Those that make your clothes

An interesting article in the Phom Penh Post (large newspaper in Cambodia) yesterday.  It is not an industry expose, but rather outlines graphically some of the conditions in garment factories in the developing world.  Of course factories have to compete for business & the main criterion of choice from Western retailers is lowest price.  In order for us to be able to buy low price clothing factory workers in the developing world work such long hours, with such exhaustion & mal-nutrition that mass fainting episodes are common.  Here a government initiative to train the works on how to avoid fainting!!  Is there no hope of training Western consumers to pay slightly more thus solving the cause rather than a limp effort to alleviate one symptom?

http://www.phnompenhpost.com/index.php/2012100959175/National-news/workers-given-lesson-in-how-not-to-faint.html

Tesco & momentum

It is oft cited that like individuals companies can have inertia of direction or momentum.  If you are successful in something then you will gain confidence, be more risk taking as a consequence & thus more likely to be successful.  It is a virtuous circle.  For many many years Tescos' was in this enviable position - a very well respected boss continuously rising market share and rapid international expansion.  However it does not take much for this postive momentum to halt & reverse.  A similar relationship can be observed in reverse; perceived lack of sucess denting confidence, reducing ethusiasm, making the retailer more cautious.  This is exactly the situation Tesco finds themselves in at the moment.  Their market share is falling significantly - now at it's lowest level for seven years & will have further to fall as their competitors boyed by this news increasingly find their 'mojo'.

So what was the trigger for their change in momentum.  Of course only a very complicated analysis would really come close to answering this, but I don't have time for that so let me highlight two ideas.  Firstly, as Tescos became more 'emboldened' (Treadgold!) in their international expansion it entered more risky markets and experienced failure (Japan & USA - silly markets for them to enter - poor decisions).  & secondly while Terry Leahy was so well regarded he could maintain confidence umong the Tesco family his sucessor Philip Clarke is less well able to do so.  This is a shame and doesn't reflect Phillips Clarkes ability, rather his less developed track record. 

But while Tescos will diminish they for sure won't disapear - they have a lot more space in the UK than their competitors & will thus stay the UK's largest grocer for a long while yet.

Tesco losses at £5bn

Quite an eye catching headline - and entirely accurate.  Yestarday in just one day Tesco lost £5bn.  That is the companies value fell by £5bn.  Quite a shocking figure which comes on the back of quite a shocking performance over the christmas period.  While Tescos LFL (Like for like - so just comparing stores that have been open for over a year) fell in the UK by 2.3%, while it's competitors, Sainsburys for example rose by 2.1%.  Given that we have had a decade or so of phenomonal growth from Tesco these results represent a shock to the markets thus the share sell of resulting in the £5bn loss.

I have frequently spoken on Tesco - here & in other forum.  They have made a number of key mistakes in my mind and have confused their position in the market.  They are giving away too much profit margin through promotion & loyalty incentives, and are rather stuck in the middle between Asda who is unquestionably perceived to be cheaper & Sainsburys who is generally perceived to be better.  They seem to want to grow by adding more and more small format stores but there is growing local resentment to the perceived domination of Tescos in some areas leading customers to actively seek alternatives where possible.  I cannot see that Tescos will again grow their market share in the UK & rather see them stagnating for many years around the 30% mark.

Happy New Year & Contagion

Firstly Happy New Year to readers,

I have often spoken on here how our the fate of the UK economy depends so much on it's European partners.  Nothing demonstrates this more graphically than the interactive chart here - http://www.bbc.co.uk/news/business-15748696
If you take a look at Greece for example it's government debt to GDP ratio is stated here as 166% - clearly a huge figure, but what you can also see is that French banks have lent the most to Greece - some 41.4bn euro.  Of course if Greece were to default on it's debt (declare that it cannot pay it back) then French banks would loose a large part of this 41.4bn euros & many would then need further government help to maintain their solvency. 
Meanwhile with such large debts, Greece cannot affordably borrow on the international money markets (as they are seen to be so risky the rate of interest charged would be unaffordable) the only way that Greece can maintain a deficit is through continued bailouts (other countries making benevolent loans).
How did we allow ourselves to get into such a mess where we are all interdependent on each others fate - well in my view the single euro currency covering such a diverse range of countries from Greece to Germany.  How can one common exchange rate & interest rate be correct for such a mix of countries?

Bond Yeilds will be our downfall...

With consumer spending weak, and demands upon social welfare budgets growing (rising unemployment etc...) most governments need to borrow money at the moment to simply be able to keep paying their bills.  Today in the Autumn statement it has been announced that the UK will have to borrow significantly more than previously thought - something like £127bn this year...  Actually that isn't too problematic for us.  As the markets start to think that the UK is a fairly save investment the rate of interest that we need to pay on this borrowing is pretty low - perceived risk acting directly on the return (interest rate) that borrowers need to pay.  The UK needs to pay just about 2.29% on new debt that it issues.  For some context I pay about 3.5% on my mortgage, so quite reasonably the banks think that I am a riskier investment than the UK government is...

Now for the interesting bit.  Italy has this morning needed to borrow £7.5bn in order to keep paying it's bills.  It needed to pay a record breaking interest rate of 7.89%.  This level of interest is simply unaffordable.  And this is the crux of the current Eurozone crisis, and if it continues Europe will go into recession & given that it holds our biggest trading partners we will not be able to avoid following their path.  So what should be done - ummmm no one really seems to have a satisfactory answer, each possible path is littered with huge pitfalls and more complex than can be explained here, the reality is however that a no action is probably the risky of all possible approaches!  A grand solution is needed and before this is resolved all George Osborne can do is tinker at the edges, he is every bit as much a passenger as we are.

Have Best Buy got the best way revisited...

So on the 5th March this year I blogged on the likely fate of Best Buy in the UK commenting on the madness of their entry to the very developed and competitive market.  Just what were they thinking???  In parallel with Tescos doomed entry to Japan (& US - watch this space) we have a large successful arrogant retailer that is entering a market without properly doing their homework.  There was no space in the UK for Best Buy stores and the competition of Dixons et al. are pretty competent in seeing off the challenge.

So the inevitable has happened & Best Buy will close all of it's UK stores.  The reasons they cite - "growth of product categories such as mobile phones and tablets" ok so why does this mean your stores fail???  "development of on-line retail" was that not predictable when you entered in 2008??  Finally "economic conditions" - here you might have a point, but given that they only entered in 2008 when the global crisis was in full swing this is not news and could have been realised a lot earlier.

This year the venture has lost £46.7m, last year £28.8m and in the previous years of capital investment surely similar figures and you build a picture of a lot of wasted money due to not doing your homework.  I'd like to think that any of my international retailing students could have spotted the errors here & saved a couple of hundred million quid of ultimately pension fund money...

Ok so we've done last orders - now surely it's time...

Today once again a really strikingly poor set of results from Argos.  Like for Like sales are down 9.1% - that is huge.  Below is my previous post from 9th June on their previous city update.  Surely all of the points I made then are valid today.  I maintain the view that there is no place in UK retail for the current Argos format and that a radical rethink is required.  Ditch the printed catalogue to enable ranges and prices to far more flexible and offer swifter delivery pick ups would be a start.  As it currently stands their profit levels represent a paltry return on their investment - they would be better off selling their assets and putting the money in the bank - less risk & a higher return!

Opinionated as always - but argue with me if you think this assessment is wrong!

9th June

Internet retailing has provided great opportunities and challenges to more traditional forms of retail commerce. Today's striking news that Argos' LFL sales are down some 9.6% surely will bring the company to fully examine their strategic options. Make no mistake, a 9.6% fall in sales is massive & even more difficult for a retailer such as Argos who cannot quickly flex their marketing to stimulate greater sales - after all their catalogue is printed with fixed prices etc...

For a long time I have thought that Argos has been too conservative in the face of a changing retail environment. E-commerce and the growth of supermarkets into non-food areas have introduced great challenges, but I believe also great opportunities for the company. What is it that Argos are great at?? They don't have a great product offer - that can be replicated by Tesco deliver or Amazon... Their real unique selling point lies in their ultra efficient store operations and selection of convenient locations around the UK. So how best to utilise this resource. Well in the face of growing e-commerce threat why not use these stores as collection hubs for the consumer - they could give their local store as their address and collect on a weekly basis all of their non-perishable on-line shopping. As a consumer there is nothing more annoying than to get home from work and find that three different couriers have tried to deliver packages & I now need to embark on a road trip to 3 different depots to collect my orders... far rather collated at a store of my choice with a simple customer focused collection method. This service could be free to the consumer with the on-line retailers giving Argos a cut and saving considerably on the otherwise increased courier costs. It does seem that there is a current gap in the market to better serve the on-line retailers and while the current Argos model is surely doomed in a few years they would be best placed to serve this new need. & while their at it what about an Argos drive through....

Light in a dark place

So the economic news doesn't improve does it.  We seem to constantly move from one crisis to the next with an ever increasing sense of eventual double recession or similar.  Just last week the UK unemployment rate increased by some 100,000 to the highest level in 17 years.  So we should all be really depressed right?  No, we have chosen to study in surely the most dynamic of industries and one in which graduates are in very short supply and thus high demand.  A week rarely goes by without at least one key retail company contacting me seeking good graduates to recruit, below is the latest from B&Q announcing a significant recruitment drive.  Studying Retail Management is surely one of the best ways to ensure strong and varied grad job opportunities come economic rain or shine!

Retail Management Graduate Programme

Have you graduated with the last two years?

Do you know any recent graduates who are looking to kick start a fantastic career in retail?

Yesterday, Euan Sutherland announced the launch of our ambitious new Retail Management Graduate Programme at B&Q’s MPs reception held at the Houses of Parliament.

We are looking for graduates with a genuine passion for retail, people and leadership that want to build a foundation for their career where it all happens…in store!

The scheme is open to both internal and external candidates from the 10^th October 2011 and an overview of the scheme can be viewed through the attached link.

Taking e-commerce to a new level...

Aurora fashions (Coast, Warehouse, Karen Millen & Oasis) are to extend their 90 minute delivery time across most of the UK after a successful trial within the M25...  On the face of it doesn't that sound impressive - surf the net during your lunch break & have a new wardrobe of clothes delivered to the office before your afternoon tea break!  But I wonder who really wants this?  Surely the purchase of clothes is the most experiential of shopping - the touch, feel and 'real' look (i.e. not the pixelated 2D look) of the item being key.  Aurora will only be able to offer this service close to existed stores & so it rather begs the question wouldn't you be better off popping out the shops yourself and getting the full experience.  Oh & saving yourself the £9.99-£14.99 delivery charge to boot!

Tesco withdraws from Japan

Today's news that Tesco is seeking to sell it's Japanese chain and withdraw completely from the market should not be a great surprise.  Japan has a highly developed retail sector with many established & highly competent chains - why would Tesco think that it could enter a market that it doesn't know, doesn't have any real logistical links to & is already full of good shops.  Students will also be very familiar with the notion of 'Critical Mass' - where by you need a very significant chain of stores to contribute to the costs of building and employing the large warehouses and infrastructure to support stores - Tesco simply wasn't big enough in Japan to start with and then struggle to grow to a sufficient scale to become competitive.

So no big surprise that withdrawal has come, a sensible decision after an unwise investment - of course they will never disclose how many hundreds of millions they will have wasted in the process.  How long till they give up on their equally misguided American venture??

The opening of new markets

The internationalisation of retailers has not been a linear journey but rather witnessed big splurges of activity due to political and economic changes.  One such change is just happening in India.  Until now the Indian market has been almost closed to international retailers in a bid to protect businesses indigenous to the country, however such restrictions prevent the modernisation of the sector and can lead to inflationary pressures on consumer goods.  A relaxation of the laws on foreign direct investment into the retail sector now looks likely & will lead to a wave of activity from the worlds largest retailers seeking expansion into the massive Indian market.  Under the proposals, incoming retailers would be able to own 51% of any venture (i.e. a controlling stake), and will have to invest at least $100m, half of which will need to be invested into infrastructure that will benefit all retailers in the sector.  They will only be able to operate multi-brand stores in cities with a population in excess of 1m.  This really does represent a huge change in the attractiveness of the Indian market and a great opportunity for the likes of Tesco who desperately needs strong international sales given it's weak strategic position in the UK.  For sure further liberalisation of the market will come in future years and so any investment now is likely to reap even greater opportunities in the future.

Cheer up consumers!

It's a long time since the financial chaos started in the Summer of 2008, however the effects will be felt for a long time yet.  Nobody could have missed the riots over job losses and the continued national debt mounting & so it is timely to remember the critical role that the retail sector plays in all of this and the potential damage that the riots could inflict on all of our purses. 


The logic runs like this.  Consumer retail sales accounts for approximately one third of the entire economy of the country and represents a huge revenue flow for the government through all manner of taxes not least VAT.  How much the consumer spends depends on a number of factors, though most significant is not their actual wealth but their perceived wealth & perception of the security of their wealth - i.e. feel good/bad factor.  If consumers believe that the economy is struggling they may fear unemployment, consequently will cut back on their spending - collectively this will itself lead to the economy shrinking and redundancies being made - so a self fulfilling prophecy.  Consumers will feel bad about their economic prospects in reaction to negative press stories of economic woes or wider negative stories such as the riots.  In short the riots are likely to have the reverse effect of that sought by the trouble makers.

The internet scares me...

There is such a volume of material on the Internet, most of it of little interest or use, consequently while compiling some research this morning using a variety of different key words I found this... 
I only vaguely remember doing this interview for a masters student so was surprised to find it loaded on the net.  This snippet does however quite well summarises the research that I am currently working on, a small part of which has thus far been published in the Journal of Business Ethics with more to follow.
http://www.youtube.com/watch?v=pJrukFbUTeE

Volitility in the most stable of markets

International retailers need to be conscious of how a market could change affecting the viability of their operation.  Tescos' operation in Thailand is an often used example of this given the significant threat to their Thai chain in the wake of the unexpected military coup in 2006.  To the outsider Thailand appeared a very stable nation...  And so we turn to what you might think to be one of the most stable countries in the world; America.  Now I'm not suggesting a coup d'état in America; I'm pretty sure that is unthinkable, but talked about legal changes that would really threaten the viability of Tescos American operations.  California is home to around 125 of 175 'Fresh and Easy' stores, and there is talk of an outright ban in the purchase of alcohol through self-service tills.  Tesco installs self service tills exclusively as an essential part of it's low cost strategy.  As the only grocer in the state to operate self-service tills it is clear that this law is specifically targeting the 'new kid on the block', and if it comes into effect will have a huge effect, forcing Tesco to rethink their strategy and presumably refitting their stores with at least some conventional cashier tills - all on top of a chain that is said to be underperforming and being challenged from a range of commentators.  So in even the most stable of nations it is best to have a plan B.

Calling time on Argos??

Internet retailing has provided great opportunities and challenges to more traditional forms of retail commerce.  Today's striking news that Argos' LFL sales are down some 9.6% surely will bring the company to fully examine their strategic options.  Make no mistake, a 9.6% fall in sales is massive & even more difficult for a retailer such as Argos who cannot quickly flex their marketing to stimulate greater sales - after all their catalogue is printed with fixed prices etc...

For a long time I have thought that Argos has been too conservative in the face of a changing retail environment.  E-commerce and the growth of supermarkets into non-food areas have introduced great challenges, but I believe also great opportunities for the company.  What is it that Argos are great at??  They don't have a great product offer - that can be replicated by Tesco deliver or Amazon...  Their real unique selling point lies in their ultra efficient store operations and selection of convenient locations around the UK.  So how best to utilise this resource.  Well in the face of growing e-commerce threat why not use these stores as collection hubs for the consumer - they could give their local store as their address and collect on a weekly basis all of their non-perishable on-line shopping.  As a consumer there is nothing more annoying than to get home from work and find that three different couriers have tried to deliver packages & I now need to embark on a road trip to 3 different depots to collect my orders...  far rather collated at a store of my choice with a simple customer focused collection method.  This service could be free to the consumer with the on-line retailers giving Argos a cut and saving considerably on the otherwise increased courier costs.  It does seem that there is a current gap in the market to better serve the on-line retailers and while the current Argos model is surely doomed in a few years they would be best placed to serve this new need.  & while their at it what about an Argos drive through....

1,155,347,700 customers are waiting

That's quite a big number & surely quite a big opportunity for the worlds largest retailers to chase.  It is of course the population of India a retail market that has thus far been largely closed to international retailers due to protectionist laws preventing multi-brand retailers from holding a majority stake in retail ventures in the country.  As we have seen gradually across the world such restrictive laws have been relaxed, and it seems that within months India will follow suit finally opening the market up to the likes of Tesco and Wal-Mart.  Large scale investment into the Indian market by the likes of Tesco will not only provide a great opportunity for them, but the necessary investment in distribution infrastructure and change of retail culture will no doubt expose opportunities for a whole raft of international retailers.

Is Colin really a fashion icon?

Traditionally we have seen retailers internationalising from a highly developed retail market to a less well developed retail market...  But as markets around the world are developing there are opportunities for innovative retailers from less developed retail markets to expand globally...  One such retailer has come to my attention - Colin's clothing, nope no joke, Colin's clothing from Turkey has big ambitions including 100 stores in the UK.  While a Turkish clothing retailer is well placed in terms of supply chain the big question here is - would you buy your clothes from Colin?!

Tescos being 'Buffetted'

I have long commented on the questionable wisdom of Tesco entering the US.  Given the choice of markets in across the globe, why would Tesco (the retailer that is ‘good’ but certainly not ‘unique’) enter the already crowded retail market of America – crowded actually with some very good grocery retailers of their own.   It is very strongly my view that there are many countries in Asia particularly  that hold far greater promise.   What is also striking is their entry strategy, departing from their usual acquisition followed by growth, the enter with nothing and build up all the expensive infrastructure themselves – the expensive way.  I have felt like a lone voice, but am reassured this week by the comments made by Warren Buffett (huge financier & speculator) which indicate that I am not alone.  Buffett described Tescos US entry as ‘foolhardy’.  Frankly I find it very hard to imagine a good business case for the US entry, and would not be surprised if they retreat loosing many millions of their investment in the process.  Of course it could also be that I’m wrong and that Tescos make a success of it, but I would still maintain that there would have been better investment markets out there that would have provided a stronger short, medium & possibly even long term return.

Focus on a variety store!

Focus the DIY chain with 178 stores has gone into administration.  The chances of them being brought out of administration as a going concern are negligible I would imagine. They are simply too small to be able to compete with B&Q & Homebase.  Frankly Wickes really appears to struggle to keep up as our third biggest DIY chain, and their stores are generally miserable affairs against the size and colour of a large B&Q.  It is of course sad to see the demise of any retailer and the personal difficulties that it will mean for many employees, however it is an inevitable part of competition and it the current economic climate the weak are struggling – this year alone Oddbins, British Bookshop and Stationers & Allworths have folded & for sure there will be more before the year is out.

What is of note though is that as true as competition will lead to the demise of some retailers it will also allow others to flourish.  I will never forget the media commentary at the time of Woolworths bankruptcy proclaiming the death of the variety store and how the format was no longer relevant in today’s society.  What rubbish...  Who was the retailer that bought all of MFIs stock when they closed their doors?  And is now talking of taking on Focus’ stock and stores?  Small independent chain The Range.  They are, you might have guessed, a very flourishing variety store...

Limited Line Discounter growth

2008 saw growth in the sales of the Limited Line Discounters.  The growth was widely attributed to the recession and weak consumer sentiment leading customers to seek cost reductions in their every day lives.  There is no question that Aldi & Lidl are significantly cheaper than the mainstream competitors.  The market share of Aldi & Lidl is still growing (currently 3.3% & 2.6% respectively), but not because they are attracting significantly new customers.  Rather, those that tentatively (tentatively because frankly the stores are mostly a bit grim) dipped their metaphorical toes into a Lidl or Aldi store back in 2008 have actually found the products to be surprisingly good.  This is of course good news for the discounters who have really struggled to communicate their strategy in the UK.  They sell good stuff cheaply while the UK consumer assumes a strong correlation between price and quality and have assumed that the products are poor quality substitutes to the usual Tesco fare...  With limited marketing budgets word of mouth is likely to form their best means for growing their customer base but before their market shares grow considerably when they can be really classed as 'mainstream' grocers they will have to improve their overall professionalism.  Product availability has to be assured & mould vegetables on display just will not do!