Hindsight is a wonderful thing, but even the best retailers get it wrong sometimes. Charlotte Hardie looks back at some of retail’s biggest strategic blunders and asks what we can learn from them
Even some of the best businesses get it wrong sometimes. But retailers’ mistakes live long in the memory and can hamper a business for years to come.
Woolworths’ sale-and-leaseback property deal eight years ago is said by some to have been the beginnings of the writing on the wall for the retailer.
Meanwhile, Sir Peter Davis’s appointment as Sainsbury’s chief executive is widely thought of as one of the most disastrous retail leadership tenures on record – which just goes to show that just because someone can turn around the fortunes of an insurer doesn’t necessarily mean they will be any good as a retailer.
There is, though, a positive message to be gleaned. Nearly all have bounced back from their mistakes and in many cases it has shaped their future strategies for the better.
Uniqlo is one such example. It got its strategy wrong the first time but returned wiser and the second attempt has proved a success.
Plenty of other business blunders just missed out. Marks & Spencer’s purchase of Brooks Brothers was a close contender for worst acquisition, and Tesco’s expansion into France didn’t exactly go swimmingly.
But while there’s always a bit of gloating when competitors get it wrong, learning from the mistakes of others can save a lot of aggravation.
The worst advertisement
Winner Sainsbury’s “Value to shout about” campaign, 1998
You have to wonder what was going through the minds of the creatives at agency Abbott Mead Vickers when they conjured up their “Value to shout about” campaign.
For the princely sum of £400,000 John Cleese was instructed to rampage around a Sainsbury’s store, yelling at customers and staff about how great the grocer’s prices were.
The aftermath wasn’t pretty. Staff complained it portrayed them as gormless and stupid, and it was voted the most annoying ad of the year in a 1999 Marketing magazine poll. Nevertheless, the ad agency in question has more than redeemed itself, having been responsible for Sainsbury’s hugely successful “Try something new today” campaign.
Highly commended Marks & Spencer’s “I am normal” campaign, 2000
What makes people buy clothes? The answer does not lie with a rather large naked woman leaping around the countryside, harping on to anyone that would listen (no one) about how she was normal. M&S was so ashamed it didn’t produce another clothing campaign for five years, at which point it returned triumphantly with Twiggy and co.
The most chaotic store opening
Winner Ikea in Edmonton, 2005
The national press squealed with delight upon hearing the news that the midnight unveiling had descended into chaos and had led to the closure of the store after just one hour.
Any semblance of a queue dissolved as the waiting hordes surged to get through the doors. Five people were hospitalised amid the scrum and fights broke out over discounted sofas priced at £45.
The planning was poor but Ikea could not have predicted that as many as 6,000 of the great British public would turn up for the opening event, but in the end it did no harm to the brand’s popularity.
The worst international expansion
Winner Wal-Mart into Germany, 1997
A classic case of not looking before it leapt. The seemingly indomitable US giant charged into Germany without taking enough time to understand how the locals shopped.
Its “Always low prices” approach failed to resonate and the friendly greeters that were highlighted in ad campaigns made no impact on the bargain-hunting Germans who preferred to shop unassisted at their much- loved discount grocers. In short, Wal-Mart had nothing to offer.
Global consultancy Retail Forward estimated that after seven years Wal-Mart had captured just 2 per cent of German food sales. In 2006 it was forced to admit defeat and pulled out of the country, selling its 85 stores to rival Metro.
Highly commended DSGi’s move into Italy, 2002
Italy has been an expensive thorn in DSGi’s side ever since it paid £230m to take control of UniEuro, Italy’s chain of electricals stores. It had to spend a huge amount of money centralising operations immediately after buying it and sales have continuously foundered. Last May it assessed 40 of the 136 stores in its portfolio for closure. Charles Stanley analyst Sam Hart said: “It has been haemorrhaging money for the best part of two years.”
The worst acquisition
Winner Richard Kirk’s purchase of Kwik Save, 2006
Richard Kirk knows fashion, but his purchase of Kwik Save for an undisclosed sum wasn’t his finest hour. The chief executive of Peacock Group rescued the ailing chain in the February, buying about 180 stores.
Although Kirk led the Back to the Future Consortium responsible for the buyout from Somerfield, he was not involved in the day-to-day running of the business. Perhaps it could have benefited from his retail expertise.
By December, 10 months after the deal, TNS data showed that its share of supermarket spending had shrunk from 1.6 per cent in 2005 to just 0.2 per cent. It finally went into liquidation in July 2007.
Highly Commended Clinton Cards for its purchase of the 500-store Birthdays chain, 2004
Despite Birthdays’ £46.4m price tag it was expected to be a lucrative move for Clinton Cards, but failed to make the business a penny right up until Birthdays’ administration last month.
The most disastrous development
Winner Tobacco Dock shopping centre, Docklands, 1990
Never heard of it? Well neither had the general public in the fleeting few months it was open in 1990. Billed as the Covent Garden of east London, the transformation of the grade-one listed warehouse in London’s Docklands involved development efforts that cost £47m. But it was in the middle of nowhere, with poor transport links.
Despite the presence of high street names such as Next and Monsoon its opening coincided with the onset of the recession in the early 1990s.
In June of its opening year, retailers with stores at the shopping centre called for their rents to be suspended because trade was so bad. The centre went into receivership only a year later with debts of £100m.
The worst appointment
Winner Sir Peter Davis, chief executive, Sainsbury’s, 1999
Sainsbury’s then chairman Sir George Bull spied Sir Peter Davis after his success in turning around the Prudential. Davis promised to reinvigorate Sainsbury’s but failed miserably. The £3bn he invested into the business over four years did little good.
On his last working day as chief executive, Davis watched £400m wiped off the value of the business and the share price slumped virtually to the level of when he took over. He became chairman, leaving Justin King to sort out the mess. Davis was finally forced out by shareholders in June 2004, saying he planned to retire from corporate life with no intention to take another job at a public company. Phew.
Highly commended Chris Ronnie, chief executive, JJB Sports, 2007
“It was Chris Ronnie that ruined it,” said JJB founder David Whelan earlier this year. And Ronnie did cause remarkable chaos during his 18-month stint.
When he joined the sports retailer its shares were worth 275p. On the day of his departure they closed at 13.75p, valuing the business at just £40m.
He left in disgrace in February when it emerged he had transferred his 27.5 per cent stake in the business to Icelandic bank Kaupthing.
The Worst online decision
Winner Waterstone’s outsourcing its web operation to Amazon, 2001
Hindsight is a wonderful thing, but nevertheless, outsourcing your web operation to one of your major rivals is perhaps not the best idea given the importance of having a robust online market share.
In fairness, Alan Giles, then chief executive of HMV Group, which owns Waterstone’s, pointed out that Amazon simply had the capability to provide a better service than Waterstone’s at the time. “Back in the late 1990s we were running our own online operation and, frankly, what we were doing was the worst kind of combination of not providing a very good service and losing a lot of money in the process,” he said.
However, its outsourcing solution didn’t do it any favours in the long term. Waterstone’s underestimated the potential online opportunity of the books market back in 2001, earned a pittance in commission from Amazon along the way and left itself with little distinctive presence online.
After five years Waterstone’s called time on its disastrous contract in May 2006 and is now in charge of a web arm that is flourishing.
The worst technology decision
Winner MFI’s SAP project, 2004
MFI was forced to issue more than £30m in refunds to customers in 2004 after the chaotic implementation of a supply chain system left it unable to fulfil home deliveries quickly enough.
The company, which at the time was regarded as Britain’s biggest furniture chain, also had to announce a £20m write-down in the value of the £60m SAP system. It is seen by some as the beginning of the end for MFI.
The problems with the project also cost the scalps of MFI finance director Martin Clifford-King and supply chain director Gordon MacDonald.
Highly commended Sainsbury’s IT outsourcing, 2000
The infamous Sir Peter Davis was the man in charge when Sainsbury’s signed a £2bn, 10-year IT outsourcing and transformation deal with Accenture.
It was forced to end the contract after only five years after problems with the introduction of new technology resulted in empty shelves and poor sales. It spent £65m bringing the IT department back in house.
The worst handled merger
Winner Morrisons and Safeway, 2003
In the long-term the acquisition of Safeway was a great move, but for the best part of three years it was a mess. Sir Ken Morrison had many talents, but diplomacy wasn’t one of them and he managed to alienate Safeway staff and shoppers with his “Morrison knows best” approach.
There was neither a rapid overnight push to convert Safeway stores to its new brand, nor was there a gradual phasing in. So shoppers had no idea why shelves were stocked with both Morrisons and Safeway own-brands.
Behind the scenes it wasn’t much better. No one had actually given thought as to how to integrate the technology or supply chains of the two companies. The problems led to a succession of profit warnings, boardroom bust ups and a tumbling share price.
The worst property strategy
Winner Woolworths’ sale and leaseback deal, 2001
It’s not often you can point at one particular deal as being the beginning of the end for a retailer, but that’s exactly what many say about the sale and leaseback of 152 Woolworths stores in 2001.
From then owner Kingfisher’s perspective it was a shrewd deal that made it a tidy £614m. For Woolworths it was disastrous – when the parent company severed its ties with the brand Woolworths came away saddled with debt and an unpalatable set of leases.
As part of the deal, Kingfisher had agreed that each of the 152 25-year leases have a minimum annual rent increase of 2.5 per cent – a decent deal in a growing market but crippling when the market started to fall.
Highly commended Uniqlo’s first attempt at UK entry, 2001
When Uniqlo first touched down on UK turf the fashion retailer decided that the best sites for many of its stores were out of London and in far-flung places such as Coventry, Basingstoke, Uxbridge and Watford.
The decision failed to spark excitement about the brand and played a part in its partial retreat only two years later, when it closed all but its London stores.