How Do We Solve A Problem Like Amazon?

Amazon have announced their latest financial results and we‘ve decided to close our Winchester store and concentrate on our online shop. The two are not connected but it’s easy to see from the figures why some people point the finger at Amazon for the success of online retailing and the closure of shops.

In 2012 your Amazon book purchases, Kindle downloads and the rest contributed to a worldwide revenue of $61,090,000,000. That’s just over $61 billion, if you have trouble with all those noughts. Turnover has increased by something like 45% on the previous year’s $48.08 billion.

So is Amazon set to take over the world of retailing as Britain’s high street shuts up shop? Will someone or something yet defeat it? Or does Amazon, like the Roman and British Empires in the past, contain the seeds of its own destruction?

More than any other online retailer, Amazon established the internet as a trustworthy convenient way to shop. Even though the rise in online retailing has played a part in destroying the high street, it’s too easy to put all the blame on Amazon or even the internet. Online sales are still small (around 13% in the UK), albeit big enough in some sectors to kill profits. Speaking for my shop, I don’t think too many people were checking out our handmade designer products and then buying them online.

There are many other factors that have affected the high street and my own shop. Number one is the economic downturn- people just aren‘t spending like they used to. Out-of-town shopping and department store-like supermarkets were bogiemen long before Amazon. Expensive parking in towns has driven customers into their  arms. I believe that one of the reasons why Winchester High Street is doing relatively well is the lack of competition from a Meadowhall style centre.

Then there’s the abysmal failure of those responsible to respond to shops’ difficulties by offering better rates, rents and bank loans.

Let’s also remember it was iTunes and film streaming rather than Amazon that busted Blockbuster. Even bookshops, most often quoted as victims of Amazon, were already damaged by the abandonment of price fixing which allowed supermarkets to sell all the profitable popular books at knock down discounts.

Nevertheless the ease of purchasing online and the low prices have taken a significant chunk of business from certain kinds of retailing. And Amazon has been the champion in the use of both of these weapons.

Some high street shops may be suffering from Amazon’s power but trading in the shiny new online environment isn’t a lot better. It’s true overheads are a lot lower but so are margins, thanks to low prices. Your Life Your Style will be trading solely on the internet in future, apart from a pop-up shop at Christmas. Like all the other little fish selling online, we can’t ignore Amazon swimming around like a massive pike in a small pond.

I don’t blame Amazon for its encouragement of low- at times lossmaking- prices. It simply recognised that customers searching for the lowest price would drive the rise of online shopping. However low prices are a problem for online retailers, including Amazon itself, and you could argue it’s a problem of its own making.

It may be that Amazon will fail because of that very business model that has made it the giant it is today. Low prices meant that last year its operating profit (what was left after costs) on the $61 billion dollar sales was $676 million. After deductions of interest payments and tax (don‘t act so surprised, they do pay tax somewhere), the net loss- that’s right, loss- was $39 million. Even the operating profit they made in the Christmas quarter was only two cents for every dollar taken. Compare that with the profits Apple or John Lewis make and you can see why it’s not all plain sailing on the Amazon tanker.

So, is there a David out there that might exploit this Goliath‘s weaknesses and what we would lose if we didn‘t have Amazon?

Straightaway we need to remind ourselves that at least one online retailer has already grasped the concept of what is unique about the web better than Amazon. Step forward Apple iTunes, a brilliant idea for selling a product that has no physical substance and therefore no fulfilment costs. Amazon has come late to this game with their Kindle e-books.

National retailers like John Lewis or Sainsburys also have a potential edge with their marriage of shop and online. Customers can use the shop as showroom but buy online (rather than using Waterstones as a showroom then buying from Amazon) or utilise the excellent click and collect. There is still a huge percentage more shoppers visiting shops than buying online which means Amazon are limited by having no showrooms. You might wonder what will happen to Amazon book sales, apart from bestsellers, if Waterstones closes and we can’t check out the books before buying online.

Some retailers make a success of selling own brand products because they have a monopoly. Next, White Stuff and even Marks and Spencer (if only M&S had products people want to buy) are examples of retailers who can set their own prices. Again Amazon lose out because they only sell goods in competition with other retailers.

Independent shops like Your Life Your Style do not have the advantage of either a national chain of outlets or exclusive products, but as I said previously the online competition is not so great for niche products- overheads are the reason for us leaving the high street and taking our chances selling purely online.

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Amazon tore up the retailing rule book that said competing on price can only end in tears because you end up with no profit. The key to success in the pre-internet days was to compete on quality, service and marketing. The trouble was, back in the nineties, people were reluctant to change their buying habits to this new fangled internet. Offering low prices was probably the best way to get people to switch to buying online.

The Amazon website is a wonderful warehouse but the emphasis is always on the cheapest price. Service is excellent but the clinical photos and bullet point descriptions do little to put across the value of the products. This works when it comes to selling a light bulb or something the customer already knows he or she wants but is no help when you need an uncertain purchaser to make an emotional connection with a product. John Lewis or even our own website do a much better job at persuading someone to buy a product. Its the difference between a description of a teddy bear’s size, colour and materials and a story of a child getting a bear, cuddling it and it becoming her friend. Or a picture of a wine glass and a photo of a dinner party with people chatting and drinking from the glasses.

From the early days of e-commerce, Amazon’s tactics have been the same. The company announced from the start that they would lose money for years while they built up their online business. As a result, they led the way, first as a cut-price bookseller who caught all other booksellers unawares. Then it widened its range of products, before moving into e-books which offer a better profit margin. Its best idea has been to invite other merchants to sell on its site. The virtually cost-free commission it earns from these traders may prove Amazon’s salvation.

If Amazon were to go, I would most miss the company’s tremendous commitment to innovations that make online shopping easier and more attractive to the customer from One-click shopping to rating the products to e-books.

Not that I would bet against Amazon winning the battle for the wallets of online shoppers. Nor it seems would investors who sent Amazon shares up when the results were announced.

A Christmas Carol

A minor disaster hit the shop this week. I’m not talking about the weather decimating sales or our selling out of faux fur hats and Steiff mini bears. No, much worse, our CD player, after many years’ hammering, finally threw in the towel. It probably couldn’t face playing Bert Kaempfert’s Tijuana Christmas for the zillioneth time.

Consequently we had to resort to putting on the radio to entertain our customers. As it turns out, I found our local independent station offered a very nice mix of music, until that is I heard it advertising a rival Winchester gift shop. It was at that moment I really found myself missing our Christmas CDs. But then I love Christmas songs- both carols and secular. I even find myself singing them in the middle of summer until I’m told to shut up (although that happens whatever I’m singing).

For me, the best Christmas crooner is Frank Sinatra. He makes the worst Christmas song ever sound good. The song in question being the one that begins ‘Oh by gosh by golly, it’s time for mistletoe and holly’ and proceeds to throw in every Christmas cliche you can think of. To me, it’s even worse that Cliff Richard’s Mistletoe And Wine. And no, I don’t have a thing about mistletoe, some of my best experiences have taken place under it.

Until I heard Frank’s Christmas album, I was never that keen on what seemed to me to be a weak, slightly off-key singing voice. So it was listening to Jingle Bells rather than My Way that suddenly I got what it was that people love about him. His art is in making what he does seem so relaxed, easy, almost louche but at the same time not entirely effortless, so the slight strain makes you feel he could be you attempting to sing- if only you had his phrasing and his sense of rhythm. So, thanks for a Merry Christmas, Frank- and Merry Christmas to you too.

Service Is Today’s Battlefield

Service is the battlefield for today’s shopkeepers. Customers now expect all us shopkeepers to be Bates to their Lord Grantham. New research by Market Force, reported by the Yorkshire Post,  shows how poor service affects shop sales. 9 out of 10 will leave a shop without buying if they don’t like the service. There’s good news for shopkeepers who fear online sales are going to take over completely: 79% prefer to go into a shop because they think face-to-face will mean better service. Another useful tip to take on board is that 8 out of 10 shoppers like to be taken to the product they have asked about.

I learn a lot about how to treat Your Life Your Style‘s customers from how I’m treated when I’m a customer. When Kwikfit quoted me £210 for new front brakes, I quickly moved on to another garage who quoted £70 less. But it was the offer of a home service that made me finally settle on the similarly priced Phill’s Auto Repairs.

When it comes to who you choose to fulfil your medical prescriptions, the price is fixed so it’s all about service. I decided to try one of my two local pharmacists’ services where they order, collect and fill your prescription. I based my choice purely on the fact that Boots gave me some points on my loyalty card.

Now you would think, since it’s all about service, pharmacists would go out of their way to get it right. Apparently not. Apart from the fact that my chosen one used an antiquated system of writing in a diary when they needed to order the prescriptions, there was no procedure for checking whether they had received them. This, I was told, was because they were too busy. Why take on a service you can’t properly deliver, you might ask?

Consequently three out of my last four monthly prescriptions were not there when I went to collect them. This is where service really comes into play. Businesses win or lose on how they handle a problem. So when the pharmacist on duty blamed me for it going wrong, it was not a good start. According to her, I hadn’t collected my previous month’s prescription.

I knew this couldn’t be true but, in the end, it doesn’t matter if the pharmacist was entirely blameless. Just as Bates thanks Lord Grantham for giving evidence that sent him to gaol, the retailer must treat the customer as right even when they’re wrong. As a customer, I didn’t need an argument, what I needed was my prescription, an apology and an assurance that they were working to improve their system. So they’ve lost my business. I’m changing to Lloyds who say they have a computerised system and have a member of staff check that prescriptions have arrived.

A version of this article appeared as a blog on the Southern Daily Echo website

I Guess I’m Right or The Importance of Research

We’re all guilty of thinking we know our audience. Often it’s based on what we are like ourselves or what we would wish our audience to be like. I came across this article on Social Media Today which illustrates the gap between what managers believe their customers use their Facebook page for and what they actually use it for.

We would probably all like to to think that when someone signs up to follow our Facebook posts or our Tweets, it’s because they like us, they like what we have to say and they want to know about us. That’s what the marketing officers surveyed thought. However the majority of consumers said they signed up because they wanted offers, games and info about new products. Only 38% said they wanted to show they were a fan. (I assume this leaves out all the people who sign up purely to try to sell you something.)

If we don’t research why our customers follow us, buy our product or visit our venue, how can we hope to market effectively to them? We often can’t afford to do our own research but that’s no excuse when there’s so much available on the internet. You may be right that your customers are different to those in this particular bit of research but it can’t harm to make sure that your postings on Facebook and Twitter include plenty of offers and news about new products.

Did The City Of London Kill The High Street?

I thought I’d solved the mystery of who murdered the high street. Then an article in Money Week came up with a new prime suspect.

Matthew Lynn’s view is that it’s not the government, local councils, landlords or even the slump in consumer spending. He blames the City. His reasoning certainly explains the anomaly of why Peacock should go to the wall but Primark continue to prosper, Burberrys weather the storm while La Senza goes bust.

Mr Lynn points out that although the growth of retail sales seen before the recession has stalled, spending is still showing small increases. Therefore he finds it odd that some companies are suffering as much as they clearly are. Our Poirot from the City used his little grey cells to work out that La Senza, New Look, Hawkin’s Bazaar and Peacocks and nearly all the other retailers in trouble have something in common. They are all completely or partly owned by private-equity companies.

As Lynn says, ‘The City loved retailing. It had stable cash flows and usually lots of property assets.’ So they bought retailers and ‘put a mountain of debt on them.’ This wasn’t a problem when times were good but ‘the City has stretched businesses to the point where they can no longer cope with any kind of adversity.’ In other words, a small drop in income and they can no longer pay the massive interest to the bank.

‘Businesses need to be able to survive through good times and bad,’ says Lynn and the financial markets should help them. Instead, we have a high street crisis ‘created by financial engineering’.

This makes a lot of sense to me and while it doesn’t solve the current problem, it suggests there may be hope for the future. I have been gloomy about high street shopping of late but, looked at positively, my own retail business Your Life Your Style and quite a few others are managing to get through the current economic downturn. Turnover continues to rise albeit sluggishly. Perhaps most significantly, we have no debts, except the money my wife and I loaned it.

Furthermore independents like us (and some bigger companies like John Lewis) actually want to be retailers, as opposed to managers of a financial asset. When times get better, independent shops could be well placed to fill some of the gaps left by these over-leveraged multiples.