TWb4TW is back. Sorry for the gap, have had a very busy two months (good) plus some health problems with immediate family (not so good) that took up a lot of time. So here we go with some of last week's news.
Is there a nasty side to John Lewis?
Last week John Lewis Partnership (JLP) was accused by the
Forum of Private Business (FPB) of bullying its suppliers when it was revealed
it was demanding a “growth rebate” of up to 5.25% from its suppliers. JLP’s argument is that its exceptional sales
performance is due to its investments in new stores, refurbishments and its
growing e-commerce operations. Therefore
it is only reasonable that suppliers who benefited from increased profits through
efficiencies provided from the increase in volumes should make a contribution
towards the investment that brought this about.
On the face of it this does look as though JLP, who are
often praised by government as a model British business, love their customers
and love their staff, but are just as capable of putting the boot into their
suppliers as any of those nasty supermarket people. I am not going to try to resolve the argument
between JLP and FPB in this article as this is a case of “they would say that
wouldn’t they” on both sides. What it
has made me think about though is the relationship between suppliers and
retailers.
Manufacturers and suppliers of consumer goods have one
fundamental challenge. Their expertise and assets are in developing and
producing the products. However even if
you have invented and can produce the best mousetrap in the world if you do not
have the means to put in front of customers in a way that enables them to buy
it, then you don’t have a business.
Retailers provide the space to stock and display product, the footfall
of customers who might buy the product and the means of making the transaction. If a consumer goods supplier cannot find an
alternative way of doing all this themselves then they have to work with a
retailer, otherwise no sales!
These suppliers need to think hard about what this means for
the balance of power in the relationship.
Apart from a few “must have” products and brands (a costly position to
achieve and often temporary) this generally means the balance of power is
always going to be with the retailer, so don’t be surprised if the retailers
use it.
James Dyson had to face up to this some years ago. Even though he had invented the best vacuum
cleaner on the market, the expectations of customers for household electrical
goods were that prices did not increase and over time they reduced. Dyson’s retailers had to respond to this if
they were to compete and so did Dyson.
This is why he closed his UK
manufacturing facilities (much criticised at the time) and moved to Malaysia to
lower his costs. Because Dyson faced up
to the reality of the market in which they operated and adjusted their business
model to compete effectively they are now a global brand and business and
employ more people in the UK than they did when they manufactured here.
So if you are a JLP supplier and feel they are now showing
their nasty side, which you didn’t see coming, then ask yourself this
question. Would you rather have them as
a customer who, with their “competitive strength” can invest and change to meet
the new challenges in the market or would you rather have been a supplier to
HMV and Jessops whose lack of “competitive strength” meant they couldn’t and didn’t?
Zara – another way
Talking of retailers the world’s largest clothing retailer
is the Spanish company Inditex, best known in the UK for its Zara fashion shops. In spite of the global financial crisis and
economic chaos in Spain
the company’s value has grown from €37bn in 2007 to €65bn now. Profits increased by 22pc in 2012 alone.
Inditex is not only the world’s largest clothing retailer
but also one of the largest clothing designers and manufacturers. The company produces more than half of its
products itself and every item of clothing passes through its Spanish
manufacturing and logistics facilities.
All this started when Inditex’s founder and owner Amancio Ortega opened
a shop in La Coruna
to sell products from his nearby factory.
So it’s another business model but in Inditex‘s case it’s a
fast fashion model, capable of taking a design from catwalk to shopfloor in two
weeks. What’s more if a design does not
sell it can be withdrawn, the lessons learned and then replaced in the same
time frame.
Contrast this with the situation at M&S where the only
change they have made to their clothing business model was to move their
British based supply chain offshore.
M&S are desperate to get their clothing business right but the next
opportunity they will have is not till they launch their Autumn Winter ranges
later this year.
This is not to say that the answer for M&S is to move
into manufacturing. What this and the
Dyson example illustrates is the crucial importance of getting your business
model right, taking full account of all the challenges involved, including the
possibility of your customers demanding retrospective discounts. I so often hear about business ideas and
business plans, but not so often about how a business is supposed to work. Successful businesses have robust business
models and you can see why they work.
Morrisons – why are we waiting!
Another retail struggler is Morrisons who last week reported
sales down by 2.1pc and profits by 7.2pc.
CE Dalton Phillips blamed this on lack of an online business, limited
presence in the fast growing convenience store market and failure to promote
the points of difference. All very well and
“bleedin' obvious” Mr. Phillips but when are you actually going to do something
about it?
He has had a bit of luck with the convenience stores as
other retail failures have enabled Morrisons to acquire 62 sites to expand the
“M Local” stores. On the
points of difference they have hired that irritating Geordie pair Ant and Dec (not all Geordies are irritating, just Ant and Dec) to front an advertising campaign to promote the fact that Morrisons are the
second biggest manufacturer of fresh food.
This has been reported on repeatedly in the business and trade media but
no actual sign of the campaign itself yet.
Morrisons also failed to capitalise on the horse meat scandal, with only
a few press adverts and the odd interview with Mr. Phillips being the sum total
of their efforts.
On the internet he has stated “ we have a specific plan on
the proposition and how we will be different” but no more details as these are
apparently “commercially sensitive”.
This appears to be still stuck somewhere between the idea and the
planning stage.
All this points to a lack of “changeability” in Morrisons’
culture and business processes. This was
evident in spades when they bought Safeway and the integration of the two
businesses took forever. They don’t seem
to have shaken this off and until they do I don’t see them overcoming the
challenges they are creating for themselves.
If Morrisons start demanding rebates from their suppliers before they
have delivered sales growth then this won’t be a sign of smart business, just
one of desperation.
Merve swerves but Heseltine on the money
In an interview last week Mervyn King, the soon to retire
governor of the Bank for England
actually said that economic recovery is now “in sight”. Coming from the biggest misery guts in the
whole economy I take this as the strongest signal yet that we can actually look
forward to better times and that they are not too far off.
However far more significant for me was a radio interview
with Michael Heseltine earlier in the week, as part of the usual “what do think
will/ought to be in the budget” run up to the actual budget. Heseltine replied that “what government, the
public and private sector, in fact everyone in this country has got to realise
is that we have got to do everything much better than we have ever done in the
past”. The big theme for the budget is
“growth” but whether we get anything that is really about growth is another
matter. However I am pleased to find
that Lord Heseltine agrees with me (note agrees with me) that growth is about “getting better” not
about “getting bigger”. Take note
Morrissons, M&S and any of you JLP suppliers feeling hard done by.
Quote of the week
In a party political broadcast last week David Cameron
stated that he had not gone into politics to be “the popular guy”. My first thought was “that explains a lot”
but my second was could this signal a new direction in political
campaigning? After years of politicians
trying and failing to make themselves popular has Cameron spotted a truly left
of field strategy for electoral success?
If so he will have sidestepped Ed Milliband who is desperate to make
himself popular (or even for people to know who he is) and Nick Clegg who
thinks he must be popular because what’s not to like about a fair minded Lib
Dem like him. Perhaps the killer ticket to capture the "unpopular vote" at the next election could be David Cameron and Ed Balls?
So that was some of the week before this week. We hope you found some of the above thought provoking and useful for you and your business. We trust you had a good weekend and hope you have a great week this week.
