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The retail empire strikes back: Why convenience (and scale) is king

20 April 2018

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It’s nearly a decade since we began seeing a number of administrations and company voluntary arrangements (CVAs) enacted to shore up retailers in the face of the financial crisis, the e-commerce revolution and the crunch of rising business rates. Many, like Blacks, Schwarz, Aldi, Zara, El Cortes Ingles and Game have survived and thrived, while others like Woolworths, Jaeger, Toys R Us, Borders and BHS have been less fortunate.

The secret to the success of those who have come through some of the tough times we’ve seen has been focus: a focus on product; on serving the customer on their terms; and on having presence in the right places.

When retail and property professionals talk about “rationalising real estate” it’s often taken to mean cutting back. But it doesn’t have to be. Smart retailers are able to crunch data to understand the reach and profitability of each and every outlet, and for many, rationalising retail outlets is about ensuring you have the right offering in the right place.

That may mean cutting back in some places where soaring rents and business rates have eroded the profitability of stores. But it may mean expanding other shops to unite brands or give suppliers space to showcase their products.

Woolworths’ demise, which, along with queues outside Northern Rock, came to symbolise the high street’s post-recession haze, was down to a number of factors. It’s business model hadn’t evolved and was a mess of toys, sweets, general merchandise, cheap clothing and music. It had no brand focus. Pound stores had taken the market on cheap everyday items, while cash-strapped shoppers sought out books and music online. The golden age of CD singles selling millions was over, hurting not just Woolies, but record labels too.

One man’s loss is another’s gain, and Europe’s digital maturity has certainly helped many businesses, even if record label bosses are not enthralled.

Three years on from the merger between Dixons and Carphone Warehouse, bringing them under the same roof as Curry’s and PC World, it remains one of the best examples of where a renewed focus has worked. The business was needed to remove duplication from the merged estate, while ensuring it stayed in any given local market. About 86% of the population could access one of their superstores within a 20-minute drive before the merger and this remained so afterwards.

Some of the reduction was offset by new store openings and the addition of mezzanine floors to some existing units, allowing the company to put the right customer offer forward. Combine that with the strong online offer the firm has maintained – linked indelibly to its thriving store network – and its ability to offer many things online-only stores cannot (such as finance, installation and trade in), it’s no wonder that Dixons Carphone is the envy of many others on the high street.

While it’s undeniable that many consumers window shop, looking for items they then order online, many still relish the chance to try things out or seek help in-store. With mobile phone contracts and computing equipment often quite complex, this approach offers the best of both worlds. Scale is key.

For Sainsbury’s, the same is true. Parcelling up Argos with the iconic food retailer has not only given it a logistics network to defend itself with, but has allowed it to reinvent the in-store experience for millions of shoppers. Furthermore, Sainsbury’s has also signalled interest in acquiring the convenience chain Nisa which mirrors the Amazon-Whole Foods tie up that serves consumer behaviour of increasingly moving to smaller, local stores rather than large supermarkets for increase ease and convenience.

It has opened 59 Argos Digital stores within Sainsbury’s supermarkets. In its results statement last May, it promised to accelerate plans to open a total of 250 Argos Digital stores in Sainsbury's supermarkets. For consumers, ever-fixated on cutting collection or delivery times, this has been a real coup, extending the network of both brands without impeding their product focus at all.

Two massive European grocery chains, Royal Ahold and Delhaize Group (Delhaize, which is from Belgium, and Ahold, which is based in Holland), reached a deal to merge in 2016. The newly formed Ahold Delhaize enterprise owns 6,500 stores and employ 375,000 people and serves 50 million customers a week.

Transforming the end-to-end supply chain for Ahold Delhaize will be a priority especially as it has seen an increasing number of customers doing their grocery shopping online. The company has significantly renovated its Ah.nl online national distribution centre (NDC), the Home Shop Centre in De Meern, Utrecht. The renovation, which will soon enable the retailer to double the number of orders processed there, including a new production hall. Ahold Delhaize has also installed a new 3,000 sq m cold storage facility, which will enable the retailer to expand its fresh product offering. The expansion means a logistics challenge of delivering around 25,000 more orders to customers per week will need to be overcome.

Just as the scaled-up customer offer is key, just as crucial is the logistics that sits behind these sorts of tie-ups: the consolidation savings of fewer, bigger deliveries; of centralised systems and better procurement whilst managing the extra stress on the supply chain from omni-channel shopping such as bricks and mortar shopping, direct delivery, click and collect etc.

Retailers of all shapes and sizes need to think carefully about their supply chains in order to stay competitive in a market where convenience is king. This is where non-traditional supply-chain actors such as DP World can help ensure your supply chain network supports your strategic ambitions by focusing on your supply chain North Star be it cost, service, flexibility or speed.

Our focus is on developing novel transport, logistics and trade infrastructure customised to our clients’ needs - facilitating the most efficient production and movement of cargo globally.

YOU HAVE A VISION, WE HAVE A WAY OF GETTING YOU THERE

To find out more contact our Regional Commercial Director, Dirk van den Bosch dirk.vandenbosch@dpworld.com or on +44 7721 238159

References:

Dixons boss interview in Retail Week Feb 2017