The Opportunity Report

Inconvenience retailing

“Unrecognised item in the bagging area” is becoming a key phrase in the shopping vocabulary. Is there any machine more incomprehensible than the self-service check out in a supermarket?

From the perspective of the store they are fast, efficient and, according to Asda, “improve the shopping experience for those on the go”. They are also harbingers of a bright future in which customer facing staff will be superfluous - improving profitability no end.

From the standpoint of the customer they are a logistical disaster area and a constant cause of frustration, embodying, as they do, an astonishing lack of intuition about customer behaviour at the till.

So bad is this that, far from releasing staff from the onerous business of dealing with customers, one supermarket of my acquaintance has a team of supervisors helping customers process their purchases – so much for self service.

Treating the customer as a nuisance (TCAN) is a stratagem with a long history in British retailing. The reason Basil strikes our collective funny bone is that we all know a shopkeeper or hotelier that is a little bit Fawlty. Once upon a time it was just another area where the supermarkets were able to overwhelm the small retailer. The Colgate smiles and happy service in Marks & Spencer have moved the shopping experience onto a different planet from the bulldog scowls of the independent High Street. “No food, No drinks, No ice creams” (no customers)

No longer – now TCAN rules. For years some supermarkets, irritated at people only buying the same things week in week out, have moved staples around the store at regular intervals to keep customers guessing as to their location. Now the irritation has moved into the bagging area.  The enormous convenience of having someone to bag up your goods has long since been abandoned on grounds of cost. Now the very existence of a manned till is at risk for the same reason.

The holy grail of the supermarket is for customers to shop for goods and leave the premises having had their value charged automatically to a credit card. Once suppliers get their act together with RFiD chips, this will become a reality, in the meantime however we are stuck with the inconvenience of scanning the barcode on every item.

TCAN dictates that this is the customers problem – hence the self service check out. Research by retail banking consultancy RBR estimates that some 15,000 of the brutes will be in operation in UK stores by 2011, up from 7,000 in 2008. Already twenty five percent of sales in Tesco use the technology.

There is, however, some anecdotal evidence of a fightback. Cowes, famous for yachting rather than shopping, has two supermarkets – a small Sainsburys that replaced Somerfield this summer and a slightly larger Co-op about 200 yards apart.  The Sainsburys has five self-service checkouts and two manned tills.  The Co-op has five manned tills and no self service checkout.

The Sainsburys store can be distinguished by a long queue of increasingly disgruntled customers at the manned checkout. Behind the till a surly apparatchik exhorts the customers to use the self service machines which, for the most part, stand empty. The Co-op, by contrast, sees a regular throng of happy shoppers in conversation with staff who are universally friendly and welcoming.

A straw poll on Cowes High Street found that shoppers, initially enthused by the replacement of Somerfield with Sainsburys, clearly prefer the Co-op and everyone questioned mentioned the self-service checkouts as a reason for not shopping in Sainsburys.

It has been a long time since anyone described the Co-op as a paradigm for the way forward in supermarket retailing but, in Cowes at least, it meets expectations very well indeed.

I am no technophobe. I understand why supermarkets want to streamline the payment process but universal adoption of RFid technology is the answer not this clunky intermediate technology that puts potential customers off.  "Aha!" I hear the geeks saying. "There was a time when people used to go into banks and queue up to get cash." We now have the ubiquitous provision of ATMs, yet there are still queues of people taking out and paying in cash at banks.

It could be argued that the roots of the current financial crisis can be found in the breaking of the link between the personal bank managers and their customers and its attempted replacement with a machine. Nowadays, if you want truly appalling customer service, go to a bank.

Supermarkets are not yet that bad but in many cases the implementation of self-checkout has been as crass as the technology is poor.  Rather than attempt to force reluctant customers to use the machines by restricting the manning of tills, Waitrose adopt a different method. Here, upon entering the store, you are invited to take a scanner with you on your journey around the store and scan each item as you place it in your trolley. Those who want to take advantage of self-checkout are able to do so while tills and top flight customer service remain the same for those that don’t.

TCAN is a slippery slope. The retail banks have shown what can happen when it becomes embedded in strategy. Hopefully supermarkets will take note of what is happening in Cowes and on High Streets across the country as customers vote with their feet.

Feeling the way

Real Estate can be an emotional industry - all too often "gut feel" replaces rational analysis.  This is not to say that emotions are unimportant.  The origins of the current situation probably lie in over optimism for example.  The cycle of market emotions charts a recession starting and ending with optimism but exploring the full range of feelings inbetween.

This begs the question as to where we are now on this chart. My feeling is that we are somewhere between capitulation and despondency ie approaching the bottom - the time of maximum opportunity.

Rationally, different countries and sectors are at different stages of the cycle.  It is possible that UK residential property is sitting at the point of maximum opportunity already while UK commercial property probably has further to go. Generally, the big European markets are probably at the capitulation stage while fringe markets are hitting the panic button.

How best to monitor when we are reaching the bottom? Usually we only find out with hindsight - by which time it is too late!  However, on the basis that the press reflects what people are thinking and feeling, an analysis of the use of key words over time might give a clue. Already we can see that commentary has moved on from doom and gloom to sanctimonious tosh about "new world orders" and "different paradigms". The technique here is to take a positive word and a negative antonym to see the balance between the two - in this case "recovery" and "recession".

As the chart shows, these two words trundled along at their "normal" level in the FT until the Autumn of 2007 when they both began to increase in incidence with "recession" becoming more prevalent at the end of the year.  There were a lot of recessionary column inches in early 2008 followed by a relatively quiet period then, in October, "recession" moved from around 500 mentions a month to 1,750 and it has remained at that level ever since.  By comparison "recovery" moved from around 500 to the 750-1,000 range.  By the end of Quarter 1 2009 it had moved above 1,000.

Although the gap between recession and recovery has begun to shrink, which is encouraging, it remains substantial and doesn't point to a real improvement just yet - just more despondency and depression. Remember however, that between the two lies the time of maximum opportunity.

Devils on Horseback

Today, the 25^th of March, is a “quarter day”. The significance of quarter days is now limited, although leasehold payments and rents for business premises in England are often still due on the old English quarter days. In the Middle Ages, when rent was collected on horseback, four times a year was the frequency felt to be most practical. In order to help tenants remember due dates, the dates selected coincided with festivals in the Church calendar. These are the “usual quarter days” still enshrined in most leases. In these days of instant everything from messaging to gratification, this seems at best quaint, at worse a pointless constraint, yet here it is built in to modern, enforceable contracts.

Normally, reform of this kind of nonsense would be somewhere near the back of the queue for remedial legislation but there is increasing evidence that it is causing real harm to retailers particularly.  The British Retail Consortium, for example, has called for an end to quarterly rents and for monthly payments as standard practice on all new lettings. The particular problem identified here is the strain put on cashflow by having to find three months rent as a lump sum rather than a more regular outflow.  This is, of course, exacerbated by the current retail downturn.

Setting aside an apparent inability to plan cashflow. this is actually a problem that affects all tenants and how their tenancy is managed.  Given their current arrangements many landlords are opposed to change on the grounds that monthly rent collection would increase their administrative burden or that of their managing agents. Additional rent demands would need to be prepared and dispatched and, clearly, issues of late payment, notice etc need to be addressed.

I lease a car (outside the Landlord & Tenant Act!). I make the monthly payment by direct debit. I am not bombarded with monthly demands from Audi, I get an annual statement.  As far as I know, Audi do not employ agents to collect this money, there are no clunky rent collection systems involved, nor people using dubious collection rates as a measure of performance – the payment is made every month on the designated day. My cash flow planning is simple and transparent.

There have been a number of initiatives in this area. As well as the BRC, a consortium of large retailers led by Sir Philip Green have wrung some limited concessions from property owners by exercising their buyer power. The British Property Federation, after much deliberation, have conceded that monthly rents are “consistent with the 2007 lease code”.  Nobody seems willing to grasp the nettle here - save with the protection of some very thick gloves.

It seems blindingly obvious to me that all property leases should be paid monthly by direct debit.  Such a reform would save landlords significant sums of money by making the income available on time all the time. It would also dispense with the need to buy rent collection experts and the assorted paraphernalia that purports to manage rent collection. Property managers would be free to manage property rather than collect rents. 

Finally, it would allow tenants to better manage their cash flow and, in this kind of market, it could allow rental levels to be more flexible - given the landlords savings.

It would transform a 16^th century system into a 21^st century one in one jump.