Retail Therapy

VIEW FROM THE GROUND FLOOR

It’s been quite a while since I mentioned Marks & Spencer in this column mainly because there hasn’t been anything very interesting to say. Every since the Stuart Rose vs Philip Green bust up outside the company’s HQ at the time of Green’s failed bid, the retailer has been continuing to post weak trading results and seems to be happy to get through each day without any great master plan to change things. Like for like sales for the final quarter of last year were down 6% which was incredibly poor. The company continues to haemorrhage market share in the clothing department, while the marketing of Tesco’s Finest range is putting the squeeze of the jewel in the M&S crown - their Food Halls.

Although the M&S experience in Ireland has been positive, it’s certainly not enough to drag the company out of the mire. (And the ‘concept’ store in Blanchardstown is a complete mystery to me; when asked what it actually meant one of the sales assistants replied that they ‘wore black uniforms’.) Somewhat surprisingly the share price has continued to make more ground than the profits and is hanging around the 350p level (Green, you remember, was offering 400p); and many investors seem to think that - even if things aren’t getting any better - they won’t get any worse. This is not exactly a very comforting reason for investing in the company of course; given the competitive world of fashion and food retailing, things actually could get worse. Maybe shareholders are comforted by the disposal of M&S Money and the sale of the former HQ at Baker Street last week but my concerns would be for the future growth and strategic direction of the business.

Or maybe they’re hoping that Green will re-enter the fray again in and around the 400p level although whether he could be bothered or not is a reasonable question. After all, BHS, which is owned by Green claims record profits. Why get bogged down in M&S misery when all is well in Arcadia?

Of course if former chairman Luc Vandevelde had delivered on his promises it might be a different story for both investors and board members alike. Vandevelde was at the helm for four years and he promised to turn the fortunes of the retailer around by getting back to core values. (New chairman always say things like this.) He closed down the continental stores and slashed jobs which managed to win him the UK National Business Award in 2003, but his wide variety of outside interests led to a somewhat semi-detached role at the group. At one point he hadn’t turned up at HQ for three weeks and the directors decided that they’d had enough. One of Vandevelde’s outside interests was as a board member of the French retailing giant, Carrefour. His commitment to the supermarket chain has become even stronger now as he has just replaced the previous chairman, Daniel Bernard, who had been at the helm for the past 14 years.

Although in Ireland we have embraced the European ideal with gusto, having gone metric with our weights and measures and welcomed the euro with open arms, we’re less familiar with the continent’s retailing giants. We’re beginning to get to grips with Aldi and Lidl, but their Irish stores are relatively small compared with what we’re used to. Carrefour, on the other hand, is like Tesco - only bigger. When I do my Spanish/Irish comparisons it’s in a Carrefour that I fill the basket (the French company having taken over the Spanish Continiente group a few years ago). The supermarket chain is Europe’s biggest and the world’s second biggest in terms of sales (although Tesco has a greater market value). But the performance of the share price over the past five years has been miserable, plunging from a high of 96 euros to about 40 now. The retail market in France is savage, and competitive pressures are growing all the time. Carrefour needs to be able to maintain its reputation for quality while still being able to compete on price. And it’s losing the battle.

So why have they brought Vandevelde on board? Let’s face it, if he couldn’t do it for M&S what makes anyone think he can do it for Carrefour? He is, of course, close to the Halley family which holds a 13% stake in the company and almost 20% of the voting rights so they are likely to cut him a good deal more slack than if he’d just sent in the CV and hoped for the best. The group has restructured its management roles by setting up a management board for day-to-day activities and a supervisory board as a control body. Vandevelde says that this structure is better for the challenges facing the group. He’s big on changing structures but is he really so big on changing anything else? Perhaps Carrefour is an easier challenge for a man whose experience is more rooted in the food sector than in the clothing sector. Vandevelde spent 24 years at Kraft General Foods and so his knowledge of coffee and dairy spreads is a good deal stronger than his knowledge of hemlines and fabrics. The president of the Carrefour management board, Jose Luis Duran wants to build a stronger group and ‘mobilize the men and women of the company’. He believes that the group needs to have a more aggressive policy for the future and is keen to make changes. Those changes, however, apparently do not include a merger with Tesco, an interesting idea which has been floated in retailing circles recently.

Every summer, when the nearest branch of Carrefour to me is bursting to the seams with the piled-high trollies of overseas home owners and Madrileños who have come to the coast to escape the blistering city heat, I can’t help thinking that it’s an absolute goldmine. But one branch can’t help the bottom line improve.
The question is, can Vandevelde?

Posted by Sheila on 02/14 at 03:07 PM - (0) ADD / VIEW COMMENTS

January Trading

VIEW FROM THE GROUND FLOOR

January is the month when most traders start off with a blank space in the P&L account. The previous year is history, the bonus (hopefully) has been paid out and now you have to do it all over again in the next twelve months. Each January you think that the coming year has the potential to be the best ever; you vow to take full advantage of every trading opportunity, promising yourself that this year you will definitely cut your losses and run with your profits and that you’ll avoid all of the stupid mistakes you made the year before. Trading, like marriage, is the ultimate triumph of hope over experience.

Actually, experience is both an advantage and disadvantage when it comes to making money in the markets. You’re less likely to be taken in by the gloss that analysts put on their preferred area of the market but you’re equally likely to be far too cynical for your own good, which means that sometimes you pass by on perfectly good trades because you don’t trust the hype. (Often you’re right not to trust the hype and the perfectly good trade can unravel 6 months down the road but there’s always one that gets away!)

There’s the temptation, too, to look for the next big thing. Last year it was China whose meteoric economic rise has propelled it to a world player in the global marketplace - although not without the necessary accompanying corporate scandals. The problem for outside investors is that there continues to be a lack of transparency with regard to corporate regulation and governance in China, with a particular problem in the area of ‘related party transactions’ where the relationship between subsidiary companies is often complex and difficult to understand. The Chinese seem ambivalent about corporate governance and investors are possibly less protected there than almost anywhere else in the world. Although, of course, having complex regulations on corporate governance doesn’t necessarily mean that investors are any better off if those regulations aren’t enforced. The actions of China Aviation Oil traders wasn’t a whole lot different to those of Enron. And the CAO chief executive was arrested a damn site quicker!

Although China will definitely continue to influence Western economic thinking, attention has already switched to India as the new kid on the block. We are already used to the notion of India as the call centre capital of the world but the country has moved on to payroll and transaction processing and is now looking towards engineering design, technical services and investment management. The Business Processing Outsourcing industry (BPO) is worth over $3.6 billion to India and is continuing to grow. According to some analysts more than 80% of the US Fortune 500 companies are now looking at executing non-strategic work offshore. (In the UK, the trade union Amicus has voiced concerns that over 12,000 jobs will be outsourced in the next year in addition to the 18,000 that have gone since October 2003.  In the US, people talk about being ‘Bangalored’ which means that they’ve lost their jobs because the work has been outsourced to India.) US giant General Electric recently sold 60% of its outsourcing firm to a couple of US private equity firms. The outsourcing company was set up near New Delhi in 1997 and has increased revenues to a projected $420 million last year from $26 million in 1999.

Last year Chinese horoscopes were all the rage for predicting both your personal life and your investment portfolio. Now people are looking at Indian horoscopes and Vedic astrology to answer questions about the year ahead. The astrology site http://www.indastro.com allows you to order your investment portfolio astrology report for a mere $20. This report will tell you, apparently, what kind of investments suit you and which industries you should be looking at and, in fact, whether the stock market is right for you at all!

However back in the Western world the old story of stock markets doing well in years which end in a five is doing the rounds. There does seem to be anecdotal evidence to prove this theory - in 1995 the S&P was up 34.1%. In 1985 growth was 26.3%. And in 1975 it was up 31.5%. Of course, as all investment managers will tell you, past performance isn’t always a good indicator of future growth and so 2005 could be the one year which disappoints. However people want to hold out hope that the lift seen by most equity markets towards the end of 2004 will continue into 2005 and make that prediction come true. Most of the good news came in the technology sector which may have finally shaken off its image as the black hole of investors dreams. My favourite (my only!) tech stock, Apple, managed to triple over the year thanks to the massive sales of the must-have iPod. I’m hoping that Steve Jobs has been looking into his crystal ball for the year ahead and thinking a little bit outside the slimline box for ways to keep the company at the forefront of cutting edge technology. My feeling is that Apple Computer may need to look at another product - I’m longing for the Apple mobile phone! Given that camera phones are now replacing digital cameras with the quality of their pictures, it surely can’t be long before they provision of downloadable music directly to the phone replaces even the most stylish of portable digital music players. The iPod has become so ubiquitous now that a consumer backlash is almost inevitable as people ask for even more features and exciting designs.

The trick for everyone, traders and investors alike, is to try to stay ahead of the curve. But in an era of instant communication and fickle consumerism it becomes harder and harder to identify the long-term winners against those who will shine bright for a time and then disappear without a trace.

Posted by Sheila on 01/24 at 03:15 PM - (0) ADD / VIEW COMMENTS

Outsourcing

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I mentioned recently that having your phone conversations recorded was one of the hazards of being a trader (and of the humiliations involved in hearing them played back to you) but I’ve noticed that more and more companies are now doing this too, ostensibly for ‘training and quality purposes’. I wish they’d record the bit where I’m screaming at the machine to say that I know that all their customer service people are busy and that I know that my call will be answered in rotation - but when the hell will that be? If a company has invested in the technology to answer the phone and allow me to choose from six different options (although none are usually the one that I want) then surely they can also tell me where I am in the queue and for how long more I have to listen to the strangled sounds of Greensleaves or (even worse) their latest advertising jingle.

I feel sorry for people in call centres who undoubtedly take the brunt of customers’ aggravations when they eventually get the opportunity to speak to a human being. But the biggest problem, as a consumer, is that the corporate drive to be lean and mean has meant that the job has probably been outsourced anyway and so the human being we’re finally getting to talk to isn’t actually employed by the company with whom we wish to deal at all! So telling them that you’re never going to buy their product again means absolutely nothing. It is, after all, no skin of their collective noses.

I was thinking a lot about outsourcing thing recently, having been looking at the figures for China and India for the previous week’s Ground Floor and knowing that it is a phenomenon that is here to stay. Of course outsourcing doesn’t necessarily mean employing an overseas workforce - it can just as easily mean contracting out non-core business locally, which is something that many, many companies now do.

Outsourcing areas such as IT support and customer care (although I have to say that the latter is a bit of an oxymoron in many cases) is a reasonable step for some companies to take. After all, it really doesn’t matter where on earth the operator (or agent or representative or any of the many job descriptions that are used now) is located; the key element is to answer the phone and deal with the customer - once he or she has successfully made it to the top of the queue!

But is outsourcing always the right answer? Clearly most companies look at it from a financial viewpoint and the payback is fairly compelling. An initial investment at the beginning followed by cheaper operational costs in the future has to be a recipe for a leaner and meaner corporation going forward. And if there are some teething troubles, well, the consumer has got used to that.

And most of us probably have. The truth is that we ring helplines more in hope than in any real expectation that we will receive the answer to our query from someone who actually knows what the problem is. And it’s fairly pointless in getting frustrated with the person at the end of the line who really can’t help you at all. Apologetic they may be. But they’re working for somebody else.

As a consumer, I would much rather companies didn’t outsource at all, but the question is would I be prepared to pay more for a product on the basis of excellent customer service? Clearly most companies feel that an almost adequate level of service and a cheaper product is sufficient. And, while ex-employees and consumers may be less than happy, we have to assume that the companies themselves, faced with lower costs for the future, are ecstatic.

Apparently not all, though. According to a recent report in Computerworld, there is anecdotal (though not yet scientific) evidence that almost half of the companies which sign an outsourcing contract are dissatisfied at the end of the first year. Even as more and more companies began to use outside contractors in many support areas, a further number reverted back to their original locations. The main reason given was customer dissatisfaction. I do wonder how those customers managed to register their dissatisfaction though - was it an option on the telephone choices?

However there are other reasons for companies to feel less enthusiastic than at first about their decision, and they stem to a certain extent from what the companies themselves are looking for. Many seem to want dramatic cost reduction and increased productivity and they want that to happen immediately. But realistically they should be factoring in a period of time when productivity may be lower, not higher, as the new company gains experience. And that’s probably the time when customer dissatisfaction is highest.

There can also be a lack of team spirit within the company, particularly if the work of a certain group is outsourced but they still need to use company facilities. This is becoming more and more common as the company which has contracted them often wants the same level of commitment that they get from their actual employees. Yet those outsourced workers will often have other contracts too. Why should they care more about one client than another?

As fewer and fewer employees have a direct input into the finished product, and fewer have a sense of ownership of the company itself, the task of motivating them becomes harder yet more important. We all need a sense of pride and achievement in what we do. But that’s a two-way stream. Companies have experience in making direct employees feel motivated and part of a team. There is a challenge still to be met in making their contracted employees feel the same way. And the challenge is doing that in a positive way rather than simply threatening to relocate those jobs to yet another different place.

Posted by Sheila on 01/24 at 03:11 PM - (0) ADD / VIEW COMMENTS