Is Dick Smith turning around?

Back in June I thought Dick Smith was a Dead Brand Walking, given the cruel suffering and ineptitude that is a visit to one of their stores, but since then I’ve had a number of opportunities to eat my words. The Business press is crammed with Hero worship for the genius of Anchorage Capital, the Private Equity firm and majority owner of the once iconic retail brand, also for Nick Abboud, the no-doubt brilliant retail CEO.

But I’m not convinced that the PE miracle is anything more than a slick PR mirage engineered to rake in a massive return for Anchorage Capital on the back of their very own ABM (this Alan Bond Moment came at the expense of Woolworths’ Shareholders).

Cut through the awesome David Jones deal, and the fashion tech store concept Move, and you’re left with the same old same old at the vast majority of Dick Smith stores, maligned staff all too few in number servicing a similarly slight customer base. Even if Dick Smith managed to look just like JB HiFi, which it won’t, it still won’t BE JB HiFi and it will lose all the same.

It’s said that growing a business means doing what you do so well that the Market DEMANDS that you get bigger, you get bigger only by being better. Doing deals and launching concept stores helps to create a perception of doing better, but the P&L is geared around the 300+ unprofitable stores that look just like they did when Woollies owned them, setting out a blueprint for a rocky ride on the ASX if they can get it there.

No, I suspect the miracle turnaround begins and ends when Anchorage offloads its investment in Dick Smith in record time to Retail Investors through a listing, or to the management team beforehand, and for as much as 20x the $20m they paid Woollies!

Maybe Anchorage’s ABM is more of a GGM for the Dick Smith team?

Why Dick Smith Electronics is a dead brand walking

Dead Brand Walking

Less than a year after Woolworths (WOW) sold DSE to Anchorage Capital (after 20 years of ownership), and the basics of retailing seem to be all but gone at the struggling Electronics retailer.

It was always hard to imagine that the specialist Private Equity firm could do a better job than WOW at shaking up DSE’s retailing fortunes, suggesting that their focus may be on the DSE Website. But try as they might, they will not build an online profit pot big enough to counter the millstone effect of a failing retail chain.

Get face to face with one of the DSE crew in any of the 325 stores (that’s Harvey Norman and JB Hi-Fi put together) and you will more than likely abandon any idea you once had of purchasing some battery powered thingamy.

My third trip to DSE George Street Sydney in so many weeks has left me agape at the ineptitude of the floor walkers, scarce as they may be.

Here’s an example. “hey” I said, “can you tell me about this Kensington GPRS device”, “no”, he said, “I don’t know anything about it”. “ok, well, what about this Jawbone UP?”, “no, sorry”.

Where is “Let me find someone who does”, or, “let’s look it up on one of the 200 effing PC’s we have in the store”, or “give me your email and I’ll send you something”, or ANYTHING FOR THAT MATTER – SHOW ME YOU CARE, SHOW ME YOU GIVE A SHIT! This is about care for your customer, which is an attitude. JB Hi-Fi seem to solve it with hiring and incentives, but failing that getting the culture right is a good place to start.

I may have been unlucky. Three visits and three checked-out check-out workers. But that’s all it takes to kill your brand once and for all – and after 45 years on the high street, that would be a tragedy.

Click Frenzy, in spite of the massive failure it was an unprecedented success!

Sneeze and you may have missed it.

The Click Frenzy frenzy came and went in a matter of days, yet in that time it managed to reach the consciousness of some 20% of online Australians! That’s quite an achievement.

Their PR machine had triggered something in Australia’s uber-price-sensitive media which led to an incredible amount of coverage in the days leading up to the sale – it really did become a frenzy.

Even before the site ran into capacity issues on their woefully inadequate servers, their business model meant they would only ever make moderate returns. Choosing an all-up-front fixed-fee suggested they doubted the results they could yield for their retail partners preferring instead to cover their costs and hope for a modest return.

All in all, they clearly had no idea how ready the Australian market was for Click Frenzy!

Click Frenzy founder Grant Arnott explained in a rare and touching mia culpa that 300k visitors was their top traffic estimate, so the 1.6m visitors they actually saw blew their infrastructure wide open. To be fair, I think only a handful of sites around the world would cope gracefully with 1.6m concurrent users! The fact is the 7pm launch time was a big part of the problem, internet infrastructure hates concurrency!

Aside from the access issues suffered by many hundreds of thousands of bargain hungry shoppers, many found their way to the registered retailers and boy did they spend!

One retailer example I was shown paid less than $3,000 to participate but yielded over $80,000 in sales. An equivalent Group Buying offer would have cost the business $24 – 30k in commissions! A pretty good outcome for the retailer!

The chart below from Quantium shows the direct impact on participating retailers versus non-participating retailers.

160 retailers of varying sizes participated, and Click Frenzy probably netted an average of 3 – 5k upfront from each, meaning 480 – 800k in Gross Revenue. Not bad, however had they chosen to take a booking fee plus a moderate trailing commission, they would have netted anywhere from $800k ($1k upfront, 5% commission on $80k Average) to $2.4m ($1k upfront, 15% commission on $100k average)!

All credit is due to the Click Frenzy team, they were swept along by a frenzy of their own making albeit they we flattened in the stampede. Better luck next year.

Australian Retailers are frozen in time, what they need is Online support.

In a previous post I said that “Pricing alone will never lead to a long term strategic advantage, only service quality and inspiration can” – something similar to a quote today from CEO of Masters, the challenger hardware-retail brand from Woolworths.

Don Stallings commented: “more than half the people shopping for whitegoods at Masters hardware stores use smartphones to check competitors’ prices… to get those sales over the line in a traditional store, customer service and the personal touch had to be of the highest quality. [at] Masters [we have] spent as much on training staff to deliver customer service as on the rest of the business”

Meanwhile, across town at Myer, Bernie Brooks laments that “[the] customers’ propensity to purchase is not improving” so they are “pinning hopes on their midyear stocktake sale”

Sadly, I suspect a slash and burn approach will not be the answer long term, unless Myer fancy jumping onto JC Penny’s EveryDayLowPrices strategy? (The downside of which I blogged about earlier).

Myer + Myer One Loyalty club have the bones of a very defensible Retail strategy when Multichannel is fully embraced; where Lifetime Value, upsell and cross sell are key and are driven by what is already known about each customer segment, customer cohort or even, individual customer. But each retail touchpoint has to be aligned to the vision of “lifetime customer value is king”, something that may be easier to achieve when the business is built from the ground up with no technical or cultural legacy, sadly Mr Brooks doesn’t have that luxury.

“Discount heavily and I will love you right now, inspire me with insights and ideas and great service and I will love you for ever”

Profiting from the fundamentals of Group Buying: Part 5… Instant gratification

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Group Buying is a compelling online purchase for the same reason that Music and Porn have been eCommerce stalwarts since the dawn of the Internet, because the purchase is instantly satisfying.

Unlike typical Online shopping, making a purchase through a Group Buying site means you are rewarded instantly with a Voucher or Coupon. Suddenly the customer has something real; the voucher guarantees access to the product or service and locks in the discount they have been savvy enough to secure.

Online discount shopping usually means trading off the available discount for the wait the customer will have to endure, versus paying a bit more to pick it up in store – in some categories customers are willing to pay significantly more if that means getting instant access, think Apple.

But more can be done to close the gap and make online shopping more satisfying. A voucher is a great start, something glossy and celebratory that serves to remind them how savvy they are. Game mechanics also have a part to play, with regular email updates documenting the journey of their purchase, building anticipation and a sense of fun. Lastly, why not allow pickup? If your business has physical infrastructure where the voucher can be exchanged, this is a tremendous opportunity to cross-sell (like a physical Thank You Page!).

Profiting from the fundamentals of Group Buying: part 2… Fleeting

It is common for consumers to react negatively to a deep discount where they don’t understand the reason for the sale. Often customers will assume there is a hidden catch, something they can’t see that others can, reasons they will look foolish and regret the purchase – in each case they will walk away from a discount rather than risk being exposed… to prevent these barriers emerging is it critical that consumers are provided with a sound rationale for the sale. This is a fundamental principle behind Group Buying, providing sound explanations for the discount, i.e. group discount, time limited offer, discount in exchange for promotion etc.

Consumers are a savvy bunch, without a clear explanation for the discount, the customer will assume there is a catch and walk away.

imageThe second mechanism employed in Group Buying to illicit maximum discounts from Merchants (and ensure impulse behaviour from consumers) is by making the offer “Fleeting”, i.e. limiting the time an offer is available in order to drive customer action through our basic fear of missing out!image

“Fleeting” is a critical function of Group Buying and Flash Sale sites and is incredibly effective at driving action. Fleeting is also used to great effect in the real world through “stock take sale”, “this weekend only” and “closing down sale”.

By time-limiting offers and proving game mechanics to generate excitement and drive action a lift in sales is guaranteed.

Much like the other tactics covered here, though, the use of a timer has to be genuine, like the Rug Store with its perpetual “closing down” sale, savvy consumers will quickly see through a fake deadline.

Profiting from the fundamentals of Group Buying: part 1… Focus

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Group Buying works for a reason, regardless of the service woes plaguing the industry (which have been driven by a combination of greed and inexperience, not the model itself) the principles behind Group Buying are sound. Over the next few posts, I will explain the key mechanics and position them in a series of non-Group Buying contexts.

There are six key mechanics inherent to the category that are designed to illicit an emotional response, such as an impulse purchase.image

This is the first of six posts I will write that describe those mechanics.

FOCUS ATTENTION ON ONLY A FEW OFFERS

Limiting promotional efforts to only 1 – 3 featured offers enhances the perception of those offers and likely uptake, minimising “noise” around those offers will further spotlight the chosen few. Featuring multiple offers on the other hand dilutes the “WOW” and runs the risk of Paradox of Choice effects.

Most email platforms will support controlled tests, such as sending one control group an EDM with multiple offers, one with the three best offers and one EDM with only a single “hero” offer.

Assuming the control conditions are sound, the likely outcome is that the Hero and “three best offers” EDMs will each provide a click through rate that is greater than the “multiple offers” EDM even though the multiple offers email included the featured offers from the other tests.

Finding the right balance is critical, and running controlled A/B and Multi Variant Tests will find that balance.