Jack and Jeff….2 new guys with new ideas on the High Street ?

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Jack and Jeff, Jeff and Jack , whatever, they are not really new, actually one is quite old and dead the other not so old and nowhere near dead. Jack is the new Tesco discount chain, named after its founder Jack Cohen and Jeff is none other than Jeff Bezos, the richest man in the world (in cash terms anyway , but whose counting ?). What is new are their plans for the future.

The latter has announced the possibility of opening 3000 cashier free stores by 2021. The concept is not new for Amazon has they opened their first Amazon Go store in January of this year. If this comes to pass its impact (USA only to start) will have as big if not bigger impact on US retailing as Amazon online. Bricks and mortar Stores are not new to them, as they currently have 500 Whole Food stores and 20 Amazon Book stores.

To quote…..

This move would be both astonishing in its effects on communities and potentially a neutron bomb to everything from existing convenience chains like 7-Eleven to quick-service food stores like Subway and even entrepreneur-owned restaurants and taco trucks.

Digital Trends

and in context (within the USA)

Opening 3,000 stores of any model would put Amazon head to head with some of the largest brands in the world. By comparison, Kroger operates about 2,500 stores under a variety of brands that generate sales of over $100 billion. There are a little over 3,500 Walmart locations but they’re mostly located in suburbs, away from the dense urban areas and affluent customers that Amazon is targeting with Amazon Go.

The impact goes way beyond other retailers, it will impact socially, in terms of both consumer behaviour and future retail employment such as eliminating a whole sector of workers within every store eg cashiers. If there are any chinks of light , the concept will be focused on urban centres and it illustrates the Bricks and mortar store is not going away soon, albeit it may look a little different.

Back to dead old Jack and the UK. Jack Cohen and his baby Tesco, could be seen to be , or rather was most probably the biggest retail innovator in the UK ,of his time. He learnt much about a supermarket concept, from visiting self-service stores in the US. Over recent years the chain has suffered both sales and profits from the grocery discounters. Strangely Aldi and Lidl were not the first in the UK as in 1957 Kwik Save was founded and was very succesful during the seventies and eighties but went pop in 2007. Yet as they disappeared so came the Continentals and carved themselves a healthy piece of the pie. Jacks is apparently the answer.

It maybe, but I am not so sure .Rather, let me qualify that. Jack’s may serve as a succesful defensive tactic but it is hardly revolutionary and may  only divert some business away from the mother ship.  Not having been in one yet(Jacks that is not a mother ship, though I can lay claim to having been in a Tesco’s once or twice ) the images suggest a discount store, as it should, but the consumer will  also see it as Discount store that belongs to Tesco.  I am not sure this a very innovative approach from our leading High street retailer ,partcularly when the Retail High Street is facing a rapidly changing future. If I were to compare the two approaches , Jeff is looking to build Retail space stations and Jack’s (aka Tesco) is to stride into the future based  on the founder’s original concept of a permanent market stall.

Jacks idea of the future  ??

Or Jeffs ??

Image result for amazon cashierless store

Whilst Amazon looks globally, Tesco focuses on its home territory, at least recently as it has had to hold back on its global ambitions not achieving the success it craved . Therein, lies part of the problem with Jacks. I see a twofold problem facing many retailers both big and small.

1. The online operators are seen as alternative retailers. Of course, on one level they are. Yet many especially the likes of Amazon are not just retailers. Retailing is just one aspect of their model. They are at worst disrupters, at best enablers. By disrupting they have completely caught major retailers napping, and they really don’t know how to respond. By enabling they have created many entrepreneurs to create businesses and consequent wealth by using the structures and facilities that have been created by the likes of Amazon. It is a much more complex model than that of a retailer, but I will probably come back to that at a later date. What is relevant is that traditional Retailers only seem to know how to respond with traditional retail techniques, which to me seems like building straw sea walls.

2. Being big and thinking small, can at times, within retail, can be a virtue. By that I mean big is not always beautiful. But being big and thinking small , in a parochial fashion , is a retailing vice. It leans towards being reactive rather than proactive. In this situation it is Tesco reacting to the offensive by discounters by opening discount shops . It may work in the short term but it is not a long term answer. It is most definitely not a vision of the future (retailing future, that is ).

Where would I put my money. Well, let’s put it this way , if Jack was alive today , apart from seeing his name on the door , I don’t think he would be over impressed with what was behind the door. I suspect he would be thinking “is that the best they could come up with…”

Stick Vat up on online operators….that’ll sort the High Street….Not!

A report has just been published suggesting that the government should raise VAT to 22.5% for online sales and 15% for High Street retailers. The author of said report is a company called Collier International. For those who don’t know who they are , and I didn’t, they are a very large Canadian Real Estate company with property interests worldwide including the U.K. where they are especially prominent in shopping centres. Well no surprise there then. Another report suggests a 1% online tax would generate £5 billion which would enable a 17.5% decrease in business rates. All this and much more besides would even up the playing field. No it wouldn’t. They all miss the point and don’t seem to understand the basic mechanics of what is actually happening out there.

Let’s first of all put aside Amazon. It’s difficult because of their impact but we all know they are big enough and smart enough to tackle any reasonable obstacles that come their way. Incidentally, they are budgeting £26 billion for R&D in 2019 .Many multiple retailers don’t even have a budget for research.

There is a huge assumption that online operators succeed because they have the advantage of lower costs of operation. Well if they are operating from their bedroom they might. Every other operator tells a very different story. I speak to some  form of online operation most days. So I think I get a broad view of what the issues facing them are .

First of let’s look at what they don’t have…loads of costly leases. As they don’t have several trading locations, neither do they tend to have crippling business rates associated with multiple outlets. Because they, generally,don’t have a shop or shops, they don’t have a building shouting their name to their potential customers 24/7/365 . They constantly have to pay(in various ways) to ensure their brand is consistently uppermost in the mind of  their targeted consumer. This cost alone, to the small and medium size operator can be crippling on its own.

What they do have are large costly warehouses, huge stock holdings, constant pressure to keep their IT systems up to date, aggressive pricing pressures, sometimes this is quite literally minute by minute, shipping costs, much higher rates of returns , the continuous drive for even more rapid deliveries and free deliveries. Unless they are working from the bedroom , they have business rates just like anyone else. Few operators make little or no profit in their early years as they have re-invest  to survive .

Politicians, advisors and research bodies seem to rarely pay heed to the results from unintended consequences. If the Government were to heed the advice of Collier International and the policy did indeed re-invigorate the High Street, then more product would be purchased at 15% than at 22.5% or even 20% creating a vast revenue shortfall for the Treasury. Anyway it wouldn’t have the desired effect and it would only make matters worse for all forms of Retailer as well as the Treasury.

Furthermore it is  a discriminatory policy as there are now sectors of society who rely on online purchases. Those living in remote rural areas, the disabled , especially those with mobility issues. Just because a consumer wants to buy a product that shops don’t want to stock should they be penalised with a VAT rate increase? If a consumer buys a product through a High Street Retailers web site and collects it in the store, which rate of VAT would be charged?  The idea is completely bonkers but more importantly misses the point.

On  a micro level business rates need to be reformed and  local bureaucracy needs to be challenged . At the macro level Government(s) need to reassess major organisations ability to legally avoid fair and equitable taxation . Not just the Giants , such as Apple and Amazon, there are those a lot closer to home who seem to escape the Taxation limelight ( the likes of Phillip Green . the Barclay Brothers and the Richard Bransons of this world -my pet tax avoiding dislikes amongst many others within the UK).

The point they seem to be missing is that the Retail landscape is and will continue to change . You can’t nudge it backwards. That benefits no one. Imaginative policy and structures have to be created to accommodate change and not rail against it. The High Street will always  change . Unfortunately, there will be those who suffer but that has never been any different from the advent of the first Supermarket chain, the first shopping centre and shopping malls, the introduction of mail order shopping and even something more structurally basic as when the newspaper industry decided to supply Supermarkets and the consequent closure of many High Street newsagents. I did not see any Government intervention then. Yet I fail to see any overall strategy and understanding as to what has been going on for donkeys years, apart from knee jerk reactions that invariably make the problem worse.