Sep 222012
with social media and cloud computing business shouldn't close on the web

The collective gnashing of cavity filled teeth over the demise of the Darrell Lea confectionery chain has given rise to some interesting commentary. If some pundits are to be believed, the lolly maker’s financial woes were due to the evil interwebs allowing Australians to buy choccies from cheap overseas suppliers.

But if you were to cross the road from Darrell Lea’s flagship Sydney shop you’d be outside one of Apple’s iconic stores that are the most profitable retail outlets on the planet – US Apple stores are 17 times more profitable on a per square foot basis than the average American retailer.

So retail can be successful. It just depends upon how it’s done and the internet has little to do with many of the retail failures we’re seeing at the moment.

Darrell Lea being absorbed into the VIP Pet Foods empire has a lot of lessons about retail but they are more about service and the failure to move out of the Twentieth Century, particularly when new competitors like Haigh’s and multinationals like Lindt are entering the marketplace.

Service is an integral part of this story. While the service at Darrell Lea stores wasn’t terrible it also wasn’t particularly notable and neither was the value of many of the products, leaving the customer underwhelmed.

A similar story of poor service is behind the failure of the Allans Billy Hyde chains – the comments on the Smart Company story about the music stores’ collapse indicate how customers found service lacking while the prices and range were ordinary. There was no real reason to shop there.

The business models of Darrell Lea and Allans Billy Hyde are locked into a 1980s way of doing business where one or two chains dominate a segment and attempt to charge duopoly prices while exercising their market power to screw suppliers.

A duopoly model works for Woolworths and Coles simply because of their scale. If you’re a smaller chain selling non-essential, non-perishable goods then customers will either not buy them or find better deals and service offshore.

Staff, of course, are a nuisance – after all they only serve customers and customers don’t matter when you have the market locked up – so staff are treated as a cost to be ruthlessly minimised while being paid the minimum that the well-paid management can get away with.

That contempt for retail staff is exacerbated by management’s reluctance to train them, which locks the stores into a downward service spiral as knowledgeable and experienced shop assistants find a job where their skills are valued.

Despite the scorn poured on Apple’s staff training policies, the core of their retail success is that you will get a passionate, knowledgeable person helping you at one of their stores while their competitors will leave you wandering the aisles unless they think there’s a fat commission to be had.

This contempt for suppliers, staff and customers is the real malaise for Australian retail and it’s an opportunity for smart new entrants into the marketplace.

While many of those new entrants might be online, the ecommerce side has little to do with the fundamental problems of lousy service and overpriced products.

Interestingly, while Darrell Lea had an online strategy, the new owner doesn’t. Any customer visiting the VIP Pet Foods site has no chance of finding where they can buy the products, let alone order them through the website.

While it would be nice to know where you can buy their products, the owners of VIP probably don’t care as their business model is based upon distributing their products to retailers and those stores can do their own advertising.

So retail still matters and the high hopes we had in the late 1990s that ecommerce would drive the middle man out of business was just as wrong-headed as the old-school managements of our dying retailers.


  2 Responses to “The real e-myth”

  1. Australian companies are pathetic when it comes to online presence.

    I am a Chartered Mechanical Engineer and find it almost impossible to get to the web site if a local supplier. They don’t have even a basic web site and rely on third party sites like Yellow Pages, Hot Frog and the like.

    It has reached a point where I have to get data from the US, then carry out the design, pass the details on to my client and tell them to get their US office to order and deliver the equipment here.

    It turns out that we get the equipment delivered on time, and cheaper than we eventually would have hot it from a local agent.

    One supplier actually told my client not to bother them because what we wanted was only $20,000 and they were chasing orders of at least $1,000,000. Well they lost our business and my client’s global business as well.

    Then we get ripped off on software. Despite our dollar is worth more than the US dollar we have to pay more than double the US price (and I am talking of software costing $5,000 and more.

  2. […] The internet and web are not killing retail, poor service is – Bricks and mortar retailers are making the same mistake as the book and music industries before them – assuming that the competition with online revolves around price. The battlefront is convenience – if you want me to get dressed, travel to your store and walk in, the experience had better be worth it; and the underpaid, inexperienced staff that you treat as an unwelcome cost aren't going to cut it. When you figure out that they are your competitive advantage over online, maybe they'll be better valued and trained. And maybe then you'll be able to compete with online … Share this:LinkedInTwitterFacebookTumblrEmail This entry was posted in News and Admin and tagged change, cognition, commerce, decision-patterns, decisionmaking, digitalfootprint, fear, growth, joy, leadership, newsletter, online, reputation, retail, retailing, service, tactical, trust, vulnerability by Ric. Bookmark the permalink. /* […]

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