Retail Disruptors – the spectacular rise and impact of the hard discounters

Retail Disruptors

The rise of the hard discounters is a well-observed phenomenon of continuing research endeavour and commentary.  In the UK, as is well known, Aldi and Lidl have captured considerable market share over the last decade.

UK Grocery market Share

‘Retail Disruptors’ by Jan-Benedict Steenkamp and Laurens Sloot is a new addition to the literature.  It focuses on the rise of the discounters generally and the reasons for and impact of their success.  It is very accessibly written, targeted mainly at the trade and professional audience.  The three sections of the book cover the strategies of the hard discounters followed in turn by the potential counter strategies for retailers and manufacturers respectively.  It attempts to adopt an international perspective and broad coverage, though inevitably this is a little partial. It is an easy and enjoyable read with the added benefit of being informative and at times thought-provoking, probably especially for practitioners including manufacturers.  These are often ignored in the consideration of the impact of discounters.

I did enjoy a reminder of the quote by the Tesco Chief Financial Officer from 2008 saying that ‘discounters were only having their moment in the sun’.  A decade on, sunburn must be an occupational hazard.  The reasons for this continuing success is well explored, but I do wonder about the constant refrain in the media (and this book) that even those with Audis and BMWs now shop Aldi/Lidl.  Car ownership is not what it was and many such vehicles are leased/rented, and so that much more prevalent than in previous decades.

I was also taken by the strong arguments for consumers welcoming the reduction in choice (as well as price) offered by Aldi/Lidl, and I would link this to the disruptive impact this has on local markets.  In the same way as Wal-Mart did in the US/Canada 20-30 years ago the arrival in an area of Aldi/Lidl recalibrates the local competition expectations.

The book concludes that discounters have a natural share of 20-25% but the exact outcome depends on the competition and the fight back.  For existing retailers a number of strategies are outlined (fightback, downgrade, value improvement and value redefinition) depending on the situation.  Details of these are well worth exploring.

If 20-25% is the natural share in the UK, then Aldi/Lidl will double in size in coming years.  That is enough to keep any Jack’s up at night!

Reference

Jan-Benedict Steenkamp and Laurens Sloot (2019) Retail Disruptors. Kogan Page. ISBN 978-0-7494-8347-0.

 

Posted in Academics, Aldi, Competition, Consumer Choice, Discounters, Food Retailing, Jack's, Lidl, Market Shares, Pricing, Retail Change, Retailers, Strategy, Uncategorized | Tagged , , , , , , , , , , , | Leave a comment

Food, health and data: developing transformative food retailing

Byrom and Medway

In early November 2018, a book on Case Studies in Food Retailing and Distribution was published, edited by John Byrom and Dominic Medway.  Amongst the very wide ranging and interesting chapters, was an effort by myself and two colleagues from the University of Tampere in Finland (Hannu Saarijarvi and Sonja Lahtinen).

Our chapter, entitled “Food, health and data: developing transformative food retailing” analyses the developing relationship amongst food retailing, consumption and diet and health, reflecting on this intersection between health policy and retailing.  Retailers often view themselves as being under threat from this increased interest in health policy, perceiving ever tightening restrictions as the only likely outcome.

However the chapter argues that whilst this may be true to a degree (and we see this in recent proposals in Scotland), it is also the case that food retailers have an opportunity to take on a greater role and a greater responsibility regarding consumers’ health and wellbeing.  Digital data of various forms suggests a new proactive, transformative role for retailers, arising not only from the weakness of current practice but also the opportunities of building a closer, more helpful, relationship with consumers’ lives.

There is a revolutionary opportunity to reconfigure the food retailers’ role, not only competitively but also societally.  This brings implications for consumers, companies, academics and society at large.

Implications of transformative food retailing

Stakeholder Implications of transformative food retailing
Consumers Enhancing value creation; increasing human agency; elevating identity projects; creating a sense of safety and certainty; granting access to information; assisting in informed choices; improving dietary intake; promoting healthy lifestyles
Companies Offering a way for differentiation; establishing new markets for new start-ups; motivating role reconfiguration; initiating strategic changes; inspiring new service design; reformulating service offering; engaging with different stakeholders; innovating new marketing processes; humanizing brand image; cultivating social responsibility
Academic community Stimulating new retailing research avenues; advancing multidisciplinary collaboration; spurring new research methods; bridging the gap between scientific knowledge; business practitioners and society; increasing research relevance and social impact
Society Increasing the role of businesses in solving societal challenges; capturing societal potential of retailing; altering dominant social structures; stimulating social action; informing decision-making; raising public awareness of the impact of dietary choices for health; addressing socioeconomic differences; improving public health; providing new retailing-led public policy guidelines

Our chapter concludes:

“Food retailing is at a crossroads. It is viewed increasingly as part of the problem of health and diet in society.  It need not, however, be like this.  There is a choice to be made between a battle over regulation or an embrace of digitalization, data availability, and health concerns.  Transformative food retailing offers new venues for value creation, both for firms and customers, and points toward potential areas of strategic differentiation. New uses of customer data play a pivotal role and provide a new means for building customer loyalty. Changes in consumer behaviour toward healthier food consumption at the individual level contribute to potentially major impacts at societal level.  Taken together, transformative food retailing has multiple value potentials and can extend the food retailers’ role from supplying products and services toward facilitating consumers’ personal and societal transformation toward healthier lives. This redefines and concretizes the importance of food retailing in contemporary society.”

 

Posted in Academics, Behavioural Economics, Books, Data, Diet and Health, Digital, Ethics, Food, Food Retailing, Health, Loyalty, Loyalty Schemes, Retailers, Social Change, Uncategorized, Well being | Tagged , , , , , , , , , , , , , | Leave a comment

Brexit and the ‘F**K Business’ Approach

Boris Johnson’s view of the importance of business to the economy and to the care and concern he gave the business view on Brexit was well covered at the time.  Dominic Raab’s more recent revelation that Dover was actually quite important to trade as an island nation also received some attentionMichael Gove has now joined those who realise that negative impact that Brexit will have. But the real questions that should be asked have not seen the light of day:

“What planet are these people on”? and “How the hell are they qualified to make decisions for themselves let alone the country”?

The recent pathetic shennanigans from the two “main” parties in Westminster would be comic if it was not so tragic for the economy and therefore for people’s lives.   The drift to a “No-Deal” Brexit and the cavalier approach to people’s lives by Government ministers (Minister can’t guarantee no deaths because of no-deal Brexit) is simply unfathomable. 3,500 troops on standby – presumably not all will be burying the bodies?  We are simply unprepared for what could be the biggest disruption to the supply of products, including medicines and food, that we have ever seen. but worse than threat, there are some politicians that seem to be actively advocating and embracing the potential chaos.

We joined the “Common Market” in 1973 in order to gain trading advantages and benefits for the UK.  This over a period of 40 plus years has seen the removal of trade barriers, the sharing of standards and approaches and the development of seamless, frictionless supply chains.  Concepts such as just-in-time and quick response have been built on this pan-national and trading group approach. Retailers, and especially UK retailers, and through them consumers, have gained enormously. Much of what we take for granted in our retailing is based on this frictionless supply.

Putting all this into reverse and placing barriers on trade and supply will have an immediate effect.  In due course this will be worked around, probably at considerable cost and effort, and with a more expensive outcome than at present. But in the short term there is likely to be massive disruption to the ’flow’ (the clue is in the word) of products.  We can not replicate the set up nationally without years going by.  Amelioration by stockpiling will work for some products (if there is any space left).  We can wait it out at the ports and the airports and hope things move (good luck on the M20 by the way).  But all remedies add cost and operational implications and make it less likely products will be supplied when they are needed.

And this is before we consider exports. And the tariffs that will be placed on our products going to Europe (and those coming here). Guess who ends up paying? Or an immigration policy that runs the risk of denuding warehouses and distribution centres of their staff. There is a good bet that things will simply grind to a halt.

Longer term there could be other supply chain considerations. In the 1970s, and for some time after, Britain maintained its own standards and systems.  In logistics for example we had the British and the Euro pallets.  Different sizes and shapes (just like the passport).  Handling systems could not cope with both sizes seamlessly and multiple handling was required. Inefficiencies abounded. Standardising reduced costs and sped up processes.  Going back (even accidentally) to such differences is a massive risk. And now we are in the computer age so it is not just physical handling.

For almost 40 years I have been researching and examining supply chains in retailing.  A particular focus has been Tesco and the changes they brought to product supply since Operation Checkout almost destroyed them in 1977.  A chapter in our recent book summarises these changes and the benefits to consumers and the company that have resulted.  Brexit (especially if No Deal) runs the risk of reversing such changes, company by company.  The net effect will be an inefficient, broken supply system incapable of delivering what consumers want, and at an increased cost/price. And if we can mend it some way down the road and build the alternatives, it will inevitably come at a considerable price.

“F**ked business” indeed. And “f**ked customers too”. I just hope when the next elections come by, those who have suffered take it out on those in Westminster who have caused it. Don’t blame business or retailers; they are every bit as much victims of the politicians.

A longer, slightly more considered piece of mine on Brexit and retailing appeared here just after the referendum. 30 months later and little if anything has changed, and much has got worse. Is it any surprise given the Westminster politicians we have?

For the avoidance of doubt, the views above are personal (and professional).

Posted in Brexit, Consumers, Disasters, distribution, European Union, Frictionless, Just in Time, Logistics, Politicians, Resilience, Retailers, Supply Chains, Uncategorized | Tagged , , , , , , , , , , , , , | Leave a comment

HMV – predictable or what?

125 stores, 2200 direct employees, an unknown number of individuals and businesses also linked to, and supplying, the company;  the administration and likely demise of HMV would be problematic at any time but between Christmas and New Year it has a special resonance perhaps.

Much has already been written about the situation so what follows are some figures and comments that attracted my attention, with some added thoughts of my own.

The BBC News coverage was nothing if not predictable; some vox pops with people under 30 outside the Oxford Street ‘flagship’. Do you buy CDs? No. Dvds? What are they? Do you go into HMV? Why would I? Whilst predictably partial there is a truth underlying this. For many, especially young, consumers of music and films, the purchase has nothing to do with physical product, but is online and is likely via a digital streaming service such as Spotify or Netflix.

A tweet by Patrick O’Brien from GlobalData Retail captured this shifting market. Whilst a rough calculation of mine, the figures below suggest that the market is now only 60% of what it was five years ago, That is a precipitous decline.

HMV1

The Times followed that up by providing the figures for HMV sales over the last five years. Whilst they may have gained market share over this period, it was of a rapidly declining market. Sales decline at a time of cost pressure and margin erosion is not a good look – though underlying performance might still be positive, just (though sustainable, no).

HMV 2

A couple of components of costs have emerged in the coverage on twitter and the media. A particular focus has been the £15m per annum paid in rates by HMV and the c £50m fees taken by HILCO (who took HMV out of its first administration six years ago) over the last five years. A rising rates bill on a declining sales base – anyone should be able to see the problem.  Plus the fact that competitors such as Netflix and Spotify don’t pay rates at all and thus do not have this cost. And whilst it is easy to criticise HILCO, without them would there have been any HMV over the last 5 years? (and the fees do seem to move in line with sales).

HMV Rates

It is also easy, and virtually all the media did this, to see HMV’s demise as the final nail in the “high street” coffin.  But a retailer selling something that increasingly consumers do not want (the physical product) and which can be obtained more cheaply and easily from other channels, is not a great advertisement for the high street, or any other retailing. This market is becoming niche and specialist in physical spaces (and seems to be working there), and digital elsewhere.

Some final and not purely HMV thoughts. Springboard said that footfall was down on Boxing Day this year; something reported as a negative performance. But, given the structural changes in retailing, was this a bad performance? Online sales are increasing annually – ONS say they are c16% market share, but over 21% in Nov/Dec. Given this substantial and ongoing shift, why should we be expecting footfall to stabilise rather than continue to decline?

Next week will see some of the larger retailers report on their Christmas trading. In all likelihood it will not be pretty, but does depend on what sales over what period at what level of margin, something that will not be clear for some time yet. Yet, at the local level some retailers (often independents) and places are reporting strong sales  and through a focus on the distinctive and service are providing things people want. There is light within the restructuring underway and this is often forgotten.

timpson

We need to recognise the imbalance and societal impacts and disparities that we are exacerbating by not guiding the scale, scope and pace of this change. Leaving it solely to the market, ignoring our dysfunctional rates and tax system constrains people who do not have money and access to physical stores and diminishes us all.

Happy New Year!

 

 

Posted in administration, Amazon, Boxing Day, Closure, Competition, Consumer Change, Customer Service, Government, High Streets, HMV, Internet shopping, Local Retailers, Online Retailing, Rates, Record stores, Retail Change, Retail Failure, Tax, Technology, Timpsons, Town Centres, Uncategorized | Tagged , , , , , , , , , , , , , , , , , | Leave a comment

Some thoughts on the ASOS profit warning

The ASOS news this week was to many something of a surprise, but in reality it really shouldn’t be.  A profit warning on Monday wiped almost 40% off its share price and impacted other retailers as well.  Many of these were those with internet exposure, including Next as well as specialist internet retailers.

A number of elements of the story and its impact struck me as interesting and worthy of some further comment (see The Guardian, The Times and the BBC amongst others for a flavour of the coverage).

From the High Street to the Internet

A common refrain was surprise that the woes on the high street had now extended to internet retailers.  I really don’t see how this should be a surprise – many (and I’ll include myself in this) have been repeating ad nauseum that labelling recent retail trading and performance as only a high street crisis is wrong.  As Mike Ashley pointed out last week, retail as a whole is in trouble and the high street is simply an extreme example. Internet retailers have been opening and closing for years; ASOS is simply one that has been able to grow sales almost continuously so far.

From 8% to 4% to 2% to ?

ASOS are a big retailer; they sell lots of stuff, some £2bn plus last year.  And the profit warning simply reflected sales growth being cut to 15% this year.  But ASOS has been here before a few years ago.  Margin had to be halved to build infrastructure.  Now margin is being halved to fight the competition.  But 2% on £2bn sales is not going to create a sustainable business.  This is the business model coming home to roost.  They will not be alone in profit problems in the internet space.

Blame Black Friday?

Black Friday began as a day sale to kick start the Christmas period over which retailers made most of their money.  Some headline bargains to get people interested and ‘in the mood’.  But that was then.  Now Black Friday seems like a month long lingering self-sacrifice of margin.  ASOS seemed surprised that 20% discounts was not enough to compete and so had to give away even more margin.  This desperate race to the bottom has eaten the profitability of many retailers and in some cases the entire Christmas period. Consumers have got wise to retailers and have learnt the lesson that full price is not necessarily the final price.

Consumers have Changed

Ten years of austerity, squeezed incomes, a general boredom with buying stuff, worries about Brexit and altered patterns of behaviour have shaken up the market and forced retailers to think again about what gets consumers’ buying.  There are plenty of good retail stories around and it is not all doom and gloom.  Those retailers who are succeeding are focused on consumer demands and providing excellent products and services at prices and values consumers want.  Those that can’t work this out are suffering. But retailers have to work this out and make a sufficient margin; tough when others are willing to beat you to the bottom for short term gain.

Makes one wonder what ASOS would be like if taxation of online retailers was brought in to “level the playing field” or to get out of the business rates problem?

 

Posted in Asos, Black Friday, Brexit, Christmas, Competition, Consumer Change, Customer Service, Internet, Internet shopping, Online Retailing, Profits, Rates, Retail Change, Retailing, Tax, Uncategorized | Tagged , , , , , , , , , , , , , | 4 Comments

Dead or Alive?

A few weeks ago I was reading an interview in the Guardian and the interviewee, the writer Barbara Kingsolver, said about the Great Barrier Reef:

“You’re hearing about everything that dies, you’re not hearing about everything that’s still alive.  If you think it’s dead already then you’re not going to be bothered.  I almost think people gravitate towards “It’s too late” because they then don’t have to put themselves out.  Only if you love something will you inconvenience yourself to work on its behalf”.

I think it is a great quote and on reading it thought immediately about our work on towns (and to a degree on high streets).  As we have debated here before, the narrative about the high street in the media is almost universally negative, mainly around the metaphor of ‘death’.  The blame is attributed often to the rise of online shopping and its seemingly inevitable grab of market share.

Yes, this is happening.  But even if current growth rates continue, 80% of retail sales will be through physical stores in 2025.  Yes, out-of-town retailing is a presence and we have too many shops in the wrong places.  But some high streets are thriving and new businesses are springing up and testing the ground.  Some of these are previously online only businesses. Quite a lot of them are local businesses.

If you only hear bad news, you believe the retail world has caved in.  And you won’t be bothered to do anything.

What though can you do?  Every time you shop online you should ask, could I make this sale locally, through a “real” store and with a “real” person?  Could this be an independent store with the spend kept in the local area?  If you shop online for convenience then ask yourself do I actually need that product now, this instant, or even tomorrow?  Why has speed become the single vital factor in shopping?

But more than that, you can ask whether the online and the multiple mundane provides what you are looking for?  I love towns and places and markets – and yes I do despair at the state of some of them – and find they provide novelty, difference, exploration and experiences (I write this seated in Grainger Market in Newcastle and having bought great local bread and cheese, as an example of difference and experience).  They are worth valuing and I am inconveniencing myself in working to make them better places, through our Scotland’s Towns Partnership activities. It is a tough road and will take time. Some places may prove stubbornly intractable. But there are real signs of community led local regeneration and a re-localization and development of towns.

We must change the narrative if we want vibrant social and economic spaces.  Show you care by your actions and don’t succumb to the over-stated negative. it is not too late.

Posted in Community, Consumers, Local Retailers, Localisation, Regeneration, Reinvention, Scotland's Town and High Streets, Small Shops, Small Towns, Town Centres, Towns, Uncategorized | Tagged , , , , , , , , | 5 Comments

“Destination High Street – Restoring Vibrancy to Scotland’s Towns”

destination_high_street_better_image_500x875

The invitation from the Architectural Heritage Society of Scotland (AHSS) and the Scottish Civic Trust was to present a keynote address to their conference on ‘Destination High Street’.  As both Professor of Retail Studies and Chair, Scotland’s Towns Partnership I was asked to speak on ‘Thinking the Unthinkable ……’.

Well, the day has come; on Wednesday (7th November) I will attempt to do justice to the topic.  The programme for the day can be found here and the slides that I hope to be able to use can be downloaded here, as is my customary practice.  But, rather than simply providing the slides on this blog, I thought that this time I would add a few words about the themes of my presentation.  These are reflections in many ways of some conversations over recent years and the mis-understandings I perceive.

What follows below is thus not a write-through of the presentation, but instead selected topics I intend to cover.

Boiling the Frog: the metaphor of boiling the frog (gradual changes kill you as you don’t notice them) seems rather apt for town centres/high streets.  We have spent the best part of 60+ years decentralising and destroying towns and we are now at the point where the cumulative effect can appear to be terminal.  Reversing this will not be an overnight operation.

The Wrong Question: if your question is about saving the high street, then you’re asking the wrong question.  High Streets are reflections of towns and it is towns that are in crisis, not just high street retail. We need to save our towns and the high streets will survive as a consequence.

A Retail Revolution: retailing is suffering across the country (in-town and out-of-town) as the over-expansion of the last 40 years collides with the technology and consumer changes.  Throw in biased and unfair cost structures and taxation regimes and we should not be surprised at where we are and what is happening.  This revolution has a long way to go, whatever sticking plasters are applied to high streets via however many budgets.

The Wrong Narrative: But not all places or retailers are dying.  Some are positively thriving as they adjust to the new realities.  Too often the media sing the siren song of death, but the reality is nowhere as negative.  Physical retail has its place for consumers and some physical retailers are doing well.  There are success stories and we need to shout about and learn from them.

Towns and Places Matter: Towns are a defining feature of Scotland and our communities.  We have to make them positive choices and embrace this adaptation and community, thinking beyond retail to living, working and playing in our towns and places.  Community focus, especially in smaller towns will be a vital emphasis.

‘Thinking the Unthinkable….’ has a number of possible connotations and implications.  It is unthinkable we have let things get to this position.  It is unthinkable our current tax approach dates in the main from the late 1500s.  Our nostalgia or inertia holds us back in many ways.  But what changes could we make that are currently unthinkable?  Some thoughts to frame a discussion:

  • Retailing is a consequence not a pre-requisite for a town – treat it as such
  • Products go to people not the other way round – what are the implications of this?
  • Environment in the broadest sense (including heritage) is fundamental to place identity
  • Rates need to be phased down and digital taxes phased up (and a balance of taxes is needed within and across retailing and between retailing and other sectors)
  • VAT needs reformation for town centres and redevelopments
  • Local independent businesses should get preferential treatment
  • Places have to build belonging and stories and become places of interaction first not transaction
  • Technology has to be embraced and not seen as the opposition.

It is not really that unthinkable; the unthinkable is that we would sit idly by and let our towns and communities suffer.

 

Posted in Architecture, BIDS, Buildings, Community, Community Development, Consumer Change, Consumer Lifestyle, Creative Places, Design, Development Trusts, Environmental Quality, Government, High Streets, Historic Shops, Internet shopping, Local Retailers, Online Retailing, Places, Public Realm, Rates, Retail Change, Scotland's Town and High Streets, Scotland's Towns Partnership, Small Towns, Social Inequality, Streets, Streetscapes, Tax, Town Centre Action Plan, Town Centre Living, Town Centre Review, Town Centres, Towns, Understanding Scottish Places, Urban | Tagged , , , , , , , , , , , , , , , | Leave a comment