A 30 second video extract set the scene for the inaugural strategic forum hosted by CONTEXT at Melco Club last week. A man was calmly fishing on an ice floe, when suddenly, Jaws-like, a whale burst through the ice and the man disappeared. Chris Petersen, veteran consultant on Technology Retail and our keynote speaker, asked the audience who the whale was, and most people said Amazon. But Chris turned the issue on its head, and pointed the finger at the Retailers themselves and said the whale is the internal mindset inside your own companies, because you are not prepared to change. So now we were engaged with our guts or as the French say in our “tripes” – it is a question of survival.
Our topic was “The Purchase Experience – Who Cares?” – a deliberately provocative theme – of course we all care, but when the consumer gets less than a wonderful experience buying technology is it the Retailer’s fault or the Vendor’s? Senior leaders in the Spanish and South European consumer markets came together to explore collaborative ways of making the Purchase experience better. At the Forum there were positive signs of connections being made, meetings taking place (even one on the following day) for Retailers and Manufacturers to trial out new ways. As Inés Bermejo, HP Consumer Director, Spain and Portugal, said, “we have to trial new ways of doing things”.
Chris showed us examples of the Purchase Experience which work – the Starbucks secret menu, the Tesco virtual stores in S Korea, Build-a-Bear with their phenomenal CRM, the John Lewis omni-channel journey – getting the different channels to collaborate and not compete. There are still so many retailers where online and offline have competing objectives and organisations. And the maths is simple according to recent studies quoted by Chris – consumers who shop omni-channel, the new normal, spend 350% of what single channel consumers spend. Why not have some of that? Also size is important in today’s omni-channel world – there is a race to be small again with Walmart opening up new stores of 1,200 square metres compared to the old leviathans of 20,000 square metres. We know this in Europe where the hypermarket format has been dying a slow death in the last 10 years. But it is also a change in understanding of the store’s purpose. “The store is now a distribution point” said Chris Petersen. Of course, it always has been, but the point is making the whole omni-channel experience easy for consumers, and that is why Amazon and other e-tailers are looking to open stores or use other people’s store network.
When the Advisory Board panel spoke, they captured the sense of urgency – “we have to bring the human touch to selling technology” said Ramon Abad, head of Business Development for AMD in Spain. “We need to be better at explaining what technology does” said Ines Bermejo from HP. “We must integrate online and offline” said Eugenia Albares, head of buying at Fnac Spain. “Computers are such an important purchase for people, we have to make it an experience for them…” added Javier Galiana, head of Consumer Marketing for Intel Southern Europe, “…or else it is just about price.” Maite Ramos, General Manager Iberia Consumer Business for Lenovo said that the tech industry has to do their best to attract people with the resources they have. For example, they are using bright colours like red and are also investing in store within store. Lastly, Gonzalo Ruiz, head of Windows & Office Consumer Channel Strategy, spoke passionately about how Microsoft work with retail partners to design pilots based round research on consumer behaviour, which leads to better results.
Chris Petersen ended his keynote by giving participants a fascinating insight into one specific measure – GMROII – which is commonplace in the US, less so in Europe, to calculate the impact of different retail programmes. It stands for Gross Margin Return on Inventory Investment and allows retailers to measure for every dollar they spend, the return which they get including the impact of both gross margin and inventory turns. With the decline in gross margin in Best Buy from 35% in the glory days to 23% currently, and with a rate which is declining by 1% per year, Best Buy has had to look very hard at its inventory, and the white hope for 2014 is that store inventory is now online which according to the CFO in the Q1 investor call in May 2014, will unlock $2bn of the $3bn inventory which they hold. According to this measure, a score of 2-3 is good, and 1-2, which is where most technology retailers are, is ok at the higher end. But where Best Buy sits at 1.25 it is dangerously close to 1, which is where retailers close up shop.
Chris left us with a recipe for technology retail in these difficult times.
- Pilot new initiatives putting the consumer, omni-channel and the purchase experience at the heart
- Measure the outcomes using GMROII
- Pursue the best – “results count – everything else is conversation!”