Let’s firstly try to put the Booker Group in perspective and context. As of early 2016 it recorded sales of over £5 billion. It’s operations are quite diverse and range from running a number of cash and carry (wholesale) businesses through to a number of well-known convenience brands such as Londis, Budgens and Premier. It’s “bread and butter” business is that of supplying private labels and branded goods to convenience stores, leisure outlets, restaurants and so on. This covers thousands of different lines. It also provides catering services to a wide range of restaurants, pubs and fast food chains. The restaurant chains include Wagamama, Premier, Prezzo and Carluccios.

A wide range of well-known convenience store brands operate under franchise agreements with Booker, buying in its goods and services.

These include more than 3,200 Premier branded stores, 47 discount stores operating under the Family Shopper brand, 1,500 Londis stores, and 120 Budgens shops.

By any standards of measurements this represents a major acquisition for Tesco and provides it with an entry into sectors where it is currently under-represented (small convenience stores) and where it has no prior presence (“out-of-home” food, catering and product services.

How does this deal stack up? At first glance it would appear to be heavily weighted in favour of Tesco. It is gaining access to new and growing sectors. It widens and deepens its presence in the convenience food sector and provides it with an opportunity to drive synergies and efficiencies in its supply chain management and structure, as a result of moving closer to suppliers (effectively becoming a wholesaler as well as a retailer.

This latter point is in my view a crucial one. Increasingly retailers are forced to drive lower prices and negotiate better deals from suppliers. This acquisition at first glance would appear to leave Tesco in a stronger position to (putting it politely) negotiate better prices from suppliers or (less politely) put the squeeze on suppliers more forcefully. In light of uncertainties due to pending Brexit decisions and happenings, this may be critical in the medium to longer term.

Some commentators put forward the view that in the longer term Tesco can generate savings of up to %600 million annually as a result of the efficiencies and synergies generated by the acquisition.

What has been the industry reaction to this acquisition?

One view is that it could be a “game-changer” in the food grocery sector in the UK. This mainly revolves around how Tesco can manage its supply chain more profitably and cost effectively. The wholesaler role brings it closer to the “mother lode” which is represented by the suppliers. In an increasingly uncertain environment any potential leverage in this area can leave Tesco in a more dominant position.

It also introduces Tesco more fully into the growing “out of home” food sector. It is estimated that the UK food market is worth around £195 million annually: of which £110 million is spend on grocery store and online food purchases. The remainder: £85 million is spend on food which is consumed “out of home”. This covers the phenomenon of eating out in restaurants, fast food chains, pubs and coffee shops. As we noted earlier, Booker owns well established in this sector such as Wagamama, Byron Burgers, Prezzo and Carluccios.

It is also argued that Tesco could use some of the excess space in its physical stores to convert to “cash and carry” selling space – thus reinforcing its move into the wholesale sector.

The acquisition also provides Tesco with the opportunity to develop its e-commerce business: for instance the acquisition of so many small convenience stores also opens up more flexible and adaptable policies with regard to “click and collect” options – an area which is growing rapidly in terms of shopper behaviour and preferences.

Interestingly it also would appear to indicate that Tesco is re-focusing its efforts on its domestic market: for many years now it has been preoccupied with international expansion and development. This move suggests that there is still further scope for driving increases in sales and profit in the UK.

The closer relationship with suppliers and the potential for increasing power and dominance in those relationships with respect to price in particular, arguably leaves Tesco in a stronger position to compete more aggressively with the pesky discounters such as Aldi and Lidl. For the past few years, the latter retailers have made inroads on the “Big Four” food retailers. This leaves Tesco potentially ahead of its main competitors such as Sainsbury’s. Asda and Morrison’s.

From a strategy perspective it highlights the potential importance of the concept of “first mover” advantage. Any initiative that generates a point of differentiation and creates a potential position of strength, it can be argued, is a positive move.

Synergies between Tesco and Booker can possibly be generated by the “marrying” of Tesco’s skills as an effective supply chain management operator allied to its management of technology in general and “big data” in particular”. It will acquire Booker’s skills and competencies in addressing sectors such as “”out of home” food and providing a range of services to the leisure and restaurant sectors.

Likewise Booker gains access to Tesco’s skills and resources. In theory it is a “win-win” for both parties.

Booker’s current presence with over 125,000 independent food stores and around 450,000 pubs, restaurants and coffee shops, when combined with the presence of Tesco’s operations is likely to attract the attention of the Competition authorities in the UK.

One such quango: the Grocery Code Adjudicator may be called upon to deliver a verdict on whether or not this acquisition is likely to create an unfair advantage and do damage to the small independent retailers. Crucially this body has no power to intervene with wholesalers. Which might provide a loophole for Tesco.

It is possible that Tesco and Booker may have to relinquish some of their outlets to comply with potential judgements by the competition authority. This remains to be seen.

In summary is this a good move for Tesco?

The general consensus would appear to be quite positive – albeit with some concerns being expressed over the extent to which it might create an unfair competitive advantage.

It explicitly recognises that shopper patterns and preferences are changing – convenience and “out of home” eating being two major drivers. Tesco has addressed these changes with its acquisition of Booker. This is reinforced by the estimate that the convenience sector is projected to grow by around £4.5 billion over the next four years. The growth in delivery requirements e.g. we can see this with the emergence of operators such as Deliveroo and Ubereats is addressed in Tesco’s acquisition.

Maybe it has captured the ultimate prize.

Let’s see what happens!

Retail positioning is an issue of significance which we discussed in chapter two of the text. It is a concept which is central in shaping the impression, perception and attitude of a shopper about a particular retailer and its brand essence and brand associations. We highlighted a definition of positioning which in the context of retailing was identified by Arnott (1992) as “the deliberate, proactive, interactive process of defining, modifying and monitoring consumer perceptions of a marketable product”

We also noted that differentiation is at the heart of positioning. On what point or points of differentiation do we as a retailer focus on in order to capture a piece of the shopper’s mind? More importantly will this be sufficient to encourage shoppers to come to our stores or online websites and even more critically form some degree of loyalty or attachment in the form of return visits on a regular basis?

Re-positioning refers to situations where the company wants to change its image and create a different perception in the minds of its shoppers. This task is challenging and make take some time to achieve, depending on how entrenched and fixed the perceptions and attitudes of shoppers have about its existing approach.

I was reminded of this issue when reading recently about the travails of Sports Direct, that well known (some might say infamous) UK sports retailer.

Founded in the early 1980’s by Mike Ashley it has grown to become one of the most successful retailers in the UK over the past fifteen years or so. It has built its success around the core proposition of offering shoppers a wide range of sports brands at heavily discounted prices – in many cases consistently beating competitors such as Allsports and JJD sports in the process.

In many ways it resembles brands like Ryanair: very successful and appealing to a wide range of people but suffering from a number of negative perceptions at the same time. This is most marked in the store layout and overall shop environment. A visit to one of its stores in the past few years would reveal an outlet that is crammed “to the gunnels” with merchandise, with little emphasis on appearance and presentation.

Some commentators have described it as a “market stall” experience. The outlets constantly refer to bargain prices, large discounts and “closing down” sales. When combined these initiatives create a strong impression that the shopper in in line for major benefits in the form of low prices that cannot be matched elsewhere. TV programmes have queried the validity of such claims, providing some evidence that the heavy discounts are not what they appear to be.

The overall impression is that of a retailer which has based its success on some dubious practices. This is reinforced when other media coverage has identified poor practices in the workplace, with some staff being paid below the national minimum wage and also evidence of draconian work practices.

In addition the company has been accused of poor governance and recently reneged on a promise to appoint an independent auditor to oversee the ways in which the company has been run. It had originally agreed not to use a company of which Sports Direct was a client, to carry out this exercise. It has since gone back to this company to carry out the review.

Let’s look more closely at its strategy.

Over the years Sports Direct has acquired a number of brand and added them to its portfolio. These include brands such as Donnay, Dunlop, Slazenger, Everlast, Lonsdale, Karrimor and Kangol. Almost without exceptions these brands were originally well-known and recognised on the high street but has become “tired” and somewhat outpaced by newer and more innovative brands – particularly in a market where consumers are always looking for new choices. Many of these brands were acquired for a low price and this helped when putting an overall strategy together of “piling them high and selling them cheap”.

Since 2014, Ashley has pursued a strategy of selling of some of these older brands. For instance towards the end of 2015 they sold the Dunlop brand to a Japanese company: Sumitomo Rubber Industries – at a good profit to Sports Direct.

It also carries a number of so-called “third-party” brands such as Nike and Adidas. They have encountered some issues with these branders on areas such as merchandising and the display of these brands.

Ashley feels that his company has to go more upmarket in an attempt to remain successful. Profits have slumped over the past couple of years – mainly due to the apparently unending stream of bad publicity and press coverage.

This this end, Sports Direct have introduced a number of initiatives.

It has invested more full in staff training.

It has focused on improving the layout and merchandising within its stores in order to get away from the “market stall” perception.

It has developed a new brand called “Flannels” – a more upmarket brand and has collaborated with sports celebrities such as the Olympic Rower, James Cracknell, to create designs.

In April 2016 it purchased a prime property in Oxford Street London. Rumours suggest that it wishes to establish a flagship “Flannels Store” there.

It has bought a small share in Debenhams (around. 5%). This is seen by many commentators as mechanism by which it can get concessions in its range of stores – thus addressing the need to create a more upmarket feel to its product offerings.

By divesting out of some of its acquired brands, Sports Direct hopes to invest more time with the third-party brands and develop its more upmarket ranges.

Mike Ashley want to position Sports Direct as the “Selfridges of Sports”.

Worryingly it records very poor image ratings among its customers and the general public. This is not surprising – given the welter of bad publicity.

For instance in a survey of thirty retailers it came twenty-fourth on metrics such as quality, reputation and impression.

What are we to make of these initiatives?

I would say that the challenge of moving the brand to a more upmarket position will be a challenging and arduous one. If people hold a very strong and entrenched view about something, it is difficult to change dramatically, certainly in the short-term. One has only got to look at brands such as Skoda to see how long it took to change perceptions and to achieve the desired position in the minds of potential customers.

The initiatives highlighted above will only succeed of senior management invest enough time and resources in such activities. Better relationships with third-party branders and higher end retailers are critical in this attempt. Currently there is a great deal of wariness and suspicion flowing around between these parties.

More importantly is in in danger of alienating its core customers? These shoppers look for and expect bargains, value for money and discounts. Will this re-positioning exercise attract the desired new customer?

What do you think?

This blog marks the beginning of 2017. As such I thought it might be useful to contemplate possible developments and trends that may (or may not) kick in or move rapidly than before over the coming twelve months.

It makes sense to me to continue to look forward – not back. However I will make an exception in the case of the retail sector. Momentous developments such as the vote to exit the EU in July in the case of the United Kingdom will spark off a number of developments into the future – most likely stretching far into the next decade and not just the next year. On-going developments in technology will also continue apace over the coming months.

The word “uncertainty” appears in many commentaries and articles on the implications arising from Brexit for UK and European retailers. In a previous blog I addressed some of these issues and do not intend to rehash them in this blog. Suffice to say that many trends and developments will be directly and indirectly affected by the fall-out from the Brexit referendum in the UK.

An article published in Retail Week provides us with some indicators as to how the winds are likely to blow in 2017. I thought it might be useful for us to look at the trends identified in this article (https://www.retail-week.com/eight-trends-retailers-should-look-out-for-in-2017/7017163.article).

Many of the eight trends identified by the author are likely to be directly shaped by the state of the overall economy in 2017. One of the major initial consequences of the Brexit vote was a decline in the value of sterling relative to the other major currencies. The net effect of this is to shove the costs of sourcing materials and products for retailers. In turn this has a direct impact on prices for the shopper. Unfortunately this is likely to follow an upward trajectory. A perusal of the newspapers since the autumn will generate numerous references to price increases – most notably in the battle between some of the major food retailers and some of their suppliers over the issue.

To some extent shoppers in the UK have been protected from sharp rises in prices. Some retailers have absorbed some of the additional costs which they have incurred, with a view that they want to avoid excessive negative publicity in the press. Others have avoided decisions in this area because they have utilised currency hedging policies. The latter have mitigated their exposure to cost increases.

However the bad news for shoppers in 2017 is that many of these hedging policies will run out soon and then retailers will have to take cost increases more directly into account.

This means that they have to address the following questions. Do we add on the costs to our prices (thereby having direct implications for shoppers? Or do we absorb some of these costa through reduced margins. Some retail sectors may have greater opportunity to pursue the latter strategy – if margins are sufficiently large to allow them to do so. Many sectors however work on tight, miniscule margins and there is little “wiggle room” for further reducing margins, without throwing the retailers into serious financial difficulties.

The issue of worker’s pay and pensions is also one that is increasingly coming to the fore. High profile retailers such as Sports Direct and ASOS have become embroiled in publicised cases, where workers appear to have been treated badly in terms of pay and working conditions.

BHS, largely through its previous owner, had disappeared off the high street and more worryingly left its workforces with no pensions.

The onus will be on retailers to act in a more socially responsible manner – or otherwise face punishment, if they fail to address pay and working conditions. This will also increase their cost base and most likely have an impact on the price that shoppers will pay for their goods.

As I write this blog, the media highlights the high levels of debt incurred by British society. Unsecured lending to household went up by around £2 billion in November 2016: the highest level since 2005. Householders owe £67 billion on credit cards. This coupled with increasing uncertainty over Brexit and inflation is likely to have a negative impact on retailing during 2017. Much of this splurge on credit cards was most likely stimulated by the raft of sales and promotions introduced by retailers well ahead of the Christmas season e.g. Black Friday.

The Retail Week article highlights the continued and growing impact of technology on shopping in general and the consumer experience in particular.

In particular it highlights advances in virtual reality, augmented reality and biometric recognition. The key point here is that none of these technologies are necessarily new or particularly innovative: they have been around for a number of years. However what is important is the fact that as retailers become more familiar with their potential uses and become more comfortable with the technology, opportunities for exploitation are going to grow exponentially.

Virtual and augmented reality has direct implications for the utilisation and demand for physical space. We are increasingly going to see greater use being made of “virtual” space. This in turn will reduce the need for as much physical space as is currently being used by some retailers – particularly in the clothing and fashion centre.

The article points to the need for “fair credit” to be provided by retailers. This is going to become more prevalent in response to pressure for policy makers to be more transparent and accountable to shoppers in terms of what they can reasonably expect to pay for items. Retailers in some sectors (such as consumer durables, white goods and the car industry) might spot opportunities to be more creative in this area.

The Internet of Things (IOT) refers to refers to the ever-growing network of physical objects that feature an IP address for internet connectivity, and the communication that occurs between these objects and other Internet-enabled devices and systems.

The article highlights that developments in this area will become more strategic in the coming year. In particular shoppers will become ever-more connected to retailers. Indeed retailers will also be able to leverage some efficiencies with their supply base. This should lead to more accurate forecasting and lead to potential savings which could (in theory) be passed on to the customer in the shape of lower prices.

Increased automation is also likely to feature more prominently both in-store and within the areas of supply chain management. Robotics, once the prerogative of science fiction movies and books, is now become more viable and practical in the retail and supply chain environment.

This development has implications for the work-force. It also has relevance – given the possibility that the number of migrants entering the UK may drop in the longer term due to Brexit negotiations. Work that was previously performed by low paid workers can now be tackled by robots or technology.

In previous blogs we discussed the example of self-checkout and the lack of need for physical personnel.

As you might predict, Amazon is one of the pioneers and drivers of developments in robotics and automation.

We have often recognised the unpredictability of weather and its impact (usually negative) on demand – particularly in clothing and fashion. The Retail Week article predicts that we will see more “seasonless” fashion practices.

It highlights retailers such as Brands including Burberry, Tommy Hilfiger, Topshop Unique and Ralph Lauren, who have embraced “see now, buy now” collections, allowing shoppers to buy the styles they see on the runway immediately rather than waiting six months.

In summary 2017 will be an interesting year to monitor in terms of developments and trends. Let’s cast a “gimlet eye” over proceeding in the coming months and compare notes at the end of the year.

In an earlier blog we examined the developments by Amazon in particular with regard to introducing more innovative mechanisms by which to deliver items to its customers. Instead of simply relying on traditional tools such as mail, it has been actively testing out drones as a quicker and more modern means of delivery.

At first glance it appears to be veering a little towards surrealism and science fiction: the notion of hundreds of small drones winging their way around cities, towns and villages conjures up apocryphal visions of air congestion, collisions and mayhem. I thought it might be opportune to see if Amazon has made any further advances with its experimentations and to assess the response of authorities world-wide.

Let’s briefly summarise the proposed strategy by Amazon.

It plans to fly unmanned and battery-operated drones within a range of several miles of an individual distribution centre. They can fly up to a maximum speed of around fifty miles, carry a package of up to five pounds and they promise to deliver a package within thirty minutes of receiving an online delivery.

They presumably anticipate that this will prove, in the longer-term to be a potential game-changer in the relentless quest for competitive advantage in the customer order delivery space. This has relevance given the numerous alternative approaches that supermarkets and other retailers have adopted to try and overcome major and challenging hurdles such as traffic congestion in major cities. A good example of this phenomenon is London. It is estimated that it takes longer now for vehicles to manoeuvre their way around that metropolis than it did fifty years ago.

We should be careful in this discussion not to dismiss such developments as being surreal and idealistic. We should not lose sight of the bigger picture: that retailers in particular consciously seek to drive improvements in overall supply chain efficiencies and in terms of quick response to the perceived demands and expectations of their customers.

It is not just an “Amazon phenomenon” either. Other large operators such as Walmart in the USA, Alibaba in China and DHL in Germany are actively experimenting or actually using drones across many aspects of their respective supply chains.

It is not just companies wither who are embracing the use of drones.

According to Ken Long, research manager at the Freedonia Group, “The consumer market will remain a key driver of overall sales growth for drones, fuelled by technological advances that are making drones easier to fly, and by the reduced cost and improved capabilities of key subsystems, which are helping to make drones more affordable to the average consumer.” (http://blog.marketresearch.com/the-demand-for-drones-in-the-retail-sector)

We are witnessing consumers in general using drones to capture better and more creative photography shots, getting better pictures at sporting events and so on. Specific sectors such as real estate have also latched onto the concept to get more attractive shots of properties that are going to go on sale.

Such developments outside of the retail sector would appear to strongly support the view that in the near future we will be inundated with drones and they will become a way of life for us.

However we have to consider the likely responses of governments and policy-makers to such a development. What is happening in this respect you might ask?

The issue of safety would appear to be at the core of policy in the UK. Amazon are presently testing out drones in Cambridge and the Civil Aviation Authority (CAA) are willing to take an open-minded view during these experiments because they argue that there are a number of economic benefits likely to accrue. Current regulatory policy means that drones are banned from flying within fifty metres of a building that is not owned by the operator and within 150 metres of a built-up area. Likewise the drone must be in sight of the operator at a maximum distance of 500 metres and a maximum altitude of 400ft. Some prosecutions have taken place – mainly to do with individuals operating drones. We can see that there is a considerable gap between what the current regulations allow and what Amazon is contemplating with regard to deliveries of items to its customer base in the UK.

Amazon Prime Air (to give it its correct title) has run into major legislative problems in the USA. There, the government stipulated that each drone must have its own pilot and stay within sight of the pilot. This would raise serious questions about the economic viability of the Amazon proposed model.

There is no doubt that major retailers such as Amazon and Walmart can wield enormous power and influence with respective governments and we should not assume that potentially restrictive legislation will necessarily close the door to the use of drones as a delivery tool.

Amazon is proposing that a drone airspace should be created within a zone of between 200 to 400ft in the air and that the drones should be equipped with anti-collision technology. They also advocate the development of air corridors.

We have previously discussed other potential problems such as safety (what is the possibility of some of the drones falling out of the air?), the invasion of privacy (the possibility of drones constantly hovering and passing by the window of your eight floor apartment?) and the uses which terrorists could potentially make of drones (probably doesn’t bear thinking about). In the latter case proprietary software designed by retailers such as Amazon should prevent an infiltration by terrorists of their technology. However it does not necessarily prevent them from buying drones on the general market and using them for nefarious purposes.

So what can we say about the future potential of drones?

Some commentators argue that the power and influence of key players such as Amazon and Walmart will inevitably shape governments and policy-makers to allow them to introduce drones as a viable mechanism for delivery. This may be exacerbated if there is a possibility that taxes and other indirect income can be generated from some form of collaboration with such companies and organisations.

Others argue that the present difficulties and hurdles are largely insurmountable and will make for operational problems. This will inevitably make them less viable and too costly if they are to comply with potentially restrictive legislation.

One interesting bystander in this discussion does not appear to feature however: the customer!

To the best of my knowledge there is no evidenced-based research in the public domain to provide any indication as to how shoppers feel about the proposed use of drones as a delivery mechanism. There is a potential opportunity here for some research. I am not convinced that there would be a high level of demand for such a service. Apart from obvious issues such as security and privacy, would you or I be prepared to pay the cost of receiving such a service? Clearly it would depend on what the fee would be?

Let’s continue to revisit this topic and I will address it in another blog at the appropriate time.