The 12 Rip-offs of Christmas - No.1

It’s that time of the year again. When the thoughts of many businesses turn to how they can serve up the same basic offering with a nominal twist, hike up the price, and sell it on as a ‘festive period’ offer. 

Prices rise higher than the scones.

So it is at The Dorchester hotel, famed as all grand London hotels are, for its afternoon tea.

This great tradition normally costs £38.50 per person with a 12.5% service charge. However from November 21 until December 30 it is not possible to book the normal afternoon tea.

You have no choice but to go with the festive version. This includes a compulsory glass of Champagne and retails at a rather more sizeable £50 plus 12.5% service charge - that Retailinsider.com is assured has to be paid.

And make no mistake about it – there is little flexibility with this festive tea. It is not possible for any exceptions to be made in the party - every person sitting at the table must have their own individual tea.

Elderly people with smaller appetites beware! Children over 5-years-old also have to fork out £25 for their portion. So a party of 4 adults sitting down to a plate of sandwiches and cake are going to pay in excess of £225 for the privilege. Anyone’s guess how festive they will feel after that.

  

If you have an example of a similarly outlandish Scrooge-like activity then please let Retailinsider.com know at glynn@busicomm.co.uk and we’ll share that bit of festive spirit.

Observations on Prague - a city of choices

Few people enjoy having restrictions forced upon them and being dictated to about what they can and can't buy. With the advent of the internet there has arguably never been a better time for consumer choice.

Pint of Kipling or something unpronounceable sir?

While  the retail industry largely delivers on the consumer choice quota there are unfortunately still many instances where choice is limited - notably in the pub sector. The UK's tied-pub system and the emergence of the large pub companies in the 1990s has for far too long limited the options of drinkers.

Choice has largely become dictated by the best (i.e. cheapest) deals that these big operators have been able to strike and their volume-based deals ensured all their outlets stocked the same ubiquitious brands. Times are changing and consumers are demanding more choice at a time when the model of the large pub companies is failing (under a mountain of debt).

This is leading to a gradual relaxation of the tie by the pub companies and more freehouses becoming available, which has helped contribute to a renaissance in small brewers.

Which brings me seamlessly onto a recent trip Retailinsider.com made to Prague in the Czech Republic, where a similar scenario is being played out.

Gateway to the magical Pilsner Urquell brewery cellars.

There is an uprising of new breweries who are finding a place for their wares in the city's pubs and restaurants that have for many years had 'exclusive' contracts with the country's larger brewers. These produce key long-established brands such as Pilsner Urquell, Budweiser Budvar and Staropramen.

Among the small-scale brewers who have cropped up are Pivovarsky Dum, Klasterni Pivovar Strahov (housed in a former monastery), and U Medvidku that each produce distinctive beers and are attracting an appreciative audience. Also catering for this trend are an emerging class of specialist bars led by the likes of Zubaty Pes.

It was a dog to find, but worth it.

Such has been the desire for new beers that both Pilsner Urquell and Staropramen are each now being distributed in unfiltered/unpasteurised versions that retain much more of the characteristics of these beers than do the regular versions. Such is the quality of these brews that they are deemed appealing to the growing number of beer drinkers searching out new ales. It is a sign that the big operators are sensibly responding to customer demands.

But it is not only beer where there is choice in the Czech Republic's bars. Unlike most of the rest of Europe, smokers still have the option of lighting up in pubs. What was surprising, however, was how few people (in Prague at least) seemed to be taking up the option during Retailinsider.com's visit.

Not your typical Prague ash tray.

It seems that having inflicted a draconian all-encompassing ban in the UK it might have been the case that for health reasons smoking would by now be losing its appeal anyway and less people would be smoking in pubs today. So it is therefore questionable whether we needed to have imposed a rigid ban in the first place. Choice might have been the best long-term option.

But what completely goes against the grain of choice being the best option is U Fleku. It is the only surviving original independent brewpub in Prague and it only stocks one beer. It's dark lager is the only drink you will see being downed by the thousands of people who flock to this temple of beer. But such is the quality of its famous jet-black lager that there is no obvious reason why it needs to offer alternatives.

The dark lager is a standout, unlike the tables.

It is the ultimate specialist bar and goes to prove that choice is all well and good but you can still get away with offering no alternatives whatsover as long as the one option you do provide is world-beating in quality terms.

Innovative Retailers Part 2 - Only having a Plan A can work

The Name: Marks & Spencer

The Place: Just about everywhere

The Owners: Thousands of people

The Story: Plan A with its famous slogan ‘There is no Plan B’ is a monster of an undertaking. Consumers take on board only a tiny part of it from the in-store billboards but this is a company that is making sustainability actually pay.

Enough said really. 

How much? According to their Plan A has contributed a net benefit of over £70m this year – up from £50m last year.

And we’re paying for all this do-gooding? Not at all. When it was launched Sir Stuart Rose promised that extra costs would not be passed on to consumers. It really does seem that the extreme amount of research and effort they are putting into Plan A is reaping its own rewards.

But it’s driven by customer awareness right? Not true. In fact consumers seem to be very much behind the curve despite various senior people claiming that Plan A ‘is what you (the consumer) want us to do’. Jonathan Porritt who works closely with M&S on all of this says ‘consumers are not queuing outside M&S CEO Marc Bolland's office to demand better performance of Plan A’ so leadership comes from internal strategy.

Director level? Yessir. In fact as part of the annual bonus scheme all directors have individual objectives relating to progress on Plan A. And there are -monthly meetings of the board to ensure the full executive team do their bit too. 

So, what is the basic jist? It launched in 2007 with 100 promises on sustainability and a Soviet-style 5-year plan to achieve it. The Aim was to be the world’s most sustainable retailer by 2015. The five main planks are climate change, waste, sustainable raw materials, health, and being a fair partner.

Not commitment phobic then? More like commitment junkies because this was raised to 180 commitments quite soon after - also with a fruition date of 2015. By 2020 100% of products will have at least one eco or ethical component.

How many products do they have? 36,000.

What other ideas exist on Plan(et) A? Everything from the tiny – M&S fishfingers are now coated in rapeseed oil rather than evil palm oil – to the colossal –it will send no waste to landfill by 2012.

Say that one again? You heard right. This vast organisation will soon send no waste generated in its own stores or warehouses to landfill. Currently the amount sent is 6%.

Is there nothing they can’t do? Well, yes. They haven’t managed to persuade people to eat free range pork so that is being scrapped in favour of merely outdoor bred pork. People generally are buying high welfare over free range which was not the original aim. And they admit struggling with water efficiency and carbon neutrality. But of the 180 pledges they have achieved 95 of them, 77 are on plan, 7 are behind plan and one on biodiesel is on hold.

So the consumer really only has to sit and enjoy feeling ethical. Mmm, not quite. There are a whole load of pledges for us too with starred difficulty ratings ranging from taking responsible holidays, to starting a car pool, to recycling old furniture. There have been two ‘clear out your wardrobe’ days in conjunction with Oxfam where half a million customers donated three million M&S garments in return for a voucher.

And are people joining up? The jury is out so far on whether M&S can have the same affect on consumer behaviour as they can on their own company but some people will be taking part even without realising it. If you live in Somerset or Kent you might have your kerbside recycling part paid for by M&S. It’s a £1.25 deal over 5 years. They then take the plastic and cardboard and turn it into recycling packaging for their own products. Any excess is sold on to other recycling packaging manufacturers.

Where do they come up with these ideas? Quite a few come from the innovation sustainability fund. M&S launched it in 2010 with a budget of £50m to spend over 5 years. it funds large scale research projects on energy efficiency, water consumption etc.

We take our hats off to them. If they can pull this off many will follow.

Guest Slot - City Insider – Dan Coen

Christmas is the final big hurrah of the year for consumers but for an unprecedented number of retailers the festive season this year will not be a celebration. It will be their last quarter before restructuring forces major change upon them and their survival is put in doubt.

Christmas 2011: more funereal than celebratory.

Having just passed the critical September quarterly rental call without any high profile casualties - beyond Alexon - many troubled retailers will now be biding their time in preparation for squeezing as much out of the peak Christmas period as possible before their key stakeholders consider their options.

At the post-Christmas cash-peak many banks, investors and private equity firms will use it as an opportunity to make some tough decisions – from options that will include selling the business, liquidating it, or undertaking a major restructuring exercise.

It is the case that there are now an unprecedented number of retailers in high-stress situations after trouble first began to appear at the June rental call when a spate of failures including Jane Norman, Habitat, Homeform and TJ Hughes hit the headlines. Beyond these, many others (including some well know names) struggled through and negotiated different payment profiles with their landlords to see them through the third quarter.

However, the last three months’ trading has not been the saviour required by these merchants and there has been plenty of navel-gazing as company’s attempted to come up with a solution for paying the September rentals bill.

Desperately seeking a solution for the rentals bill.

This cash call could have prompted the end of the road for many but the allure of Christmas is simply too strong and so decisive action by stakeholders is being delayed until the year-end. Not wishing to be too downbeat about this but many have effectively been given a stay of execution.

Without doubt lenders to retail businesses will have been doing everything in their powers to help their customers raise the funds to overcome the September call because this now leaves them to concentrate on maximising their  Christmas output.

As well as the tough trading environment the big elephant in the room is that 2012 will see one of the largest re-financing periods ever for the retail sector. However, for many bricks and mortar retailers facing structural and operational pressures, there is likely to be little appetite from banks to offer them new facilities and so few of these re-financings will  go through. At best, new facilties will be on very punitive terms.

This will be a further prompt to action being taken immediately after Christmas and before the first quarter’s rental call. Not only are contingency plans being put in place for struggling retailers but there is evidence that even the strongest merchants are looking beyond December 25 at the hurdle rates their businesses face in 2012. They know structural change will happen and they want to ensure they are at the forefront of this.

Even strong retailers can see the future challenge.

These stronger operators are defined by some key characteristics including low fixed property costs and limited leverage with a low debt-to-ebitda ratio. In addition, having an effective multi-channel offering is increasingly representative of strong, innovative retailers that are focusing on customer needs.

While we still have plenty of successful retailers the sad reality is that over the past 20 years there has been a sustained period of strong growth in the retail sector and for too many merchants it has simply been a case of hitching a ride on this runaway (gravy) train.

With the economy having reversed into a likely prolonged low-growth phase it is not surprising that serious problems have arisen for many of these businesses and Christmas will unlikely deliver them the present they most desire.

Dan Coen is business development director at Zolfo Cooper

Movers & Shakers Q&A with Sarah Curran of My-wardrobe

Brought to you by Retailinsider.com and K3 Retail.

Sarah Curran, co-founder of my-wardrobe

1. What is the greatest opportunity for your business?

We see a huge opportunity for my-wardrobe to be a global brand. We have been working on the international expansion of the business over the last three months in two key markets, Australia and the Middle East, where we have already seen significant growth. We have seen Middle East sales for the first six months of 2011 grow by 114 per cent.

2. What is the biggest challenge to your business?

The biggest challenge for the business is actually the growth itself. When I launched my-wardrobe one of the key elements of the business was the customer experience. I wanted to create an exceptional luxury retail experience with almost a sense of a friend-to-friend feel to the brand. I never wanted the my-wardrobe shopper to feel intimidated or feel like they were calling through to a call centre to ask a question about product or a return. Now for me it's about retaining that personal touch and experience as the business grows over the next five to 10 years.

3. With the benefit of hindsight what would you have done differently so far?

I would have invested more in marketing. As a small business, we didn't have the funds to invest heavily in every area, so we made the decision to invest in PR as the primary marketing channel. We believed that we needed to build awareness of the brand, while instilling trust not only in the customer but among the designer brands that we carried and wanted to attract.

4. What is the future of the physical store?

Physical stores will always be a key part of the shopping experience whether its apparel, lifestyle or food. It is part of our culture be it after work or at the weekend. Physical stores will continue to integrate their platforms, so you will be able to buy online and pick up in store and vice versa.

5. What will the high street look like in a decade?

I imagine the key players will have integrated a digital experience into their physical store and the in-store experience will have improved dramatically to create more of a unique visit and experience for the consumer. As more and more shoppers turn to online and their expectations increase, the physical stores will need to pull out all the stops to entice their customers onto the high street.

6. Will mobile devices be the primary sales channel in the future?

We are already seeing a huge increase in traffic and sales numbers from mobile devices. Interestingly when you look at the dwell time, journey and purchase behaviour on a mobile device, versus a tablet, laptop or computer it's very different. Mobile devices are going to become a key channel, but it will form one of many used by the consumer as part of their retail experience.

7. What other retail business do you admire?

I have always admired The White Company and Space NK. Both businesses have been founded by inspirational women, who created such strong brands with clear identities both on and offline. The experience in their stores and online is exceptional.

8. What marks out of 10 do you give yourself so far for achievement?

I would probably give myself a 7, as I'm terribly critical of myself and am always striving for the next thing, whether it's a new innovation, a new designer collection or category to bring on board, or new campaign to launch. We have acheived a huge amount, but I still have huge expectations for the business over the next five years.

I'm incredibly proud of what the team has achieved, so very proud and even when we moved into the new warehouse last month I had to pinch myself to realise what we have achieved in five and a half years.

9. Who would you place in the Top 30 Multi-channel/e-commerce Movers & Shakers?

Nick Robertson, ASOS - As one of the original pioneers of fashion etail, Nick has always inspired me with his dedication to innovation and multi-channel developments. He understands his customer perfectly and every launch is perfectly pitched and executed.

10. If you hadn't been a retailer what would you have liked to do?

I always said that if I didn't have my-wardrobe I would have opened a boutique florist. I love flowers and to be surrounded by beautiful flowers everyday would be wonderful. Creating bouquets or displays for weddings and special occasions to make people happy must be an extremely satisfying job.

Guest Slot – Analysis Insider - Sue Grist

Money-off coupons, vouchers, discount codes, group buying offers, and double and triple loyalty point deals are feeding a frenzy of margin-eating activity that has reached unprecedented, and seriously damaging, levels in the retail industry.

Discounts and offers taking margins downwards.

Offering enticing deals was regarded as a necessary tool in the armouries of merchants to fight back against recession when it first hit. While it undoubtedly did the trick in the early days there has been a gradual increase in the generosity of offers as the market has become ever-more deal driven and promotions have become less effective.

Taking a look recently at the phenomenon that is Martin’s Money Tips it is all too clear that things have become over-heated. Tesco has been offering 50% off certain wines and if that wasn’t enough, savvy shoppers have also been able to use a certain code to receive 250 extra Clubcard loyalty points on the purchase.

The lurch to offers was only supposed to be a short-term solution but the problem is that the current straightened times are proving to be a much more prolonged episode than anybody initially envisaged. This has led to the present situation of deal/coupon saturation.

Retailers are finding it increasingly tough to make an impact in what is a muddied and confused market. Traditional media advertising is short-lived.  We saw the investment by online clothing business Shop Direct Group as they spent millions of pounds on above-the-line advertising to support new brands.

Trapped in a maze of voucher codes.

While that undoubtedly gained it lots of traffic hits to its websites initially, the half-life of such activity is now very short as customers quickly move onto the next (more generous promotional) thing. Both online and offline brand awareness no longer guarantee growth.

The big problem is that while there was some contraction from the initial effects of the recession there were no really obvious examples of retailers facing catastrophic declines in sales. But now, two years down the line things are starting to turn seriously bad. 

The Experian Retail Footfall Index for September suggests a footfall decline of 2.4% from the previous year.  Some of this is due to the unusual weather, but many retailers are reporting that consumers are having a crisis of confidence and we are starting to see worrying profit warnings from unexpected quarters. Mothercare has a long-standing international presence but its profits are being challenged by a near 10% drop in UK like-for-like sales in the last 12 weeks.  

Economic growth rates are forecast to be less than 1% over the next year and when you throw in the potential for further job losses and fuel strikes then the outlook does not look brilliant. Retailers must therefore learn how to trade in a low growth environment and recognise that this could go on for some years.

1: The % rate of growth the economy will be lucky to achieve.

What retailers won’t be able to realistically turn to are more deals and further margin-sapping coupons as it must surely now be accepted that this is a busted-flush. With businesses currently working on their budgets for 2012 the first thing to address is to ensure these budgetary numbers are based on a low-growth backdrop and even tougher demands for the business to reduce costs, pursue sourcing benefits and review their property portfolio.

While there are no cast-iron solutions, what we believe is needed is more of a focus on localisation, a concerted effort to create stronger relationships with customers, and a letting go of some of the complexity that is now dogging many retailers’ businesses. It is time to kill off some of the tail and to instead put resources into improving service levels.

This drive to simplicity is being replicated in the FMCG world where the likes of L’Oreal has recognised that the market has become too complex for consumers to shop and it is pruning 10% of its products in the UK. Unilever is undertaking a similar exercise in Europe with a 40% reduction in SKUs taking place.

This is tapping into the zeitgeist of consumers feeling that they have simply too much choice, which has led to the book ‘Undecided’ hitting the bestseller lists. Retailers would be well advised to follow suit and position themselves away from discounts and offers and to instead learn to live by the maxim that less (choice) can equal more (sales).

Sue Grist is owner of consultancy Egremont Group

Youth market as skint as everybody else

One of the stronger arguments at the start of the recession - that seemed almost plausible at the time - was that youth-oriented retailers would escape the worst problems because their audience was insulated from the skirmish.

Plenty of items here to keep one young shopper insulated.

This worked out for some time but the downturn has not simply been a skirmish. It has been upgraded to a long-term depression and the kids have been fully engulfed. They are now just as skint as their parents.

You know the roll call of growth operators over recent years - H&M, Topshop, Primark and in the US there has been Forever21 that is now opening units in the UK. They have enjoyed growth even when most other retailers were feeling the pinch from disposable incomes dropping.

The argument was that the younger crowd were not encumbered by mortgages, they hadn't built up lots of debt, and they simply had to have the latest fashion items (while their parents were concentrating more on putting food on the table).

Food or fashion: Maybe you can have both?

Well this fantasy has now unhappily ended. H&M's sales are now flat and margins are eroding, Primark has admitted operating margins are under pressure, and Topshop owner Arcadia group is rationalising its store estate.

In addition, River Island has suffered a fall in sales, and profits have dipped dramatically at the Next-owned Lipsy chain. There is now a realisation that the youth market (16-to-22 year-olds) are not immune from the troubles. Unemployment in the group is rising, University tuition fees are increasing, and graduates are not finding jobs.

Perversely, the solution to this from some of the big fashion retailers is to keep their aggressive expansion plans intact. H&M and Primark are keeping their foot hard on the store-opening peddle and new UK entrant Forever21 has suggested it could open 100's of UK stores.

This is clearly going to end badly and the surest sign that a car crash is on the way is the appearance late on the scene of a gung-ho US-based retailer that simply  knows best.