Guest Slot - Payments Insider-Beware the great card switch

He knows the banking industry but they don't want to know him.

Earlier this year Tesco Bank had grand plans to move its Visa Cards to MasterCard-branded credit cards under the World MasterCard banner and enjoy the extra transaction charges that these cards would bring to its coffers.

But this went off the rails when its retail division squealed about the pain these higher transaction charges were inflicting on the group’s own supermarkets and customers' desire for a Visa-branded card in order to pay for their Olympics tickets.

This was a component of the confused strategy that had been emanating from the retailer’s banking division and may have played a part in the forthcoming departure of its boss Andy Higginson. His precarious position had been predicted in May on Retailinsider.com [See article here].

This website also highlighted that this move by Tesco to issue cards that inflicted onerous charges on retailers was a hypocritical move when it had for years been fighting the banks and card schemes for doing exactly the same thing [See article here].

But what do we find the market (including Tesco Bank) is up to now? Where card issuers previously thought they needed to physically issue a different card to replace plain vanilla versions - in order to introduce the higher transaction fees – they have now found a better way to do this.

You pick a card and we'll choose the fees.

They simply assign a different ‘classification’ to their existing cards so that when the cards are presented at a retailers’ checkout they accrue a higher transaction fee behind-the-scenes in the banking infrastructure (it’s too complicated to explain fully – honestly).

This is a short-cut to creaming off higher fees is a method that will undoubtedly be used by many card issuers now that this loop-hole in the card schemes’ rules has been spotted and eis being exploited.

The problem for retailers accepting these cards is that there is no way they can tell beforehand that they will inflict higher charges on them. But when they see their bank statements, which show that the charges on some cards have increased by 30-40%, they will see the full damage.

The worst hit will be small shop owners and those retailers that typically have a high percentage of sales derived from credit card customers. Robert Jarrett, director at BIRA (British Independent Retailers Association), told Retailinsider.com that in relative terms the extra charges on these ‘premium cards’ was hurting his small retailer members more than the large operators because they were less able to absorb the costs.

Although you can’t really blame card issuers for initiating opportunistic moves - aided and abetted by the card schemes (MasterCard in particular) - it again highlights just how toothless the OFT is in taking affirmative action on card fees.

Tesco has maybe missed a trick because it could have taken the initiative and made sure all its cards were the lowest rates in the market and shamed the others into doing the same. This would have enabled it to truly take advantage of its original stance of being the so-called ‘people’s bank’ and used this to fight the corner of retailers and consumers against the banks and card schemes.

Guest Slot - City Insider-Dan Coen

Structurally the retail industry is on its uppers and a fillip from Christmas is far from guaranteed because deep discounts have been widespread across the sector since early October. But I don’t want to add to the doom and gloom that already hogs the news headlines.  
 

No more doom and gloom please.

There are some positive aspects that should be focused on and some key factors that will define the sector over the near term that retailers would be well advised to take notice of if they are to navigate out of the present difficulties.

Retailers have to fundamentally understand their customers and deliver the products they want. The best example is John Lewis, which consistently delivers what customers’ most desire and with an exemplary level of service.

It could be said that in today’s retail industry the product has become the commodity and service the differentiator. One of these differentiators is multi-channel. Many naive merchants believe the internet is the panacea. It’s not. The solution for future-proofing a retail business is a fully integrated multi-channel offering.

Whereas John Lewis is at the stage of offering free Wi-Fi in its stores many other merchants are slow to the game and are not clever enough to collect and interpret the data they are accumulating across their channels.

It is also imperative that retailers understand the impact of social media and use it as a marketing tool to communicate with consumers. This is free marketing. But are the executive managements of retailers using it personally? I suspect not. This is why many retailers have been less than committed to using these new digital mediums – they don’t understand the influence it can have on consumers purchasing decisions.

The clever, smart retailers who are social media advocates will no doubt be thinking about how to exit unwanted stores and are seeking professional advice to help them. They will be considering the optimum places to open new units having recognised that national coverage now requires a lot less units than before the internet disrupted the status quo.

But whatever channel strategy retailers employ it is all rather meaningless without having a handle on the financing and working capital constraints within their businesses. There is far too much of what I call ‘ostrich capital’ in the sector, whereby a head-in-the-sand approach is taken to working capital.

This is no way to manage your working capital.

With significant pressures faced by merchants - as a result of volume declines and a squeeze on consumer’s disposable incomes – proactive balance sheet management is required.

What’s needed is better communication with lenders, an understanding of the new environment, and the engendering of a culture of strong store and management information. This will help create a ‘we’re-all-in-this-together’ mentality and ensure there are no surprises for stakeholders.

Merchants must also adapt to an environment where ‘hidden influencers’ (such as punitive financing structures) are playing a role in decision making. In 2012 there is a significant amount of debt due for refinancing and the big questions will be – how can it be refinanced when the banks are not lending, or how can it be repaid when there is insufficient cash in the business?

Hardly helping matters are the new European banking regulations under Basel III which are driving banks to risk weight their capital on a sector basis, with retail regarded as one the riskiest sectors. The impact is a higher cost of capital leading to a reduction of bank exposure to the sector and retailers left with an uncertain future. 

But before we drift back into the doom and gloom scenario we must remember that the tough climate is also presenting plenty of opportunities for retailers to enhance their businesses through defensive acquisitions and in turn ensuring consumer loyalty. Consider Morrisons’ purchase of Kiddicare and the Waitrose acquisition of Duchy Originals.

Many of the solutions to retail’s woes might not exactly be original but there are still many businesses in the marketplace that are failing to adhere to even the most obvious of diagnoses. These are the ones that will fail while the rest do at least stand a chance of prospering in the future - if they take the medicine.

Dan Coen is Business Development Director at Zolfo Cooper

How not to manage a pub or retail business

For many months The Great Northern Railway Tavern pub in north London remained closed, with the occasional bit of activity from workmen. Because it is a glorious Victorian building (including a rare set of lamps fixed to the bar and impressive glass skylight) anticipation of its opening was high in the Retailinsider.com office.

Magic Victorian architecture, duff 21st Century service.

For years it had been a rather run-down forlorn boozer (albeit with decent Thai food) with a down-at-heel clientele so when owners Punch Taverns decided to invest some money to give it a serious clean-up and to polish its impressive interior and add a decent menu things were looking good.

However, on the three visits made to the pub since its re-opening the offer has been shockingly shambolic. It certainly gives me no pleasure recalling those experiences on this website but it will certainly highlight how not to run a pub or any 'retail' business for that matter.

The first visit was the best experience although it was disappointing that they had removed all the bar stools and were unwilling to stock any snacks - the choice therefore was either buy a full meal as they suggested or go hungry or leave. The lack of snacks certainly cost them another round of drinks in the case of the Retailinsider.com visit.

The second trip involved a new rule, whereby children were no longer allowed in the front bar. Not great, but no big deal. However, the food was a bigger deal as it was sufficiently disappointing for the manager to not charge and to also provide a complimentary pint of beer.

At least there was beer because the third visit was notable for the lack of such liquid. Not even any Guinness. It was lager, wine or spirits. We were now in 'pub with no beer' territory.

Unfortunately things appear to have deteriorated even further as a notice has been appearing on the door in recent weeks stating - 'Cash Bar Only - sorry for the inconvenience'. So from no beer the pub has gone into no fully-functioning tills either.

It is with regret that Retailinsider.com will unlikely be venturing into the pub again to find out what other elements of the proposition are missing. But throughout this deteriorating offer the pub's interior remains a beacon of hope.

Hope in that one day Punch Taverns, or whoever else might be running the pub in the future, will get their act together and provide this great Victorian building with the service, offer, and TLC that it deserves.

Lessons to be learnt here for all businesses. Certainly a failure to get the basics right is a fast route to failure.

Meal Deal - The Admiral Codrington

Welcome to a new series where leading retail executives recall memorable occasions spent celebrating a new job, cutting a big deal, winning a large order, or just enjoying life in a specific pub, bar or restaurant.

Robin Terrell, executive director of multi-channel and international at House of Fraser recalls good times in The Admiral Codrington pub in West London.

"The 'Cod' as we called The Admiral Codrington was next door to the John Lewis Direct offices where I was managing director [from 2008 to 2010] so it was kind of like an extension to the business. There was always people from the office in there.

It was a big part of the social scene and we did a lot of social drinking, which was all part of working in e-commerce at the time. For us it was the place to go and we were very regular visitors. There was food there but we were mainly there for the alcohol. I drank no particular beer, maybe a Guinness sometimes.

Ironically we had a licence to sell alcohol on the premises of our offices as they were an ex-Peter Jones warehouse and in those days every John Lewis location had a PDR (Partners Dining Room), which always included a bar. When the online team moved there it still had the licence to sell alcohol and so we had our own bar. It was a mixture therefore of either having a drink in the company bar or going to the Cod."

Location: 17 Mossop Street, London SW3 2LY.
Likely to spend £40 on food (for a two-course meal with half a bottle of wine).
Likely to spend £15 on a bottle of wine.
Likely to find slow cooked shoulder of lamb on the menu.

Movers & Shakers Q&A with Hash Ladha of Aurora Fashions

Brought to you by Retailinsider.com and K3 Retail

Hash Ladha, group multi-channel director at Aurora Fashions

1. What is the greatest opportunity for your business?

Being a truly multi channel/ Omni channel retailer – and ensuring we create great channel experiences which customers interact with and between seamlessly.

2. What is the biggest challenge to your business?

There isn’t enough time – and customers’ expectations are continually shifting – and we hate letting them down in anyway, and time is of the essence and patience isn’t a quality of mine

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

Gone faster and hired faster and more. And stopped to thank all the people in our brands and in group to thank them for being so great more frequently!

4. What is the future of the physical store?

The future is bright – the future is multi channel – so you need them – but to work in a different way. To be a shop, to be a place to hold stock, to be a brand showcase and to give a great experience – it’s now more than just a store.

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

In my view the cities will be dominated by big brands, new brands, on line brands who were brave and went off line too, international brands, and the High Street will be an exciting experiential based social experience. It will be technology enabled with amazing consumer experiences. The smaller towns will be authentic local propositions with a sense of community and modern tradition.

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

No. There will be no primary sales channel as customers use many channels with one brand before they transact in the one they choose. So it will be important, as the population is mobile, but you will need to win the hearts and minds of consumers in every channel – just to close the sale!

7. What other retail business do you admire?

The obvious one is Apple, but I love John Lewis and Starbucks

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

My career destination was to be a lawyer – I studied Law – however thankfully a lucky break brought me into retail. When I look back and wonder what else I would have liked to have done – I would love to have invented something.

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

I'm my worst critic. I look at the non-conversion rates of websites not conversation, I look at how many hours we are late on things not days. So I have huge moments of feeling I haven’t achieved anything. Thankfully I have an amazing boss who points out my achievements to me regularly, which I often dismiss as day job. Besides even those things, my team and all the people who work on multi channel achieve them not me. So my score is 1 out of 10 of all I want to achieve.

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

It is an esteemed list and I was flattered to be included – the 29 people on there are all people I admire – so no new entry from me, that’s up to the judges.

Footfaller – an irregular guest view from the street

The retail industry should be applauded. When it comes to rip-off Britain it could be argued that other sectors are far more at fault and they should be looking to multi-channel retailers for best practice in keeping consumers happy.

In March of this year Which? wrote a report highlighting the worst offenders at the hidden charges/excessive fees game, which irritates customers so much. They are pressing the OFT to look at the whole issue and not before time because is there a single person in the whole country who has not fumed at some point as they have to swallow an outrageous charge just for using a card to pay.

The obvious miscreants are airlines – most notoriously RyanAir. The Irish airline has introduced a pre-paid credit card which allows the customer to reclaim the fees – most notably the £6 per person administration fee it charges on all flights - but they just cannot help themselves.

Customers are not really waived the fee, they merely receive a voucher equal to the same amount which can only be redeemed on future bookings with RyanAir. And it costs £6 to buy such a card. Customers also incur an inactivity fee of £2.50 if they don’t use it enough.  And there are charges of £2 for all withdrawals at ATMs. It doesn’t sound so good now does it?

Extra charges. What extra charges.

The other consumer bugbear is ticket agencies and theatres/cinemas. It’s almost impossible to buy a ticket for an event where it only costs you the actual cover price of the ticket. If you phone you get charged an administration fee, if you book online you get charged a fee.  Which channel do they want consumers to use?

I am fully expecting to walk into a theatre box office one day and be charged a central London congestion fee for the privilege. Scandalously it is also not at all uncommon to be charged not one overall transaction fee but a fee for each ticket purchased. Presumably that’s £1.25 for each time the ticket agency employee pressed the ‘print’ button.

But amazingly people keep paying it – probably because they feel they have no option. 

Most people do accept that there is a charge to use a credit card because they are dimly aware that the banks charge the providers quite a bit for using it but charges on debit cards are really infuriating.

And there are more and more charges relating to such cards. Another Which? report showed that buying foreign currency was full of examples of debit card charging. Quite often the customers own bank is doing the charging.

The good news is that the OFT ruled earlier in the summer that debit card charges at least must be curtailed. The complaints centred on claims that the cost of handling a debit card was no more than 20p per transaction and that retailers such as supermarkets and department stores absorbed the cost without question. The OFT agreed.

In the meantime, give three cheers for the retail saints like Amazon who charge no postage, and the retailers that offer Click & Collect who put no hidden charges on doing business with them.

Innovative Retailers Part 3 - Where ice cream is much more than just ice and cream

The Name: The Icecreamists

The Place: Covent Garden market and Maiden Lane

The Story: Matt O’Connor is the founder and he is very, very serious about ice cream and the business of sin. Starting out with just a pop-up store in Selfridges in 2009 he has already entered the PR hall of fame with the whole breastmilk icecream (Baby Gaga) shenanigans and subsequent legal battle with Lady Gaga over the name. Oh, and that was after Westminster Council tried to ban it from being sold.

It's ice cream but not as we know it.

Regrets? You are joking. Mr O’Connor is a one-man publicity machine and he got huge sales out of Baby Googoo (yes, they had to change the name eventually) whilst it was on sale. It sold out on day one. And even now 15-20 people a week come in and ask for it.

Dare I ask who was buying it? Women, women and more women. O’Connor never saw a man ask for it during the whole period. One donor was supplying all the milk for it and for a while ‘it looked more like a milking parlour than an icecream parlour’ back of house. It was all very wholesome however until a certain pop star objected.

What happened? Big lawyers, big threats. O’Connor offered name changes but unaccountably she wasn’t keen. Not even on LadyBoy Gaga.

What’s a cross-dressing LadyBoy Gaga  ice cream made of? Don’t even go there.

Moving on, where does the interest in ice-cream come from? He has worked in ice cream for 25 years but is still fascinated by its mix of childhood fantasy and adult indulgence. He describes his ice cream fantasies as “bitter and twisted like a Roald Dahl story”. And he rails against the paradox of low fat health-trend ice cream.’ In these god-forsaken times people are looking for indulgence.’

So, are toddlers queuing at the door too? Well, not if they have seen the website. It’s all gothic skulls and sharpening knives sound effects. Adult only then. With names like Molotoffee Cocktail, which comes flambéed to your table, it’s definitely aimed at adults. However, his children like it – they say it’s like being in his head. It’s a heady mix of music, fashion inspired by the punk ethic. But he would have made it more x-rated if he could. Having said that, the Maiden Lane outlet is billed as a gay pop-up for over 18’s only.

Do they serve vanilla?  Behave. They make all their ice cream fresh every day. They develop a winter collection and a spring/summer collection every year so they have a back catalogue of hundreds of varieties. O’Connor titles himself the ‘Quality Fat Controller’ and does frequent tastings. There will also be a 40-strong blindfold consumer tasting to launch the winter collection. According to O’Connor their popcorn ice cream made Heston Blumenthal (who also has a version) look like Ronald McDonald. He raves about the mulled wine and port sorbetto and don’t even get him on the subject of the popping candy ice cream.

Why? Because apparently it will blow your eyeballs off.

Crikey, how much does all this excitement cost? £4.50 for two scoops and up to £20 for the ice cream cocktails. The average punter parts with around £10.

Any news on expansion? There’s been lots of interest, from New York, Las Vegas, and Shanghai. But he does not know how it would or could be run overseas. Certainly they would only open one outlet in each country. He does not want to be Starbucks.

Interesting to see how it would go down in Shanghai.

Supermarkets must be queuing up? But he’s not keen. In the shop he constructs his own theatre around the customer, with retailers he is stuck with half price deals and BOGOFs. O’Connor thinks allthe value has been stripped out of the premium ice cream sector by the likes of Ben and Jerry’s. He’sgot more important things to think about anyway, there is a TV series filming in October and a bookcoming out next year. And of course his winter collection.

Anything scandalous in it? He’s concentrating on hot desserts, fondues and the like. And his staff will be wearing pink/green tartan kilts – a homage to Dame Vivienne Westwood. But if its scandal you want keep an ear out for his lollies?

Pardon? He’s got a controversial ice lolly coming out. It’s rude apparently. And illegal.

Where can I find out more? Probably on Twitter. O’Connor says social media has been “absolutely critical” to his success. Any slight dip in quality for example and someone will Tweet. Then it is dealt with immediately.

Can he do the same for yogurt? Hell no. Yogurt is for choirboys. But doughnuts are a different matter.  O’Connor is poised to give the British seaside doughnut a punk makeover.

I think we’d better end there.

Guest Slot – Recruitment Insider-Nigel Sapsed

While walking down London’s Charing Cross Road the bright blue-tiled Byron burger restaurant with its distinctive multi-coloured logo came into view. This is no shrinking violet of a place and it got me thinking about how people very much buy with their eyes.

Trust me, in daylight it stands out.

Byron is certainly going all out to fill their eyes. It is building up a chain that makes bold statements through its distinctive visual look and also interestingly seeks to avoid going down that old route of creating a homogenous brand whereby every unit is an exact replica of the one that went before it.

This is the new way to build restaurant and retail chains. The newer operators have recognised that overt branding is off-putting for many consumers and they believe it is more interesting to make each unit visually unique while maintaining strains of the brand within the individual outlets.

These strains are likely to include having the same menu across the chain, the same style of service, and exactly the same drinks’ lists. And for Byron the same condiments will be placed on each table in all its units.

This trend to develop distinct outlets has been taken up by many other operators including Strada, Café Rouge and Costa Coffee, with the latter undertaking lots of experimentation on its looks and operating a couple of trial outlets that have generated plenty of positive feedback.

Another innovative leisure operator is Drake & Morgan that is building up a group of bars (I use the term extremely loosely) that are each massively different in their visual looks. But just as with Byron once you get beyond the visual elements then the trick is to ensure that the rest of the proposition – namely the service and product – is similar across the whole of the business.

Drake & Morgan: Whatever its venues are, they look good.

These various companies are linked by their confidence in being very distinct in the marketplace. But if you are going to make yourself stand-out visually then you’d better make sure you deliver the goods. Delivery is absolutely essential because otherwise you’ve failed to manage customer expectations. If Byron’s burgers and customer service at its Charing Cross Road branch are not as slick and appealing as its tiles and logo then it is dead in the water.

Such has been the impact on the market of this growing move to offer unique and outstanding looking outlets - combined with the ongoing effects of recession - that even the big boys are recognising that they can’t simply stand still with their old established looks. They realise that today it is essential to stand out on the competitive high street – and the most obvious way to do this is through their physical looks.

This is why Whitbread is embarking on an exercise to bring its restaurants into the 20^th Century – while maintaining the essence of its brands of course. It is in the planning stage of making changes to its Beefeater, Brewers Fayre and Table Table brands. Expect plenty of change in this division, fuelled by the success of the experiments that have been made at sister organisation Costa.

There is a realisation in this organisation and in others like it that an overhaul is needed. The big question is what exactly will Beefeater look like in two years time? The only thing we say for sure is that it won’t be the same as it is today.

Nigel Sapsed is director of executive search specialist Sapsed Stevens