Is Mike Ashley The New Blackadder?

Many of us watched the goings on at the Sports Direct AGM yesterday open-mouthed at the level of drama being acted out both on and off the stage.

Shareholder revolts are nothing new, and Ashley and Keith Hellawell surely had it coming, especially as it emerged recently that Hellawell had attempted to dodge the bullet of criticism by tendering his resignation before the company published its damning review into working practices.

One of the major criticisms being lobbed at Mike Ashley is the treatment his staff have to endure as a result of regular end of shift searches.  So it was doubly ironic that yesterday he suffered the same ignominy under the full glare of the cameras.

One wonders if the inclusion of a huge wad of fifty pound notes in his trouser pocket was a deliberate attempt at bravado.  The search came as part of a tour of the warehouse facilities Ashley was leading, presumably as part of an attempt to show improved working practices. He must have known it was going to happen, so the appearance of that crisp wedge of cash would have been unavoidable.  Or perhaps he’s just so loaded he forgot about that bit of loose change in his trousers.  If that’s the case perhaps he should be renamed Blackadder after this scene from the show.

What it says about Ashley rather belies the impression I got of him at the recent Parliamentary inquiry he attended.  I wrote the column below for Retail Week last Month, but after yesterday’s performance I think I may have to revise my assessment.

He may still like to consider my suggestions for improvements in working conditions though, even though they may rob him of future chances to whip his wad out when he needs to make an entrance.

I stand by my judgement on Philip Green however, who seems to get more loathsome by the day.  As an ambassador for all that’s great about retail success, he’s about as welcome as a turd in a swimming pool.  Even if that swimming pool is on board a 100 million pound penis extension.  The recent ‘renaming’ of his fabulous yacht by comedian Lee Nelson rather summed up my feelings and probably those of the thousands of BHS staff and pension holders he’s helped to leave in dry dock


My Column from Retail Week 11th August

Watching the recent Parliamentary appearances of Mike Ashley and Sir Philip Green, I was surprised to find myself warming slightly to Mr Ashley, something I’d never have imagined possible a few months ago.

That said it was rather like deciding which dastardly stage villain you’d most like to share a stage with, or perhaps a better analogy would be the pantomime horse.

In Green’s case he came across as arrogant and resentful.  Quite obviously certain in his belief that he was better than every person in the chamber.

It was a performance of bravado and bluster that, if I had my psychologist’s hat on, I’d say was more over-compensation than real attitude.  But then considering he apparently needs one yacht for himself and several others for his ego, I might be giving him a far too sympathetic analysis.

In both cases it’s apparent that they were less concerned about how their behaviour reflected on their own companies than they perhaps should be.  A blasé attitude that their customers will remain loyal to their brands, regardless of their attitude to the usual social mores that constrain the rest of us.

Ratner Moment

They may be right, but I wonder how far we’ve really moved on from the days when a mis-timed joke can bring down a company, as we saw with Gerald Ratner 25 years ago (yes it really has been that long!).  There but for the grace of the god of retail goes any of us.

With that in mind I remain baffled over Sir Phil’s nonchalance at being photographed relaxing on the deck of his third multi-million pound status symbol, while BHS sinks slowly to the bottom with the loss of almost all hands.  As Gerald discovered to his cost, timing is everything.

Mike Ashley at least looked like he was taking the questions being asked seriously though.  Considering he reportedly had to be dragged to Parliament ‘kicking and screaming’ he seemed to warm to the experience remarkably well.

His main defence against the revelations of questionable staff treatment at his distribution warehouses was ignorance of the circumstances and practices going on inside his own company.

I’m not going to speculate about the veracity of that claim, but as in many walks of life, as with MPs, doctors, military leaders, and business owners, the fault ultimately lies with the person at the top.  They set the tone and decide the ethos and culture of the organisation.  It’s really not a defence to say ‘Not me guv!’.

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The culture in Sports Direct seems to be one of expediency and antipathy.  A strata of mistrust that runs through the company from the warehouse and shop floor staff upwards.  A belief that everyone is out to get everyone else.

Ashley expressed dismay that the daily searches of warehouse staff were taking longer than they did when he set them up 10 years earlier.  But in that admission he confirms that the general tone of the relationship between staff and management remains one of distrust.

Trust

Perhaps he’s right to feel that way, but that does beg the question as to why they would employ staff that they did not have absolute faith in.  Perhaps past experience informed their actions and the belief that they would be robbed blind if they didn’t watch everyone like a hawk.

To me that lack of trust seems to be at the heart of the problems at Sports Direct.  Sadly, rather than dealing with that, Ashley has pushed to improve the searching procedures to reduce the ‘bottlenecks’ at the end of shifts.

But another approach would have been to foster more loyalty in his workforce so that they might be less inclined to help themselves to a five-fingered bonus in the first place.

The culture in Sports Direct seems to be one of expediency and antipathy.  A strata of mistrust that runs through the company from the warehouse and shop floor staff upwards.  A belief that everyone is out to get everyone else.

Studies carried out many years ago showed an inverse relationship between company culture, pay levels, job security and the problem of pilfering.  In my own company, selling many easily pocketable items of high value, we never resorted to body searches.  I did consider them on occasions, but felt that the damage they would do to morale and staff relationships weren’t worth the small amounts that we undoubtedly lost over the years.

And with stringent stock control procedures in place, and – most importantly – seen to be in place, we knew the losses were minimal, even though on one occasion we had to have the manager and all the staff in a branch arrested over cash handling irregularities.

The key for me was that we had a good relationship with our staff and there was mutual trust and respect.  I’m firmly convinced that prevented just as much shrinkage as any number of cavity searches, body scanners and security staff.

happy-workers

So as Mike Ashley starts to get to grips with the managerial problems within a company that he admits may have outgrown previous internal audit procedures, he could perhaps do worse than take a look down the other end of the telescope.  Put himself in the place of his workforce who, if recent reports are to be believed, feel undervalued, under-paid and under suspicion.

A more open and meritocratic attitude towards HR management has so often been cited as the root of success in many companies, most notably in the IT sector.  Likewise success in retail doesn’t have to come down to the hard nosed antisympathetic treatment of those who work for you and with you.

Moreover, in terms of customer facing businesses like ours, we certainly don’t need our leading lights to be seen in the media as disconnected, uncaring profiteers.  Or to be dubbed by the press as “Rude, unprofessional and bad-tempered”.

Indeed as we’re finding out now, in a supposedly more enlightened and informed world, such behaviour could not only be counter-productive, it may even lead to another ‘Ratner moment’ in the very near future.

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Phones 4U – The Winners And Losers

phones 4UThe announcement by Phones 4u’s administrator Price Waterhouse Coopers that it is closing 362 of the retailer’s stores permanently really is an appalling outcome for the 1697 store staff who now find themselves out of a job.

I feel very sorry for these people at the sharp end of what seems on the face of it to be a rather sordid tale. I know from speaking to some of the employees that most had absolutely no idea that their jobs were balanced on such a knife edge, and from what I understand from other reports, senior management had little inkling either.

Perhaps they should have had though. Certainly the company’s main investors could have shown a little more sensitivity to the likely outcome of negotiations with the four main carriers when they explained that they weren’t able to offer competitive terms in the face of a mountain of debt that needed to be serviced. Especially as a good deal of that debt was apparently self imposed as a result of some rather creative financial arrangements.

Equally Vodafone and EE should perhaps have considered the impression their actions would give to their own customers when they, fairly unceremoniously, pulled the rug from under a long-term business partner. Perhaps they weren’t prepared for Phones 4U management to take such drastic action. I know I was personally flabbergasted at how easily they appeared to give up the fight when the Vodafone contract had another 6 months left to run and EE’s wasn’t due to expire for a further year.

Most businesses would have kept trading and explored other possibilities, probably including some hasty re-trenching and fence mending with all the carriers. Of course I’m not privy to all the reasons for their decision to go into administration so eagerly, but it seems to me that a business with over a billion pound turnover and profits in excess of £100M might have been worth a little more effort than a press of the nuclear button without further attempts at diplomacy. I’ve certainly seen many much smaller businesses struggle to stay afloat for a lot longer than these guys.

Easy Money

Maybe that’s the problem. For those companies already staked in the game, the mobile phone business has been seen for some time as easy money. The phones and tariffs are laid on by other companies and an obliging public pitches up every time one or the other produces another subtle flavour of hardware or call package that in essence does the same thing as the last, only slightly better. These carefully stage managed increments keep the punters hooked and the cash rolling in. Perhaps when things got a little tougher than that for the board, it’s just wasn’t worth the trouble.

Now the very same carriers that precipitated this situation are reportedly picking off the juicier fruit from the P4U property cherry bowl for their own standalone stores. After an epiphany, undoubtedly born of the internet, they’ve discovered that cutting out the middle men means the money tree just grew a bit taller.

It’ll be interesting to see if tariffs are reduced accordingly now there’s one less bite out of the pie. But somehow I doubt it, especially as most of the carriers have of late been furiously re-writing their contracts in ways that haven’t been particularly advantageous to their customers. And let’s not forget that, with a reduction in competition on the high street, the consumer is going to have less opportunity shop around. As the carriers take more of a direct sales approach, the choice will be limited to service and coverage rather than tariff with fewer independent resellers to stir the pot.

I suppose grabbing the tastier morsels of the Phones 4 U portfolio is a pragmatic move, but it still looks like opportunism born of fancy footwork on their part. In the final analysis the people who have, justifiably or not, pulled the plug are now picking over the bones of a business that previously appeared to be thriving.

A Dream Outcome For Dixons Carphone

Dixons Carphone don’t come out of this smelling like roses either, even though I suppose they can’t be held accountable for the actions of their own suppliers, it does look like a superlative bit of luck on their part that shortly after announcing the closure of 160 Phones 4U concessions in their Currys stores, their main competitor loses all support from their mutual partners. I’m not suggesting there was any collusion involved, but it does seem like the kind of dream outcome that many a rival company would have to pinch themselves hard to believe.

To be fair, Dixons have offered jobs to many of the former concessions staff, which does of course also provide them with a ready made workforce. They’ve also been making efforts to acquire a number of the Phones 4U locations and have been promising jobs for the staff involved in those locations. However it’s understood that the administrators have been less than enthusiastic, so one can only speculate as to the kinds of offers Dixons Carphone are making for the properties. Dixons taking over the stores could of course safeguard of a number of jobs, but they still stand to gain a lot out of the deal themselves.

bad smellThere were undoubtedly a lot of contributory circumstances leading up to this meltdown, but it still leaves a very nasty taste in my mouth and a hell of a stink under my nose. A ludicrous situation and a sad outcome that could have been avoided at so many key points. I only hope all parties concerned, including the P4U investors and management, the carriers, and Dixons Carphone are as uncomfortable about all this as I am.

Although I doubt any of us will be as uncomfortable as the store staff and their families who suddenly find themselves without an income so close to Christmas.

Internet Purchase Tax ? Be Careful What You Wish For

Funny_Internet_Tax_Cartoon

Sometimes I’m baffled by the workings of the human mind.  For example, why would a retailer in the UK, already burdened with some of the most onerous and inequitable taxes imaginable, not least business rates, actually propose to the government that they introduce a new one, specifically aimed at retail?

Well it seems that’s exactly what Justin King, the Chief executive of Sainsburys has done.  He’s recently called for an internet purchase tax to be applied in the same way he thinks it’s being applied in the USA.  I say ‘he thinks’ because he seems to have misunderstood the reason this tax is being called for over there.

As I’m sure many of you will know, the US don’t have business rates like we have.  They have local purchase tax, which is often added only at the time of purchase.  Items are priced ‘plus taxes’ which are often variable from state to state and region to region.  Because websites can make sales across state and regional lines, many of them have been charging a different rate of tax to what should be paid in the areas where the purchase was made.  In some cases they haven’t charged the tax at all.

Is this right?  No of course it’s not.  But it has pretty much zip to do with the way retailers pay local taxes in the UK.  In the US they are probably quite right to be considering the Marketplace Fairness Act in order to ensure online retail is contributing to local coffers in the way it should.  Here we pay business rates at a flat rate based on the valuation of the property you occupy.  Internet retailers pay these too for distribution warehouses, offices and the like.

What gets up the nose of many retailers, me included to some extent, is that these companies can be based in locations where local rents and by association, local business rates are lower.  Whereas anyone in a high profile high street location would pay a lot more.  That’s because we pay rates based on notional valuations and not as a tax on revenue.  I’ve gone to some lengths to explain how batty I think this system is, but I don’t think introducing a completely new tax is going to make it any more sane.

Golden Goose

Yes it’s annoying and yes it seems unfair, but in essence it’s not.  Online retailers are still paying rates and taxes, but just not at the same level as a normal retailer.  I agree taxes and overhead costs for bricks an mortar retailers are too expensive, but I don’t agree that we should fix that by making online retail just as ridiculously costly.

That’s not levelling the playing field, that’s digging ourselves into a hole in the middle of the penalty box.

Many online retailers are golden eggalso bricks and mortar operations who already pay a fair share of business rates.  Their online sales may to a large extent be supporting other parts of their business.  Taxing them more isn’t going to improve that situation.  Increased taxation would also have to be passed on to customers, hence neatly strangling the golden goose that may be keeping many parts of the retail industry aloft.

There also seems to be some sort of naïve belief by Justin that ministers will conflate this new tax with business rates and seek to reduce one at the cost of another.  Whereas I don’t have quite the same touching faith in any chancellors spirit of fair play.  Especially not one who’s faced with the biggest book balancing challenge since Margaret Thatcher left charm school.

I’ve been warning about the prospect of an internet purchase tax for the past couple of years.  It’s low hanging fruit that I’m surprised the chancellor hasn’t already started to salivate over.

Governments consistently support the mantra that taxing success should not be the way to go and I largely agree.  Why apply what amounts to a punitive tax on internet based operations rather than reduce the taxation being applied to bricks and mortar?

Yes, retailers in the UK pay far too much tax, well the ones who actually pay tax do,  and certainly far too much in business rates.  But adding to the tax burden elsewhere is not going to solve that problem.  Even if such a tax was sold on the basis of a reduction in business rates across the board, it’ll be a safe bet that pretty soon afterwards that whole relationship will slip into the same grey area that local taxation resides in now.

Sunlit Soccer Net

Leveling The Playing Field?

It’s more likely that an internet purchase tax would be applied in the same way as airport tax, or insurance premium tax.  Just slapped on at a nominal rate which will then be increased gradually in successive budgets.  Pretty soon we’ll just see it as another one life’s certainties, just like any other stealth tax.  We’ll moan but we’ll pay it and maybe a few more businesses will go to the wall.

Moreover any government that introduces such a tax is effectively agreeing with me and many others that applying a flat tax business rate to every other business premises in the country is wrong.  If online retail should pay an overhead tax based on revenue then why not the same for bricks and mortar retailers?

If the conclusion to this debate is a fairer system of local taxation based on ability to pay and it’s applied to ALL retail operations, then I’m all for it.  But I very much doubt there’ll be any change to business rates as they stand now if such a tax were introduced. Maybe I’m just not very trusting of government ministers.  Or maybe I’m less naïve than Justin King.

Either way, let’s stop putting such ideas out there shall we?  After all you have to be careful what you wish for in this life, as sometimes you might just get it.

Freefall retail?

Shop to letWelcome to my new blog.   For my first post I thought I’d jump right in the deep end!

Evidence from the Local Data Company and Price Waterhouse Coopers yesterday highlighted the unprecedented number of store closures that have been seen in the last 12 months.  This was driven mainly by the gathering pace of large retail chains turning up their toes and other struggling companies letting leases lapse when they come to an end.

It’s hardly surprising to most of us out there at the sharp end of retail that the status quo can’t continue unabashed in the way that most property investors and some analysts seem to think it can.

Only last year I was embroiled in something of an online spat with the author of a report from CBRE who in my opinion was whistling in the dark over the idea that chain retailers would continue to open stores at the same rate they always had.  The whistling later achieved deafening proportions as the idea that the internet had not had any major impact on the high streets was laboured in this lengthy tome.  Given the opportunity,  I think it may have gone on to prove that black was white and that dogs could do basic arithmetic, but they probably needed to get the report out before reality overtook the theory.

Killer catalogues

The fact is the internet is having a pervasive effect on all aspects of the high street.  It’s been eating away like concrete cancer at the foundations of what we’ve all came to know and love as shop keepers, and we’re only now starting to see the cracks on the surface.

CataloguesIt’s effect was probably underestimated in the early years as we all continued to ride a wave of unbridled consumerism within traditional channels.  The idea that the internet could take over from ‘real’ shops was treated with the same disdain as the unfulfilled predictions from the 60s and 70s that catalogue shopping would prove an overall category killer.

But what wasn’t factored into these assessments was the ease by which technology would  pervade all aspects of our lives.  Even that wouldn’t have been enough on it’s own, but what really started to incubate the disease was what was happening to the real world property model and just how quickly that was going push things beyond the tipping point.

In previous retail revolutions there had been no viable alternative to shops.  Now there was.  As consumers embraced online, more retailers, new and old, saw it as an opportunity.  This in turn facilitated more choice and more ease of use for consumers which in turn encouraged more people online.  It became self fuelling.

Meanwhile at the other end of the fulcrum, property costs were starting to look like a burden you didn’t need to be carrying.  If all these pure-play retailers were making a killing online, what was the point in paying eye-watering rent and rates?  In fact as these costs continued to go up, the internet was forcing margins to become slimmer with the retailer squeezed in the middle.   Something that the catalogue revolution didn’t have going for it back in the days of brothel creepers and Beatlemania was the effect that these unrealistic property values would have on the whole DNA of retail.

Property Bonanza

The plain fact is that the costs of running shops is now too high.   Business rates are the current hobby horse, being as we’re coming up to the time of the year when the chancellor traditionally tells retailers to sod off when they ask him to consider a rates reduction or freeze in his next budget.   This year his two fingered salute will be amid our pleading on a collective bended knee for him to take his foot off our neck and maybe, just maybe, take a look at the real world from behind that rictus grin that he seems to be afflicted with at most public engagements.

But rents are the root cause of these problems, responsible in the first place for the level of rates we pay due to their effect on property valuations.  The cost of stores has been ratcheting up over the past 20 years like some sort of medieval torture device.  Landlords and property developers knew a good thing when they saw it and they capitalised on the rush to the high street.  Not really something any of us could really blame them for doing, bearing in mind that all us business folk are money grabbing, capitalist toe-rags at heart.

And I don’t really blame them, well not entirely anyway.  They wouldn’t have got away with it if there hadn’t been a veritable swarm of  eager fresh faced retailers, thrusting fistfulls of easy-come cash into the air, desperate to stake out another corner of a foreign concept shopping mall that will forever be Clinton Cards or Blacks or LaSenza or Jessops et al, without a thought for how long the retail bubble could last.  Of course we all now know how long it lasted for them, and it was quite a bit less than forever.

For sale signsIn turn these snow-blinded captains of industry were having their pockets lined by investors, venture capitalists and banks who were convinced they’d discovered the secret to alchemy.  In league with eagerly complicit surveyors they could make any deal, no matter how stupid, look good on a paper.  Right before they’d make a toy aeroplane out of it to carry them all off to bonus heaven.  Based on this sort of economic fairy story, valuers pretty much doubled the number they first thought of and used that as the basis of equity to debt deals that would have made even the most brazen ponzi scheme look like a charitable foundation for orphaned kittens.

Now with shopping centres and retailers being funded by roughly the same financial institutions, we’re all hurtling down the mountain side together waiting for either a tree branch to slap us in the face or the sheer drop to open up beneath us.   I say all, not because everyone has bought into the madness, I know many haven’t, but because we will all feel the impact when those that have hit the rocks below.

The only way is up

Despite claims to the contrary, landlords are still locked into forcing up rents at every opportunity.  Often with huge debts to service, they have no choice but to look on the current situation as a temporary blip.  They spin the crisis while convincing themselves and the markets that ideas like pop-up stores are a great new innovation, even though when they were simply called temporary lets they were regarded as far less desirable.  Self delusion has become an artform.  Accepting the new reality is just too terrifying for them and their financial backers to contemplate.  Whilst government is apparently still convinced that they can continue to enthusiastically milk the retail cash cow, even if it does have BSE and an advanced case of mastitis

All the while customers are becoming ever more savvy at negotiating the new retail seascape, and in the most part they’re looking for the shallow waters.  Price is king on the internet, quality too, but price usually trumps quality if you chuck in a nice over-used euphemism like ‘Value’ wherever possible.  And we all know how well ‘Value’ beefburgers have worked out recently don’t we?

These customers don’t care if your shop is going under, why should they?  They care about where they can get the best deal, and now more than ever that’s on the internet.  Why?  Because those traditional retailers stuck on the high street are locked into a death struggle with recalcitrant landlords and ignorant politicians and can’t afford to match the razor thin margins of pure-play online retailers.

Where will it all end?  That’s something I hope to be around long enough to find out.  There are some perhaps positive glimmers on the horizon, but right now it’s not possible to know if that’s the new day breaking or the sun exploding on the other side of the world.

Will we need sun cream or a nuclear bunker?  Stick around, I think I can hear the dawn chorus.

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