Tag: retail

ABC Nightlife February 2013

For February’s ABC Nightlife segment Tony Delroy and I are looking at software prices, the new breed of smartphones for seniors and the future of the telco industry

Paul Wallbank joins Tony Delroy on ABC Nightife across Australia to discuss how technology affects your business and life. For February 2013 we’ll be looking at the software rip-off, smartphones for seniors and Telstra’s roadmap for the mobile economy.

The show will be available on all ABC Local stations and streamed online through the Nightlife website.

Some of the topics we’ll discuss include the following;

We’d love to hear your views so join the conversation with your on-air questions, ideas or comments; phone in on the night on 1300 800 222 within Australia or +61 2 8333 1000 from outside Australia.

Tune in on your local ABC radio station or listen online at www.abc.net.au/nightlife.

You can SMS Nightlife’s talkback on 19922702, or through twitter to @paulwallbank using the #abcnightlife hashtag or visit the Nightlife Facebook page.

Who will build the next Barnes and Noble?

The rise and fall of US bookseller Barnes & Noble shows describes the changes in our society and the urge to join online and real world communities.

As US bookseller Barnes and Noble shrinks its store network, Mark Athitakis has a tribute to the once ubiquitous chain in The New Republic.

Barnes and Noble was never popular among US independent booksellers because of the perception, probably true, that the chain drove locally owned stores out of business.

What it offered though was a safe, comfortable place for booklovers to gather in suburban shopping malls. As Mark points out, it created a community.

Its stores were designed to keep people parked for a while, for children’s story time, for coffee klatches, for sitting around and browsing. That was a business decision—more time spent in the store, more money spent when you left it—but it had a cultural effect. It brought literary culture to pockets of the country that lacked them.

In recent years that community moved to coffee shops, in the United States B&N’s role was taken by Starbucks, at the same time our reading habits changed and the business of selling books and magazines became tougher.

Now that community is changing again, as the online societies like blogs, Facebook and Twitter become important, the coffee shops have responded with free wi-fi which is a perfect example of how the online and offline world come together.

That need to create communities, either physically or online, is a driving human urge.

Online that role is being catered to with social media platforms and sites like food, mommy or tech blogs where like minded people can gather.

Down at the mall, Barnes and Noble catered for that need in the 1980s and Starbucks in the 1990s. What will follow them may be the next big success in the retail or hospitality industry.

Image courtesy of Brenda76 on SXC

Fiddling the prices

Has the Internet’s promise of transparency failed as online retailers vary prices.

Discriminatory pricing is nothing new, a good salesperson or market stallholder can quickly sum up a punter’s ability or willingness to pay and offer the price which will get a sale.

Anybody who’s travelled in countries like Thailand or China is used to Gwailos and Farang prices being substantially higher even for official charges like entrance fees to national parks and museums.

The Internet takes the opportunity for discriminatory pricing even further arming online stores armed with a huge amount of customer information which allows them to set prices according to what the algorithm thinks will be the best deal for the seller.

Recently researchers found that the Orbitz website would offer cheaper deals for people searching for fares on mobile phones and prices would vary depending of which brand of smartphone people would use.

Writers for the Wall Street Journal did an experiment with buying staplers and found the same thing.

Interestingly, one of the factors Staples’ seems to take into account is the distance customers live from a competitors’s store – the closer you live to the competition, the lower the price offered.

There’s also other factors at play; sometimes you don’t want a customer, or you don’t want to sell a particular product and it’s easy to guess the formulas used by Staples and other big retailers do the same thing.

One of the great promises of the internet was that customers’ access to information would usher in a new era of transparency. In this case it seems the opposite is happening.

What would you do if the computer screen went dark?

Warrnambool’s phone problems remind businesses of the importance of continuity planning

What would you do if the computer went dark? originally appeared in Smart Company on November 29, 2012.

One of the truisms of business is the more ways customers can pay; the more likely you are to make the sale.

This is particularly true when something goes wrong – the customer hasn’t any cash, the till is jammed or the EFTPOS system is down.

Exactly this happened to thousands of businesses across south-west Victoria last week when a fire burned down the Warrnambool telephone exchange.

Unfortunately for the people and businesses of the surrounding region, much of the telephone, internet and Telstra’s mobile network runs through the burned out telephone exchange, sending the district back into the pre-telephone days.

This presented real problems as customers couldn’t use EFTPOS or get cash out of ATMs, while businesses struggled to get payrolls done or place orders with suppliers who couldn’t comprehend that it wasn’t possible to place orders over the net or by fax.

A hundred kilometres north of Warrnambool in the Grampians town of Dunkeld, a cafe worker told the ABC, “suppliers say ‘send a fax’ and you’re like ‘we can’t’ and they’re like ‘oh, we don’t want to handwrite it’.”

Those suppliers are a good example of not having the systems or staff in place to deal with ‘out of the box’ situations.

Unexpected events like the phone network being down for a week, major floods, devastating bushfires or zombie invasions will test businesses and it’s why having a real Business Continuity Plan (BCP) is important for business.

A workable BCP is one that identifies all the critical failure points for the business such as not having the internet for a week, a flooded office or, as happened to one of my clients, their entire building collapsing into the construction site next door.

The various state business agencies have guides on what to consider in a Business Continuity Plan including a good one from the South Australian government.

Regardless of how comprehensive a plan your business has, the most important part is going to be your people. If your organisation is staffed or managed by people who like to say “computer says no,” then they are going to be particularly useless when the computer is stone dead.

As the Warrnambool outage shows, unexpected business disruptions can come from anywhere, so flexible thinking and initiative is what matters in a crisis. It’s something worth thinking about with your staff and systems.

Ominious days for the omni-channel

The omni-channel retail buzzword bites the dust, and a good thing too.

At the beginning of the year we heard much about Omni Channel strategies as it dawned on retailers like Harvey Norman, David Jones and Myer that this Internet thingummy they’d heard about wasn’t going away.

When asked at the time what a ‘omni channel’ strategy was, Gerry Harvey admitted he’d had no idea what it was a week before it was announced while Myer CEO Bernie Brooks said late last years it was something about having electronic kiosks and free delivery.

So it was interesting to hear the CEO of US cloud computing service Netsuite, Zack Nelson, talk about his company’s ‘omni channel strategy’ this week at a lunch in Sydney.

On being asked what exactly Netsuite’s omni channel strategy was Zack let the cat out of the bag about the holy grail of the omni channel.

“There are so many channels, there are no channels,” said Zack. “Omni-channel was the only word we could find.”

So we can safely put the omni-channel myth to rest – the idea businesses can focus on one, two or three channels such as bricks and mortar, the web, iPhone apps or tablet computers was always flawed and risked locking companies into one or two technology platforms at a time when things are changing quickly and in unexpected ways.

Netsuite’s response is to adopt ‘responsive design’ principles where sites adapt to the device being used rather than spend lots of money building apps for devices that might be redundant in the near future.

This is true of business in general – we often forget the core role of our businesses, like the retailer’s mission is to get goods into the hands of eager consumers and TV stations or newspapers are ways of delivering advertising. Instead we fixate on the type of delivery vans we use, the background colour of our websites or which apps we are going to develop.

For retailers there’s a far more fundamental problem which Micheal Hills of CoCo Republic described at the same lunch, “people boast about buying designer labels online at discount prices but still want to go to bricks and mortar stores.”

That paradox is the sort of problem many businesses have to deal with which aren’t going to fixed by trendy buzzwords.

In Netsuite’s defense their use of the word ‘omni-channel’ is about offering multiple currencies and languages in the one package rather than selling to customers on different platforms. They aren’t using it as a cover for failing to notice their markets have changed in the last decade.

The main change in the market place is the good old fashion imperative of getting back to the basics of service and delivering value for money. The days of making money from finance packages or vendor rebates instead of looking after the customer are over.
Some managers are yet to understand this and their companies won’t have the luxury of indulging in buzzwords over the next decade.

Squandering a reprieve

How did media companies miss the opportunities of the tech wreck?

ABC Radio National’s Background Briefing has a terrific story on the struggles of the Fairfax newspaper empire during the early days of the Internet.

One of the major themes that jumps out is how Fairfax, like many media and retail organisations, squandered the opportunity presented by the tech wreck.

The tech wreck was an opportunity for incumbents to claim their spaces in the online world, instead they saw the failure of many of the dot com boom’s over-hyped online businesses as vindication of their view the Internet was all hype.

As former Sydney Morning Herald editor Peter Fray said “In florid moments you could even think this internet webby thing would go away”.

For Fairfax the profits from the traditional print based business were compelling. According to Greg Hywood the current CEO, for every dollar earned by the company, 70c were profits – a profit margin of 233%.

The Internet threatened those “rivers of gold” and media companies, understandably, did nothing to jeopardise those returns.

Another problem for Fairfax was the massive investment in digital printing presses in the 1990s. These behemoths revolutionised the way newspapers were printed as pages could be laid out on computer screens and sent directly from the newsroom to the press itself which printed out pages in glorious colour rather than with smudgy black and white images.

Moreover these machines were fantastic for printing glossy coloured supplements and the advertising revenue from those high end inserts kept the dollars rolling in.

When the tech wreck happened, the massive investments in printing presses were vindicated as the rivers of gold continued to flow while the smart Internet kids went broke.

Fairfax’s management weren’t alone in this hubris – most media companies around the world made the same missteps while retail companies continued to build stores catering for the last echos of the 20th Century consumer boom.

In 2008, the hubris caught up with the retailers and newspapers. As the great credit boom came to an end, the wheels fell off the established business models and the cost of not experimenting with online models is costing them dearly.

Value still lies in those mastheads though as more people are reading Fairfax’s publications than ever before.

Readers still want to read these publications, one loyal reader is quoted in the story that Sydney Morning Herald should aspire to “being a serious international paper.”

That isn’t going to happen while management is focused on cutting costs to their core business instead of focusing on new revenue streams.

Somebody will find that model, had the incumbent retail and media organisations explored and invested in online businesses a decade ago they may well have found that secret sauce.

Now many of them won’t survive with their horse and buggy ways of doing business.

The real e-myth

The Internet is not killing retail, it’s lousy service, poor pricing and 1980s management that digging the incumbents’ graves.

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.

 

Goodbye to the electronics store

As the economy and society change, the era of the big box retail store is coming to an end.

“Can Electronics Stores Survive?” asks the Wall Street Journal.

The future doesn’t look good with the liquidation of Circuit City in the United States and the exit of Australian giant Harvey Norman from the electronics markets.

Yet Apple Stores are growing and while it’s tempting to dismiss their sales training as brainwashing the truth is their staff are among the most profitable retail employees on the planet.

The real problem is the Big Box category killer store featuring wide product lines but poorly trained staff motivated only by commissions is a business model whose time has passed.

Customers can now go online, research website that are far more informative and honest than the staff at the megastore then get the appliance delivered and often installed for less than the shelf price at the mall.

The earliest industry this has affected is the computer sector – long ago companies like Dell and Gateway changed how people shopped for PCs.

Given the economics, it’s surprising the low margin big box stores survived as long as they could and the main reason they did was because appliances were an ideal channel for pushing profitable finance plans and extended warranties.

Often the store and sales assistant made more money out of the “interest free 72 months” deal, the three year warranty and the connector cables than they did from selling a top end laptop or plasma TV.

Now the easy credit era is over, those add-ons aren’t so profitable and with Amazon leading an army of e-commerce retailers changing customer expectations, those businesses locked into Big Box, easy credit way of doing things have to rethink how and what they are selling.

Harvey Norman’s founder Gerry Harvey said recently that people would still buy big items from his store. The reality is they are moving across to sites like Winning Appliances where they can choose the items, have them delivered installed and the old appliance taken off, a godsend when you’re dealing with a 50Kg washing machine or fridge.

Apple’s success shows retail does have a future. It just doesn’t lie in the low service, Big Box model that grew out of the easy credit and cheap energy economy of the late twentieth Century.

Empathy and the genius salesman

Apple’s Genius training manual shows the importance of empathy and investing in staff.

One of Apple’s great successes has been in delivering services through its stores. Tech site Gizmodo managed to get a peak at Apple’s training manual for their in-store ‘Genius’ technicians.

A word that keeps popping up in the manual is ’empathy’ – as Gizmodo says;

The term “empathy” is repeated ad nauseum in the Genius manual. It is the salesman sine qua non at the Apple Store, encouraging Geniuses to “walk a mile in someone else’s shoes,”

While the Gizmodo writers and many of the site’s readers seem surprised or cynical about this, it’s not surprising for anyone who’s worked in sales or tech support, and the Apple Store Geniuses are doing both.

Empathizing with the customer or caller gives them confidence and builds trust. For someone in sales, listening and emphasizing is how one finds out what the customer really want. On the support desk, putting yourself in the customer’s position makes it easier to diagnose the problem.

That empathy a real return on investment – US Apple Stores earn 17 times more per square foot than the average retail store. The next most profitable retailer is Tiffany & Co who only boast have the revenue.

What Apple again show is that training matters. Every surly computer store assistant, every grumpy flight attendant or bored call centre worker can, with the right training and incentives, be just as effective as an Apple Store genius.

Sadly too many businesses, particularly retailers, see training as a cost and their employees as naughty children. Those businesses have a serious problem.

Without empathy – the ability to put yourself in your customers’ shoes – your business is working with a distinct disadvantage.

Undoing the untrained workforce

The era of skimping on staff training is over

One of the notable things about the 1980s way of doing business was how front line workers weren’t valued for their skills and knowledge.

In call centres, shopping malls and government departments, those who dealt with customers were seen as an unnecessary expense who should be outsourced at the first opportunity or, if it wasn’t possible to hive them off, then encourage them to get more money out of the customer while providing less service.

An example of this was at electronic superstores where sales staff with little product knowledge were given rudimentary training and then encouraged to sell easy payment plans and expensive acccessories – the HDMI cable scam where connectors of dubious quality earned more profit and commission than the HiFi systems or plasma TVs they plugged into illustrated how lousy a deal this way of doing business for the customer.

Much of that mentality has been inherited by web2.0 companies that think customer service is an optional extra.

Some of those companies can’t even be bothered protecting their clients’ data properly, such is their unwillingness to provide service.

The stack ’em high, sell ’em cheap self service culture of the 1950s and 60s reached its limits in the 1980s and was only given a reprieve by the easy credit boom of the 1990s. With the end of the credit boom, electronic or household goods stores that simply sell cheap tat on interest free terms at a fat mark up without adding value now struggle.

Gerry Harvey is getting out of electronics partly for this reason – his business model is dead and it’s been difficult for a decade to make the fat profits on consumer computers or electricals without hooking the customers with interest free deals or expensive and pointless accessories or software.

One of the conceits of management through the last part of the Twentieth Century was the mantra “our greatest asset are our people”, today business have to start valuing the skills, knowledge and corporate memory of their workforces.

Tracking the end of the consumer society

One statistic illustrates how economies are changing

I’m currently researching a presentation about the retail industry.

One of the things that leaps out when researching consumer behaviour is the savings rate.

For twenty-five years from the early 1980s to mid 2000s, the savings rate collapsed in Western economies; below are the US and Australian rates.

The US Personal savings rate shows the rise of consumerism
US Savings rates 1950 to 2020 – St Louis Federal Reserve
How did the Australian savings rate fall during the consumer boom
Australian Savings Rates 1980 to 2012 – Reserve Bank of Australia

 

The graphs show the same thing; households spent their savings over the 25 years which drove the consumer economy. It’s no accident that period was a good time to be a retailer.

Being on a deadline, I don’t have time to analyse these number further right now, but one thing is clear; most of the consumer boom from the Reagan Years onwards – or the equivalent from Maggie Thatcher or Paul Keating – was driven by households reducing their savings.

That couldn’t last and didn’t. Businesses and governments that are basing their decisions on what worked through the 1980s and 90s are going to struggle in the next decade.

Looking at these figures raises another suspicion – that graphs showing non-real estate investment by businesses and government would show similar declines over the 1980-2005 period.

It might be that golden period of what appeared to economic success was just us living off society’s collective savings.

Playing with Dragons

We should be careful how we treat our customers.

Chinese manufacturing has been in the news recently with various exposes of factory conditions by the New York Times, the now discredited Mike Daisey and a fascinating look at US store chain Wal-Mart’s supply chain by Mother Jones’ Andy Kroll.

In his examination of Wal-Mart’s Chinese suppliers Andy Kroll interviews factory owners and managers with a common theme, they are all loath to be identified for fear of incurring Wal-Mart’s wrath.

This is wall of silence is familiar in Australia; the reluctance of local suppliers to speak about the conduct of the Coles’ and Woolworths’ policies has hobbled enquiries into the domestic retail market.

Another aspect Chinese and Australian have in common is how the retailers drive down costs with big buyers insist upon regular price reductions from their suppliers.

This is what happens when your business is a price taker that relies on one or two suppliers; you accept what you’re offered or lose a large chunk of your business.

With many of Australia’s industry sectors now dominated by one or two incumbents, this way of doing business is now the norm rather than the exception.

As a nation Australia’s finding itself in that position as well. Now our governments and business leaders have decided Australia will only dig stuff up with a few favoured, uncompetitive industries like car manufacturing being being protected, the entire country is in a position not dissimilar to a Foshan coat hanger manufacturer.

Having that dependency on one or two major customers is a risk and when the commodities boom turns to bust – commodities booms always do – our relationships with these customers will be tested.

When that test comes, the clumsy way the Federal government has banned Chinese companies from tendering to the National Broadband Network or blocked investment in mining projects may turn out to be mistakes.

This is the problem with being a price taker selling a commodity product, you become hostage to fortune and when the market turns against you there isn’t a great deal you can do.

In the early 2000s computer manufacturers like Dell and HP decided to sell commodity products then watched with despair as Apple captured the premium, high margin end of the market. Neither business has truly recovered.

Being trapped at the commodity end of a market is not a comfortable place to be, particularly if you don’t have a plan to move up the value chain.

If your business is currently selling low margin, commodity goods then it’s worthwhile considering what Plan B is should the market turn against you. You might also remember to be nice to your customers

At least you’ll show you have more forethought than our leaders in Canberra who seem to like to play with dragons without thinking through the consequences.