Navigating the retail minefield

Warehouse woes

Few projects are as fraught with danger as the opening of all-singing, all-dancing state-of-the-art distribution centres designed to revolutionise the business but which get off to a stuttering start.

Halfords has hit the headlines in the past couple of weeks because of problems at its 320,000 sq ft distribution centre in Coventry. Store managers claimed that gremlins have resulted in lack of stock and intermittent deliveries. One told a newspaper: “Some lorries are turning up missing a third of our stock. It has seen sales nosedive.”

The glitches are an embarrassment for Halfords boss David Wild, who has a supply chain background, but analysts are confident he has taken the warehouse through the worst.

Halfords’ experience, although disruptive, seems to be better than that of Waterstone’s and Mothercare, where supply problems sent heads rolling. Bookseller Waterstone’s notorious distribution hub was acknowledged to have got off to a terrible start and was a contributing factor to the departure of boss Gerry Johnson. Similarly, Mothercare’s much-vaunted Daventry warehouse proved disastrous as problems dragged on, consultants were drafted in and management changes followed.

Leadership succession

A successful business should be bigger than any one person, the maxim goes. But retail companies, in which entrepreneurial founders and big personalities have often loomed large, have frequently failed to make a successful transition from one leader to the next.

The most famous example is Marks & Spencer. In the late 1990s the sparring for power between Keith Oates and Peter Salsbury, as Sir Richard Greenbury took a back seat, led to some of the chain’s darkest days.

A decade on, Sir Stuart Rose’s combination of the chairman and chief executive’s roles showed succession remained one of the hardest things to get right - the board’s failure to resolve it resulted in the Rose’s controversial dominance and the eruption of hostilities with the City.

Rose’s eventual successor, Marc Bolland, was earlier parachuted in to Morrisons where grocery legend Sir Ken was reluctant to give up the reins and locked horns with non-executive director Sir David Jones, who was determined to force a transition of power.

The importance of succession planning was also accepted as a failure on the part of Lord Kirkham, the founder of DFS and one of retail’s biggest personalities. He admitted after DFS’s sale that he had been “rubbish” at it - and advised others not to make the same error.

Marketing mistakes

Effective use of shopper data is the grail these days, but comedians and malcontents among the workforce can make merry and malicious with customer details.

Health and beauty specialist Boots suffered just last week when it had to apologise to 63-year-old Andrew Adams from Swansea after he was sent a loyalty card in the name of ‘A Suicide Bomber’. It’s a problem that has afflicted businesses in many sectors as companies endlessly gather information about customers.

But retailers have more often fallen down on their flagship marketing campaigns. Among the best known examples are M&S’s eccentric ‘I’m normal’ campaign, featuring a naked size-16 model yelling from a hilltop, or John Cleese’s disastrous deployment by Sainsbury’s, screaming about the grocer’s “value to shout about”.

Such campaigns have often occurred in moments of self-doubt for the businesses concerned. Perhaps a warning that during times of turbulence, the message to consumers should be stripped of risk.

Diversification difficulties

Expanding into other product ranges and services allows retailers to gain higher margins and returns, and build brand loyalty.

As so often Tesco has led the way - it teamed up with Royal Bank of Scotland to establish its banking operation and achieved complete control by buying its partner out of the venture. Tesco Bank now has more than 6 million customer accounts and there was 28% growth in instant access savings last year.

But sometimes entering new business areas proceeds less smoothly. Carphone Warehouse’s attempt to move into the broadband market started appallingly, and founder Charles Dunstone described the launch of Talk Talk as “his Iraq war”. The problems were successful rectified and the businesses were demerged in March this year.

Poor implementation led to Boots’ Wellbeing division, offering everything from laser-eye surgery to dentistry, to close in 2004. That was just a year after it had closed a similar complementary health clinic business.

Responsible retail

Despite public furore, retailers still launch products that draw fire for the sexualisation of children. Public outrage resulted from Tesco’s £50 pole-dancing kits in its toy department in 2006 and more recently Primark’s padded bras gave The Sun licence to splash their front page with ‘Paedo heaven on our High Street!’. In July, M&S suffered criticism for its trial of a plus-size uniform range in response to customer demand.

Such moves do spark debate. According to a recent survey by Brandwatch, 37% mentions of M&S on social media networks were about the plus-size uniforms and 19% of mentions of Tesco were about a mini-skirt for children.

Trusted brands risk losing consumers’ loyalty if they seemingly slip on their values. However, not all consumers react in the same way. Retail Week’s ICM poll (August 20) found that almost half of the respondents (46%) thought that selling plus-size school wear is a good idea.

Data control

The advent of the information age means that protection of shopper data must be a priority - failure to measure up can result in a fine of up to £500,000 - but stores have been found wanting.

Electricals group Dixons has had to sign a formal undertaking to improve data protection practices after eight completed credit agreements relating to transactions - containing customers’ personal and financial data - were disposed of in a skip in January.

The agreement means the retailer will conduct a review of security measures, communicate its policies to staff and ensure they are trained to follow them. Systems in place must ensure customers’ data is protected in the first place.

In March, Argos sent shoppers’ unencrypted credit card and security details in emails confirming their orders. The leak left customers vulnerable to fraud. Similarly, in November last year, hundreds of Play.com’s customers’ personal details were emailed out to other customers.

Online muddle

Within the last few weeks some of the biggest fashion retailers have embraced the world of ecommerce as Gap and Inditex-owned Zara finally offered transactional websites. They will have learnt from those that went before.

As such a new market compared with bricks and mortar, even the biggest retailers can get it wrong. Sainsbury’s site encountered several technical issues in 2008 and had to be suspended for 48 hours, affecting thousands of customers, following technical faults that took months to iron out.

Even etail specialists can misjudge likely demand for the new medium. Net-a-Porter’s discount sister site The Outnet crashed several times when the etailer staged large Sale events, such was the rush by customers to get a bargain on its luxury fashion items.

Social media is a new minefield that retailers are tentatively trying to navigate - Paperchase found itself the target of outrage on Twitter over design plagiarism allegations. The retailer reacted with feet of clay, displaying a lack of understanding of how social media worked, which resulted in a damage limitation campaign.

Acquisition indigestion

Acquisitions are frequently front of mind for growth-hungry retailers, but are often dogged by post-deal problems.

If done well it can expand the base and increase sales. Done badly and a retailer can be destined for years of misery. After paying £3bn for Safeway, Morrisons ran in to a raft of problems leading to an overstretched management team, profit warnings and the portfolio shrinking from 604 when it bought the supermarket chain in 2004 to 380 in 2006. More recently, the Co-op found some teething problems with its Somerfield acquisition, resulting in falling sales as it moved to convert stores.

On a smaller scale, burgeoning online retailer The Hut found itself at the end of some bad PR after buying Confetti from Findel and subsequently putting it into administration. Some Findel staff were so incensed it shut The Hut’s staff out of one of its warehouses.

International

Overseas markets have increasingly tempted British retailers but their moves abroad have often not gone smoothly.

M&S has stuttered in some of its international plans - its entry into mainland China was fraught with difficulty, and this year Pets At Home decided to pull out of its franchise business in Australia.

Halfords had to call time on its fledgling Eastern European operations and Sports Direct’s Chinese growth plans hit an obstacle last year when a planned roll out with Chinese retailer ITAT stopped after the latter was acquired by a supplier.

Meeting demand

Letting customers down in the shop is a prime way to lose sales and footfall. Among shoppers’ most hated failures is advertising special offers that turn out not to be available in-store.

Availability is a constant irritation to shoppers. Between 2004 and 2005 Sainsbury’s stock control system badly let it down as shelves lay empty and rivals moved ahead. The relaunched Kwik Save also had appalling stock issues due to late payments to suppliers - it went bust soon afterwards.

Customer service standards often fail to come up to scratch. And consumers like nothing better than to spread the news of their bad experiences.