Amazon: Imagine...

Imagine.

Fast forward fifteen years. Imagine every rule and assumption you currently hold about retailers, manufacturers, brands and own labels being swept aside.  This new dawn is fast approaching.

Let's start with a general observation and a governing hypothesis:

1. First the observation: Grocery retailers are just aggregators. They have, over the last fifty years, provided the most convenient and efficient ways to connect brands and consumers. During this time, realising their lack of self identity and feeling the need to differentiate from other brands, retailers developed loyalty devices - the most powerful being retailers own labels. 
2. The hypothesis: Our children and their children will see no utility in driving to a hypermarket to peruse aisle after aisle for everyday groceries. Mobile will be their point of purchase. Others will do the physical hard yards. 

On top of these points, consider the Amazon factor....and three implications of their operating model and the broader changes impacting the industry: (1) No listing/slotting fees; (2) Portfolio neutrality; (3) The supply chain of everything

No slotting fees
In the world of grocery, listing/slotting fees are a core part of the retailers income stream. In fact, across the world, it is a general truth that most retailers make a loss on their trading activties with shoppers. The margin comes from supplier income and listing fees are a core element. The more innovation, the more fees are generated. Some retailers even charge delisting fees to cover the costs of markdowns associated with failure.

In the Amazon world today, suppliers manage their own catalogue: list whatever you like. It's unclear whether this is a deliberate, long-term strategic choice - but it would be unwise to assume it is a quirk of immaturity. For suppliers, no slotting fees is innovation nirvana. It will make launching with Amazon a deeply attractive proposition and put pressure on established retail business models.

Portfolio neutrality
Although there are some muttering of Amazon wanting to develop their own retail brands, they would be delighted to list everyone else's. Imagine, Tesco Finest or M&S Gastropub being delivered via Amazon. This would revolutionise our understanding of retail own brands.

1. Today, you can only buy Tesco Finest in Tesco...but imagine if the rules changed. Retail own brands would become brands - succeeding or failing on their market merits. Instead of Tesco, Sainsbury, Asda toilet rolls competing with Andrex head to head in individual outlets, they would all compete. The shopper gains total market visibility and accessibilty. Let battle commence.
2. But retailers don't make their own brands. The unspoken truth of M&S food is the array of companies manufacturing for M&S. Able to compete directly these companies may quickly become branded players themselves. Whose Lasagne do you prefer: Greencore vs 2Sisters? With higher velocities and the same quality standards, these companies will produce beyond M&S quality at below Aldi prices via Amazon.  Will retail brands survive?

The supply chain of everything
In the days before Hypermarkets and centralised distribution, UK high streets were clogged with large delivery vehicles dropping off small orders every day to local supermarkets. Tomorrow we face the prospect of our suburban roads being perpetually obstructed by a steady stream of retail delivery vehicles trying to home deliver our on-line orders. We trade one convenience for a new inconvenience.

In a portfolio neutral world, with all products available by Amazon and unencumbered with physical retail operating costs, their structural advantage will be untouchable. Amazon can become everyone's supply chain. Fewer delivery vehicles, less congestion. The aggregation of aggregation.


As John Lennon might have put it;
Imagine there's no Walmart, 
It isn't hard to do
Nothing to queue or drive for, 
And no Clubcard too
Imagine one supply chain, 
Delivered home by drone
You may say I am a dreamer
Bezos' not the only one
Just one click you can join us
And the world will Amazon
Imagine.

(Go on, admit it..you sang the verse didn't you?)

M&S Clothes: Mirrors & Smoke

Mirrors are important when selling clothes, smoke less so. So once the air had cleared on Thursday's latest M&S results, (the 0.1% rise in like for like clothing sales and the optimistic shoots of recovery); the markets reflected and stripped 3.1% off M&S's share price.


Marc Bolland's comments regarding the success of M&S's high end ranges hints at underlying challenges in the four core "s" categories: shirts, shorts, socks and shoes.

All of which prompts a question.
The "Leading Ladies" might be sophisticated enough to entice women to put M&S dresses on; but can they help M&S knickers take off? M&S clothes. Mirrors & Smoke, perhaps.

Mum's the word

Typical. I just start writing off M&S clothes and my mother emails me: "I don't think you know what you're talking about, I like M&S clothes". Now there are a number of concerning points in these comments, in no particular order.

First, my mother reads my blog and emails me during the day. Second, she's is a real retail expert. Where I spend my time thinking retail, she spends her time and money shopping. Third, she is pc literate (note to self - why did you think buy mother a pc was a good idea?) and this means she is buying online ans well as in-store. This is a big move from all those N. Brown catalogues she used to have kicking around the house. Fourth, she isn't really dressing to impress anyone other than herself. She can have all the inoffensive, not too trendy clothes she likes, and pick up a great dinner for £10 at the same time.

And when you think about it, we are all getting older. Perhaps the realisation is we will all in time grow to love M&S clothes again...always assuming that by the time we get there, we can remember who M&S and what clothes are!

I was wrong. M&S clothes are here to stay. And don't argue with my mother!

Whatever Next for M&S?

Amidst the doom and gloom of big high food street retailers, it's great to see the success story of Next stores moving through the gears, poised as they are to make more money this year than Marks & Spencer for the first time ever. CEO, Lord Wolfson, noted the performance was “significantly ahead of expectations” and announced the company will pay a £75m special dividend to shareholders to distribute surplus cash.

So how are they getting it so right, whilst M&S seem to struggle season to season? The answers may well be focus and passion. Next are a fashion based clothing and homewares business. It's straightforward, uncomplicated, chic-y and commercially rigorous.

M&S by contrast are increasingly an outstanding food retailer that also sells clothes and in fashion and demographic terms it's less hip, more hip-replacement. The way they talk about themselves is loaded with language that sounds dated:

"Over the last 129 years M&S has grown from a single market stall to become an international multi-channel retailer. We now operate in over 50 territories worldwide and employ almost 82,000 people. Remaining true to our founding values of Quality, Value, Service, Innovation and Trust, we work hard to ensure our offer continues to be relevant to our customers. Through diversifying our store locations, channels and product ranges we are reducing our dependence on the UK and broadening our international focus. Our UK turnover is split between Food (54%) and General Merchandise (46%). With 766 stores across the UK and a growing e-commerce business, we sell high-quality, great value food and remain the UK market leaders in womenswear, lingerie and menswear."

We're old, we're in lots of places, we employ loads of people, we are market leaders....impressed?
The trouble with being the market leading retailer of anything clothing, is your seasonal bets are bigger. You put a new range in 766 stores, and if it doesn't work you have a large headache. This will encourage you to play safe and that will not build fashion creds. More particularly their category focus seems unwieldy and non-specific. To be market leaders of menswear cover a lot of segments, are they leading everywhere? And I might be alone, but isn't it a little odd that lingerie isn't a regarded as part of the womenswear category?

Food on the other hand, has much more fun, flair and flexibility. For all its complexity, it's simpler. You can get in and out of recipes fast and there is a burgeoning list of would be own label food manufacturers who are queued up wanting to work with M&S.

And it is something M&S are rightly passionate about. At 54% of their UK sales, the question arises, when will M&S stop beating themselves up and decide they've reached the end of the clothes line? Like it says on the tin: M&S Simply Food.

Until then, expect more disappointing news from M&S. While they hand out excuses, Lord Wolfson hands back £75m to shareholders, and that's a trifle M&S would love to serve.