Retail Centre Newsletter
Issue 1: April 2008
Welcome to the first edition of the MBS Retail Centre newsletter. This quarterly bulletin is designed to keep you informed of the key events and issues affecting the retail industry. With contributions from some of the leading retail academics and practioners, and brought to you by one of the world’s leading specialist retail education providers, we aim to go beyond the traditional descriptive newsletter and provide expert commentary and opinion on the issues that really matter. In this edition we set out the need for a new retail leadership agenda, examine the claims that we are heading for a global retail recession, and keep you up to date with all the latest industry news. We hope you enjoy what we believe will become one of the industry’s premier sources of global retail news commentary.
Prof. Nitin Sanghavi, Director, Retail Centre, Manchester Business School
Retail Change and the New Leadership Challenge
Retail markets around the world are currently in a period of extraordinary change. This is distinguished from other periods of uncertainty by its sheer pace and scale. Within this environment retailers need to continuously re-align themselves to change – to new emerging competitive conditions, to changes in consumer preferences and behaviours, and to changing resource requirements. Given the pace of change, they are having to do this more than ever before. To maximise the chances of success in this ‘new’ retail world requires a new leadership agenda and a different type of leader. Retail organisations require leaders that can embrace and use change to their advantage, as well as organise the company through its functions and people. Here we aim to initiate this new leadership agenda by putting forward the key leadership traits we believe are required in this ‘new’ retail era. Retail change and the pace of change We are currently in the midst of a retail change revolution. On the demand side, consumers are getting older (on average), more wealthy (on average), more demanding, and both more sophisticated yet more schizophrenic in their behaviour. On the supply side, retail markets are getting more internationalised and more competitive. The nature of competition is also changing rapidly as the largest retailers get larger, and many diversify out of their traditional sectors. As individual retailers respond to changing consumer demand and competitive conditions with new formats, channels and hybrids, they are driving further changes in both market and organisational structure. Of course, change has always been a feature of retailing, but what distinguishes the current period of market and organisational transformation is the sheer pace and scale of change. Consider, for example, the huge technological/communication advancements that have occurred over the last ten to fifteen years and the impact this has had on the link between retail supply and demand. Just ten years ago the internet was in its infancy and on-line transactions
were almost impossible. Likewise, fifteen years ago mobile phones had yet to be introduced to the mass market. Today on-line retailing is an established retail channel and mobile phones are an increasingly important advertising medium from which retailers can communicate on an individual basis directly with consumers. The need for new leaders in the new retail world Looking to the future, the only certainty is that the future remains uncertain. That is, that the speed and scope of retail change will continue to intensify. Retailers will therefore be faced with the challenge of constant innovation, re-invention and transformation to continuously re-align their organisations with changes in consumer behaviour and competitive conditions. To do this successfully requires a new leadership agenda and a different type of leader. Retailers will require leaders that can both embrace and use change to their advantage, as well as organise the company through its functions and people. This new type of multi-faceted leader is critical for success in the increasingly dynamic world. That is, although effective leadership has always been fundamental in implementing business innovation and transformation strategies, it is the ability to be flexible and constantly rise to the challenge and pace of change in the external environment that will set the ‘true’ leaders apart in the future. What makes an effective leader in the current dynamic market? So what makes an effective leader in today’s fast moving retail industry? According to Warren Bennis, Professor of Leadership at the University of Southern California, “the new leader is one who converts people to action, who converts followers into leaders, and who converts leaders into agents of change” . Today’s organisation doesn’t require leaders who will sit at the top of their company pyramid declaring: “I manage what I control and I control what I manage” Instead, the new leadership . model revolves around leading, managing, coaching and being a member of the leadership team. Effective contemporary leadership is therefore about flexibility and empowerment,
as opposed to the traditional rigid, top-down order. It is about adopting different styles of leadership at different times – from the autocrat, to the participative leader, to the reformer – depending on the needs of the individual, the organisation, the industry and the world at large. Kenneth Blanchard describes this as ‘Situational Leadership’. A few leadership scholars (for example, Daniel Goleman) are suggesting that today’s leaders need to move towards transformational leadership. This approach focuses on the relationships that leaders need to create and sustain through developing emotional intelligence in four areas: self awareness, self management, relationship awareness, and relationship management. In today’s complex and constantly changing market place leaders do not need even more command and control. Instead, they need a means of engaging everyone’s intelligence to solve challenges and crises as they arise.
So what type of leadership and leaders are required under these conditions? We believe we need leaders who: • clearly see themselves as a change agent • take a stand and exercise courage when required to deal with resistance • are not afraid to ‘rock the boat’ (without capsizing it!) • believe in empowerment and the potential of people (within a framework!) • are highly optimistic by nature (the glass is half full) • are driven by a strong set of principles and values • create stimulating environments in which people genuinely look forward to coming to work • see mistakes as genuine learning opportunities (unless they are repeated!) • are able to focus on the small details – the important things that make a difference, yet remain visionary – not losing sight of the big picture • are courageous – not shying away from complexity, uncertainty and ambiguity • are able to promote positive constructive energy all around them.
These leadership traits will be integral to success in the new retail order. Our key point is that in an increasingly dynamic world flexibility is key. With this in mind it is particularly appropriate to recall the famous quote by Covey: “Effective management without effective leadership is like straightening deckchairs on the Titanic.” In other words, if retail leaders do not take on these traits – if they are not able to embrace change and use it to their advantage, then the organisations that they lead will face an uncertain future (we all know what happened to the Titanic!) Professor Nitin Sanghavi, Director, Retail Centre, Manchester Business School A full transcript of this article is available from the Retail Year Book (2008) The Retail Centre specialises in the provision of management and leadership executive education for retail and service organisations. For a discussion on how we can develop a programme to suit you or your organisation’s specific needs please contact Andrew Mitchell, Deputy Director, Retail Centre on 0161 275 6325 or andrew. mitchell@mbs.ac.uk
Claims of economic meltdown and retail recession – but what is really going on?
The retail press continues to be dominated by talk of economic meltdown and retail recession. The real situation is not as clear cut as some of the often sensationalist news headlines would have us believe. In fact, we would argue that the truth is far more complex. There certainly appears to be a slowdown in Western Europe and US retail markets, but emerging markets – particularly India and China, continue to thrive. Even in markets where a slowdown is evident there is huge geographical variation. For example, at the UK national level the British Retail Consortium (BRC) revealed a rise of just 0.3% in the value of retail sales in December 2007. In contrast, the London Retail Consortium posted a much more impressive 7.1% increase in sales in the capital for the same period. The reality of any retail sales slowdown is therefore highly variable both between and within global regions, and even between and within individual national markets. There is a second point to be made here. The recent BRC announcement was met by claims of Armageddon in the retail press, followed by huge retail share price falls (note the FTSE retail sector share fell by 27% in 2007). However, a retail sales rise of 0.3% is exactly that – sales growth. The reality appears that the level of growth has not met expectations, rather than the sensationalist claims of meltdown and recession. The same variation is also evident at the sector level. Looking at the UK again, it has been a good year for entertainment retailers (particularly games) and the supermarket sector, whereas home furnishings, DIY and fashion have experienced extreme difficulty.
decline in two years, and recently Woolworths Ltd announced lower than expected growth. Again, the list goes on. Many of these results actually contradict the general pattern of growth of decline in their particular regions and/or sectors. For example, sales were up 6.3% at the John Lewis Partnership in the difficult UK department store sector. Likewise, N Brown, the UK home shopping retailer – trading principally in the worst hit clothing, footwear, household and electrical goods sectors, enjoyed like-for-like sales growth of 14%. Once again there are many more examples. So given this variation and complexity, what is really going on? The truth is we really cannot tell for sure. Although there is undoubtedly a retail sales slowdown in certain markets and certain sectors, it appears too early to talk about a fully blown global retail recession. We have to be cautious with this conclusion as there may be a time lag between published trends and what is actually taking place on the ground. Remember the saying that you only find out that you are in a recession when you have been in it for six months. We will continue this feature in the next edition of the Retail Centre newsletter, with a particular focus on the still seemingly buoyant Asian markets. What we can say for sure is that retailing remains extremely complex. As always there are strong performing geographical markets, sectors and individual retailers, and those that are performing less well. As always, even within strong sectors and strong markets there are underperforming retailers and vice versa. And as always consumer demand and competitive conditions remain extremely dynamic. To be successful in this fast paced environment retailers face the challenge of continuously re-aligning their organisations to these changing conditions. Given the pace and scale of current change this challenge is perhaps greater than ever. Dr Lee Douglas, Retail Research Fellow, Retail Centre, Manchester Business School The Retail Centre offers a range of detailed market analysis and client specific research services. For more information please contact Lee Douglas, Retail Research Fellow on 0161 275 7093 or lee.douglas@mbs.ac.uk
This picture is even more complex at the individual retailer level. There are numerous retailers who have posted positive annual results in the last quarter. Within the last month alone (March 2008) for example, Ahold (Netherlands) posted a 6.7% increase in profits. Mercadona (Spain) reported a 15% increase in turnover. Dairy Farm (Asia) saw turnover up by 13%. Carrefour (France) reported 6.8% growth in net sales (1.1% in France versus 9.4% from its international operations – which incidentally re-confirms the geographical variations covered above). Delhaize (Belgium) announced a 23% rise in net profits. Indonesian retailer Matahari reported a 16% increase in turnover. The list goes on. These buoyant trading figures appear at odds with talk of recession. At the same time, there are many retail organisations who are experiencing a far more difficult time. For example, Japanese retailer Daiei recently reported a 76% fall in operating profits. Safeway Inc (US) reported a 2% decline in profits. Both Whole Foods Market (US) and Target (US) announced profit declines for 2007. Marks and Spencer revealed their first like-for-like sales
Other Industry News
The drive to go green – but is this sustainable? The drive to go green shows no sign of slowing. Recently, Tesco have revealed plans to install 27 wind turbines in store car parks and set a target of selling £400 million of locally sourced products in its UK stores. Coop Schweiz has stated its intention to become carbon neutral. Asda have announced an initiative to cut carrier bag use by 20%. Carrefour has joined the Supply Chain Leadership Collaboration (aimed at cutting green house emissions). Migros is to become the first Swiss company to add a logo to products with low environmental impact. And, Marks & Spencer has announced a new joint venture with Oxfam aimed at promoting the recycling of unwanted clothes and plans to charge for plastic bags from May. Without wishing to sound sceptical about this trend, it will be interesting to monitor the longevity of both consumer and retailer enthusiasm for all things green over the next few years. That is, the sustainable retailing phenomenon is both relatively recent and has taken place against a backdrop of favourable economic conditions. Given the economic downturn discussed earlier (and the possible implications for consumer spending power), it will be interesting to see if both consumer and retailer priorities change. Expect more discussion around this issue in forthcoming editions. The continued expansion of the global giants – the big are getting bigger Tesco continues to forge ahead with its new Fresh & Easy concept across the US, and has recently stepped up its activities in Ireland, announced plans to treble the size of Turkish network over the next five years, and plans to open eleven stores in Malaysia later this year. Marks & Spencer has acquired 50% of Greek retailer Marinopoulos BV. The joint venture plans to open fifty new stores over the next few years in Greece, the Balkans, Romania, Bulgaria and Switzerland. Elsewhere, Rewe has acquired 146 stores from Tengelmann in the Czech Republic. Aldi opened its first store in Poland. Asda plans to open 22 new and extend 12 existing stores in the UK this year. Costco has announced to shareholders that it will open its first store in Australia next year. Carrefour is set to expand its hypermarket network in Malaysia, and has announced plans to acquire a 75% stake in Indonesian retailer Alfa Retailnindo. Wal-Mart plans to open over 200 stores in Mexico this year. Continued retail innovation and diversification – the big are getting broader Wal-Mart is ploughing ahead with its new Market Side format in the US. The convenience concept – a reaction to the launch of Tesco’s Fresh & Easy, is expected to open in Phoenix, Arizona this summer. Tesco plans to expand its HomePlus concept opening 10 new stores in the UK this year, and is also rumoured to be looking at developing a department store-style store in UK town centres to accommodate both food and non-food ranges. Tesco is also reported to begin trailing a new compact mall-style store in Thailand this year. Elsewhere, India’s HyperCity is to develop a new gourmet store format Express City later this year. Marks & Spencer is set to open its first food-to-go concept store in central London. Sainsburys has opened the first ever GP surgery in a supermarket in the UK. And, Asda has announced plans to open seven more Asda Living sites in the UK in 2008, whilst at the same time ending its 5-year flirtation with high street clothing store formats with the closure of all 11 George stores. Asda is also reported to be looking at the option of selling electricity to customers through its power services company ‘Power4All’.
Retail Centre News
Professor Nitin Sanghavi appointed visiting scholar at Harvard Retail Centre director Professor Nitin Sanghavi has been appointed visiting scholar at Harvard Business School in the US. The appointment builds on Nitin’s long-standing relationship with Professor David Bell’s Retail Team at Harvard, with whom he has been working closely for a number of years developing research case studies and joint executive teaching initiatives. Nitin is currently visiting the campus to share his international retail experiences with staff and students and work on developing new case studies and joint MBS/ Harvard research initiatives. “This appointment is testament to the quality of his research and the reputation of MBS’ Retail Centre.” Professor Michael Luger, director of MBS The Retail Centre strengthens global retail client portfolio The MBS Retail Centre continues to go from strength to strength. In the last year alone we have signed deals to deliver executive education programmes to some of the world’s leading retail organisations including Tesco plc (Worldwide), BP Retail (Worldwide), Home Retail Group (owner of Argos and Homebase), AS Watson (Worldwide) and Goldsmiths. We now hold one of the strongest retail client portfolios in the world, working with our clients across almost every retail sector, six continents and in forty seven individual countries. “Manchester was the only business school with the quality, experience and expertise we required.” Tesco Launch of Tesco Sustainable Consumption Institute at MBS Supermarket Tesco has teamed up with The University of Manchester in a £25 million investment that will bring together the world’s leading experts to tackle climate change and help deliver a revolution in green consumption. The Institute will promote fresh thinking and explore vital areas of research such as how customers can be empowered and incentivised to buy green products and services, how business can adapt to meet customer needs and how we can train the next generation of environmental leaders and experts. Its aim is to help both consumers and retailers create a sustainable, greener future. “Making a real difference to global problems will take time, but our support for this partnership with one of the country’s top universities marks another major milestone on the road to a lowcarbon future.” Sir Terry Leahy, Tesco Chief Executive “The Sustainable Consumption Institute is an excellent example of the important role that business can play in tackling climate change.” David Miliband, UK Foreign Secretary
Forthcoming Events
New Retail Centre open programme: Developing winning retail strategies in changing times The Retail Centre has recently launched a new intensive 2-day residential programme aimed at helping retailers develop and deliver winning strategies in rapidly changing retail markets. Targeted at senior retail executives, the programme focuses on understanding changing consumer demand and retail supply dynamics, and how to integrate them within the strategic planning process. It aims to help you and your organisation use change to your advantage. The next programme takes place in Manchester between 24th and 25th June 2008. For more information, or to book please visit www.mbs.ac.uk/executive/retail or contact Janine May on +44 (0) 161 275 2917 or janine.may@mbs.ac.uk. Also watch out for announcements on the launch of the new Retail Centre Forum, a new programme aimed specifically at middle management in retail organisations, and a series of specialist ‘board level’ retail workshops.
About the Retail Centre
The MBS Retail Centre specialises in the provision of retail executive education – offering a range of both open and customised education programmes to retail and retail related businesses. Since our launch in 1995, we have developed an unrivalled international reputation for providing high quality, highly tailored company and market relevant programmes underpinned by rigorous academic foundations. Working with many of the leading global retailers, across all retail sectors, six continents, and forty seven individual countries/ retail markets, we are currently one of the largest specialist retail executive education providers in the world. The key to our success lies in our commitment to delivering cutting edge, high quality programmes, underpinned by world class teaching, research and retail consulting expertise. This has enabled us to maintain and grow our market leading position, and more importantly, delivered tangible benefits to our client businesses. programmes in locations across the world, through MBS Worldwide, providing flexibility for global executives and companies. As an international and progressive school, we provide cutting edge business thinking and teaching, informed by the contemporary commercial environment. In Executive Education at MBS, we design and deliver dynamic development programmes for leaders and managers across the private and public sectors, from focused open-enrolment programmes to customised programmes, specific to your organisation. Our approach is based around two core values: Rigour – internationally renowned research continually informs and enriches our teaching. It maintains our position at the forefront of the real business issues challenging you and your organisation. Relevance – by disseminating this knowledge through our programmes, we help you pre-empt commercial challenges in your sector and take you through a rigorous learning experience that delivers results in your own operational environment. These values are encapsulated in MBS’ Manchester Method. There is no other practicalbased learning approach like it. It replicates realworld business challenges undertaken and emanates from the principle that education is more rewarding when it is put into practice.
About MBS and Executive Education
Manchester Business School is the largest campusbased business and management school in the UK and among the largest in the world. But it is not the size, per se, that distinguishes MBS; rather, it is the unrivalled breadth and depth of our expertise and offerings. We are particularly renowned for our international approach and deliver our
Prof. Nitin Sanghavi Director +44 (0) 161 275 6481 nitin.sanghavi@mbs.ac.uk Irene Roele Senior Teaching Fellow +44 (0) 161 276 6594 irene.roele@mbs.ac.uk Janine May Administrator +44 (0) 161 275 2917 janine.may@mbs.ac.uk Maggie Toomey Administrator +44 (0) 161 275 6476 maggie.toomey@mbs.ac.uk
Andrew Mitchell Deputy Director +44 (0) 161 275 6325 andrew.mitchell@mbs.ac.uk Dr. Lee Douglas Retail Research Fellow +44 (0) 161 275 7093 lee.douglas@mbs.ac.uk Kate Lynott Administrator +44 (0) 161 306 6596 kate.lynott@mbs.ac.uk Emma Farnworth Administrator +44 (0) 161 275 2927 emma.farnworth@mbs.ac.uk For more information about the MBS Retail Centre and our programmes, please contact: Manchester Business School, Retail Centre, Executive Development Centre Booth Street West, Manchester M15 6PB Tel: +44 (0) 161 275 2917 Fax: +44 (0) 161 275 6587 janine.may@mbs.ac.uk www.mbs.ac.uk/executive/retail