Retailers are still struggling to come to terms with the massive changes that have come in the wake of the GFC.
The most recent indication of this is the takeover offer made for Australian department store David Jones by South African controlled Woolworths (unrelated to Australia's Woolworths). As Fairfax Media's Michael Pascoe wrote in the lead paragraphs of his article commenting on the takeover:
You've been told it was the internet, that it was the economy, it was high wages, the government, the consumer, that it was the strong Australian dollar or maybe the weak Australian dollar. It was anything but second-rate management and dull boards that were responsible for Australian retail's poor performance - yet it turns out it was poor management all along. As South Africa's Woolworths joins the push of international shopkeepers into the Australian market with its David Jones takeover bid, it's another indication of outsiders seeing value and opportunity that the locals had missed.
( http://goo.gl/WWBeWU )
DJs is in the news today, but it's likely we'll see a few others burning up the column inches during this year: Harvey Norman, Myer and, possibly Target.
Another nominee for this category is Metcash, which is dominated by its IGA grocery/supermarket business, and also owns Mitre 10. As HNN wrote recently, the outcome of a recent strategic review focused on IGA seems to be an effort by Metcash to duplicate the operations of its two big competitors, Coles and Woolworths. It is difficult to interpret this strategy as anything but an effort to make Metcash more attractive for a takeover by Woolworths.
What makes this so frustrating is that, where Australia 12 years ago suffered from a dearth of good retail management talent, today it really has some of the best retail managers in the world. Today the source of retail problems in most cases isn't the execution, it's the strategies the managers are given.
Mitre 10 is a good example of this. "Tough and hard-working" is the phrase that comes immediately to mind when you think of its managers. What they are given to execute, they execute really well. It is just that much of the time the strategies they are made to follow seem ever so slightly, and yet significantly, off-target.
Not that the strategies are all that bad as strategies. In the environment of eight or nine years ago, they would have worked quite well, one imagines. But Mitre 10 is facing a really big challenge over the next two to three years. Bunnings managing director John Gillam has pushed the accelerator pedal to the floor (maybe even through the floor), and his team is close to flawless in its execution. Masters is expanding rapidly.
However Mitre 10's strategy seems most suited to a company that already has a commanding market share, and is simply working to retain that.
The Block and strategy
An example of this almost good enough strategy is Mitre 10's sponsorship deal with the "reality" TV series, The Block.
Talk about great execution. There are aspects of how Mitre 10 have used The Block to promote its brand that are beyond textbook - anyone interested in how to market home improvement retail should make a close study of this.
The most outstanding thing Mitre 10 has done is to make Scott Cam ("Scotty") into its brand ambassador. It is a superb move. Every time Scotty appears in a shot, or makes a voiceover comment, it immediately is perceived as Mitre 10 talking. Without flashing a logo, or having something annoying and intrusive, the viewers make an immediate association to Mitre 10.
Yet, in the most recent incarnation of the series, Season 8, some distinctive marketing oddities have emerged. First, from a demographic standpoint, this would have to be one of the least diverse group of contestants on any series. They are all white, and all quite young.
Secondly, while there has been a certain amount of treatment of women that verged on misogyny in the past, this series managed to cross some line that drew a number of comments. Marina Go, CEO of Private Media which publishes Crikey among other titles, had this to say:
A female chippie joined The Block last night. Of the hundreds of tradesmen swarming the building site, the producers did everything short of shining a stage light on her to highlight her presence. And then it began. A segment devoted to the fact that there was a female carpenter in the group and ... she was a LEADER. Surely not... A couple of male contestants then proceeded to discuss how great it was to have a female chippie on The Block leading the troupes [sic]. But did the producers have to include the comment that the very idea of it was "a bit hot"? The only male contestant who actually is a tradesman exclaimed that he hadn't really met a female chippie before. And host Scott Cam, another chippie by trade, wanted to know if she was good at being the leader. He actually asked her.
If Ms Go seems a bit highfaluting, there was also this comment from "Reality Raver" who writes a blog all about reality TV:
The Block's blokey humour irritates me but it reached new levels of sexism when they "showcased" a female chippie. There was the slow motion footage and the camera panning up and down. As well as Keith being quite surprised that she was doing a good job. Kyal piped up and said a few of the guys have got their eye on her.
The third element, after ethnicity and gender, that needs to be mentioned is socio-economic groups. There are no architects, professional designers, or engineers. No banking executives, advertising agency creatives, computer programmers, or even car salespeople.
This point isn't about being "politically correct", it's about good marketing sense. What The Block has done, through these and other choices, is to target a very particular demographic in an excellent way. However, it's not a stretch target. It is basically the same people who are already inclined to visit Mitre 10.
It's a strategy that might have contributed to the ratings success of the show, but that kind of success may not be building the broad customer base Mitre 10 will need to grow. No matter how strong the appeal is, appealing to a single, narrow demographic will not provide long-term stability.
Given the competitive nature of the industry, with both Masters and Bunnings poised to really apply pressure in 2015, it's hard to believe that this is the best possible choice to make, right now. And not making the best possible choice in a market that is getting more competitive every quarter is going to have consequences in the future.
It's true that Mitre 10 faces certain exceptional challenges. The structure of the company means that independent hardware store owners get to have some say in what direction the overall business takes, and sometimes consensus can result in conservative decisions. Also, Metcash's core business is not doing well, so it is unlikely that Mitre 10 can expect any kind of cash injection.
Given the really high quality of the Mitre 10 executives, it seems likely that somewhere in that cadre is some strategic thinking Metcash really needs to pay attention to.
Until next time,
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