Describing colours is not a black and white issue

There is no doubt that we are in politically correct times so it was all the more surprising that I came across a rather strangely named colour. It was listed on a box that had contained a headboard, which I had found lying on the dirty streets of north London.

Anyone for a Gringo Brown headboard?

Gringo Brown strikes me as rather a strange name and not necessarily one that would be thought up today by the overpaid colour specialists. It sounds rather like a throwback to times gone by. In the times when Robertson's used a certain doll on its jars of jam and on its advertising campaigns. 

What makes it even weirder is how it has been applied to a design named Vienna. We all know a little about Austrian history that suggests this is a rather inflammatory combination.

So much so in fact that I just can't see the likes of B&Q or Homebase or Dreams for that matter flogging such an item. Or maybe they do? I'd certainly be fascinated to know where this particular product was purchased.

For the last time, luxury really does sell online

The debate over whether luxury goods can be sold online has raged for years and probably bored many people en route. Thankfully we are close to a conclusion on this subject because increasing amounts of hard evidence suggests consumers will buy pretty much anything online - from cheap tat to ultra-expensive baubles.

Devil of a time getting Prada online

Item of evidence 1.
At a Barclays sponsored event recently Mark Newton-Jones, chief executive of Shop Direct Group, revealed that research had shown serious growth in customer confidence when shopping online. In 2009 as many as 25% of consumers stated a willingness to make a £1,000 transaction online, compared with only 12% in 2007, and this figure is growing.

Item of evidence 2.
For the biggest spenders online, their propensity to shop across this channel is increasingly driven by convenience. This highlights a move away from price being the key driver of online sales. The internet is no longer the place consumers go just to bag the cheapest deal. Some people still do, but the majority of shoppers are now buying online because it's the most convenient channel for them and they'll spend big amounts.

Item of evidence 3.
The undisputed success of pure-play internet ventures in the broader field of luxury and fashion, such as Net-a-Porter, Asos and Yoox, which have shown that there is serious money to be made online in this category.

What exactly is for sale here?

And the beauty of the online channel is that it works for luxury brands of all sizes. The smaller brands can enjoy massively reduced fixed costs by using online as their distribution and communication channel. According to broker Bernstein Research, the retail rental costs and the bill for media advertising amount to more than 25% of revenues for the typical luxury goods brand. Going online reduces this percentage significantly.

As for the larger mega-brands, they can use the internet for broadening their appeal to shoppers who are outside their core customer base and might well be intimidated by the glitzy oppressive flagship stores of the big name luxury brands.

So if we are to believe this strong body of evidence, the big question is what exactly is the online market worth for luxury goods online? Our friends at Bernstein have helpfully calculated that it could account for around 5% of the total luxury market in the EU and US, which would equate to a chunky £4.4 billion.

This looks like a pretty decent reason for luxury goods brands of all persuasions finally getting their acts together and joining the online party.

Is Ocado's £1bn valuation laughable?

The seemingly never-ending run up to flotation for online grocery retailer Ocado was knocked off course slightly this week with the publication of a critical report from broker Bernstein Research.

At Retailinsider.com we have long reckoned the £1 billion valuation that has been mooted in the press has sounded a tad too rich. This has, admittedly, been based on nothing more scientific than Ocado simply doesn't make any money.

Ocado top brass: worth £1billon of hard-earned silver?

But now we have Bernstein Research raising the same question through some much more valid criteria. Its research note certainly casts some doubt on the justification of pinning a £1 billion price tag on Ocado.

The core difference between Ocado and the home delivery propositions of the major grocers is its centralised distribution as opposed to their store-picking models. This suggests high fixed costs but the upside is that incremental sales should add a decent margin contribution. The only problem is that this doesn't seem to be the case at Ocado.

Bernstein's report states that the firm appears to currently have £40 million of fixed costs but while it has continued to attract new customers this extra revenue has not added much to the profitability of the business. Incremental revenue attracted just a 10% contribution margin in 2009. Its cost structure seems to have largely scaled with revenue increases.

Ocado looking to deliver £1 billion to its investors

This doesn't sound too good to me. Adding to the worries for potential particpants in its IPO is the fact that Ocado has only managed to generate modest growth in average basket size, which would add greatly to its profitability since the company is already bearing the cost of delivering the product. Why is this the case I wonder?

The conclusion of the Bernstein research is that Ocado only becomes a real threat to the major grocers once it enjoys superior economics to its rivals as it can then reinvest any surplus profits in gaining market share. But the way it stands, the broker calculates that Ocado is a long way from achieving this.

It states that in order to hit a 14% contribution margin on incremental sales (just like Tesco) Ocado needs to achieve £1 billion in revenues. And to deliver the same return on capital (ROCE) enjoyed by Tesco it would need to reach sales of £700 million.

With annual sales running at just £402 million in 2009 these chunky revenue figures are probably some years away, which suggests we've been right all along in our belief that the £1 billion IPO valuation is simply too much and investors will balk at this number when Ocado finally reaches the end of the flotation runway.

Discounters proved to be great disappointment

If Tesco had known just how badly the discounters would ultimately handle their post-recession come-down I don't think they'd have worried so much about them during the downturn and even bothered launching their Discounter Brands range.

The latest evidence to emerge of their continued weak performance comes from grocery experts IGD that found the main three Aldi, Netto and Lidl have all massively under-delivered on planned new store openings. The biggest failure was at Aldi that had bragged during its peak trading in 2008 that it would open a store each week. Actual result is 15 opened in 2009.

Thankfully not all Aldi stores are quite this depressing

Netto sensibly promised nothing so its opening of six new stores in 2009 could be described as a positive result. But it is still disappointing compared with the 13 it opened in 2008. And Lidl stated its intention to open up to 50 outlets but it could manage only 30 last year.

The discounters have failed to pick up new units because of the inflexibility of their property departments that have very fixed ideas of what to acquire. In contrast, the large UK grocers have proven very adept at picking up a variety of different sized units in diverse locations, thereby running rings around their cheap-priced rivals.

The deterioration in store openings at the discounters is modest compared with the drop-off in sales that has seen all three disappoint since their high points in 2008 when Terry Leahy, CEO of Tesco, rather presciently suggested they were simply enjoying their "moment in the sun" (reported in The Times, 11 June 2008)

Sir Terry Leahy:  Enjoying another moment in the sun

That moment in the sun swiftly passed and all three discounters went on to boot out their managing directors in varying circumstances. This suggested that even when the sun was shining on their backs they had mis-managed the opportunity. Now that there are much fewer opportunities for them in the UK and shoppers have returned to buying premium products again their prospects look as bleak as the interior of my local lidl store.

Disclosure: I still buy my daughter ice cream from my local Lidl store despite its interior.

Supermarket shares sweep the floor

Scanning my Financial Times the other morning I couldn't help notice that it was a full house for the quoted supermarkets, with all their share prices hitting their 12-month lows.

Supermarket shares shrink so much you can no longer read them

Tesco, Sainsbury's and Morrison all hit the deck and were even joined by that semi-supermarket Marks & Spencer that also found itself at its low point for the year. Clearly there is little to shout about in the food retail sector if all the major players are at their yearly lows.

Apart from volcanoes, Greece's collapse and the election, the food industry has also had to contend with Morrison's sales growth slowing for the first time in a number of years. This took the wind out of the sector's sales, which was not helped by the announced departure of Asda chief executive Andy Bond. He relinquished his job amicably but the backdrop was of continued falling sales at the company.

Andy Bond: Putting the Asda ceo job behind him

Any hopes that the always-ebulllient Justin King, chief executive of Sainsbury's, can lift the sector from its gloom on Thursday when the group releases its results for the year to March look to be unlikely. The group is not expected to update the market with more recent trading as its like-for-like numbers are believed to be disappointing.

Justin King: Not seeing double-digit like-for-like growth

Which leaves Tesco as the only bright star. It recently dished up numbers that showed it has regained some of its lost momentum, which will undoubtedly have led to some of the difficulties currently being experienced by its rivals, but the lack of food price inflation in the market has affected its performance. And there are still accusations that it has bought much of its sales growth through Clubcard discounts that have affected margins.

All in all it's a pretty depressing time for the supermarkets. And to add to its woes, the majority of the top jobs in the industry are held by newcomers who will need to get their feet under the table before making any strategic changes. Morrison's chief exec has been in the job 10 minutes, M&S' ceo for a mere 5 minutes, and Asda's new ceo has not even started yet.

More games to come it would seem, and hopefully a bit more fun too.