Under new chief executive Alex Baldock, home shopping group Shop Direct plans to develop a world-class digital offer.
New Shop Direct boss Alex Baldock has been carefully reviewing the £1.7bn business since he took charge last
September. Now he has devised his masterplan to build the home shopping giant into a world-class digital retailer.
While former boss Mark Newton-Jones was given the hefty challenge of transforming Shop Direct - which was created when billionaire tycoons the Barclay brothers bought Littlewoods in 2002 and rival GUS Home Shopping in 2003 - into one business, Baldock has the equally weighty task of making it profitable at a pre-tax level.
“We want to make money as a business and we have a plan that I’m confident will realise significant [business] value,” says Baldock. “My aim is to build something of sustainable value, something that outlasts any of us.”
Despite maintaining its scale during the merger, Shop Direct has yet to move into the black, and pre-tax losses stood at £57.7m last year. However, Baldock says the “heavy-lifting” has been done under Newton-Jones’ leadership -a task that he compares to merging Coca-Cola with Pepsi - and insists the business is ready to move on to the next level.
With the steely determination of an army sergeant, Baldock says it is “focus” that is going to make Shop Direct profitable.
“What we’ve given this business in the past nine months is a very clear strategic direction - a much more focused strategic direction and one we will execute with focus, discipline and energy,” he says.
“There’s a new level of ambition. We’re not aiming to do OK, to survive or just tick along, this is an explicit aim to transform an old catalogue retailer into a world-class digital retailer.”
Back to basics
As part of the focus that Baldock refers to, the retailer is to concentrate on its core customer, who, in the case of Littlewoods, it has been serving for more than 80 years. Baldock describes that customer as aged over 25 and a “striver” based in the UK. That means culling younger brand Very’s fledging overseas business in the US, which it launched with great fanfare in 2011.
“For now, we’re not interested in international. We’re going to stay focused on the customers who we know best. It’s not like there’s a shortage of market opportunity in our home market,” he says.
In its year to June 2013, Shop Direct “exceeded expectations”. Sales were up 1% and Baldock expects to achieve “strong double-digit” EBITDA growth.
However, what looks like “flattish” sales over the past two years - the retailer grew at 0.4% per annum between 2011 and 2013 - conceals a growth story under way at Shop Direct.
“We have an online business that’s been growing at more than 10% a year and our newer brands have been growing at 17% a year,” says Baldock. “Very, our number-one brand, has been growing at more than 20% a year. There aren’t too many half-billion-pound retailers growing at 20% a year in this current environment.”
Shop Direct is divided into two very clear businesses in Baldock’s eyes: the legacy operations, which include Littlewoods, and its growth arm, which includes young fashion retailer Very and mature brand Isme.
The retailer aims to maintain the profitability of its legacy business, which will in turn be ploughed into the newer brands, which Baldock says are the growth engines.
Online is clearly key to the future of Shop Direct. Just 10 years ago more than 70% of the group’s sales came from its catalogues - now more than 80% of sales are made online.
However, to truly capitalise on the potential of online, Shop Direct is to focus on personalisation to provide the customer with a tailored shopping experience. Baldock says personalisation is critical because the time-poor customer does not want to search through Shop Direct’s 70,000 SKUs to find the right product.
“It makes sure that we’re performing the role of an editor,” he explains. “What [our customer] sees first is what she’s going to like. If she bought a sofa with us, she’ll see the table that matches it or if she bought an iPad, she’ll see covers in the style she likes.”
Baldock says the retailer is “uniquely placed” to personalise its website because of its catalogue heritage. “We’ve stayed focused on our customer for 80 years. We’ve built up a knowledge of that customer that is unequalled anywhere else.”
Shop Direct is working with teams in both Silicon Valley and Tel Aviv - which Baldock says is leading the world in terms of technology innovation - to use the data that is so rich in its company to improve customer experience.
And Baldock is adamant the retailer will develop the best end-to-end personalised website in the world over the next three to five years.
“We are putting substantial funding behind it as we believe it is the future of this company. Over the next three
to five years no one in the world is going to do it better than us - that’s going to be a source of unique power to us,” he says.
“Every month we’ll see some improvement. We’re moving to ever-finer segmentation of our customers. Ultimately we’re going to have five million segments.
“You’ll automatically go to Very.co.uk because we’re going to show you what’s right for you - we have an uncanny ability to fulfil your needs, perhaps before you even fully form them.”
Putting more into own-brand
Baldock acknowledges that personalisation alone is not going to power the business.
“We need to feed that personalisation engine with great product and we’ll continue funding it with great credit,” he says.
Shop Direct hired its first group product director, former Marks & Spencer kidswear boss Karl Doyle, earlier this year to improve product.
Under Doyle, the retailer has started paying more attention to own-brands, in particular in clothing and footwear, and launched Definitions, a label for professional women aged 25 to 40.
Baldock says the early signs are good and the retailer is putting a lot of weight behind it.
His aim is to make Definitions, alongside children’s label Ladybird and older brand Savoir, “famous in their own right”.
Finance will also remain core to Shop Direct, and Baldock insists the retailer will continue its varied credit options.
About 90% of its customers use credit to make a purchase and Baldock says it is integral to Shop Direct’s business.
“We make good things easily accessible to more people,” he says.
“This purpose drives everything in the business. It’s at the core of every decision we take - we’re all aligned behind it and it’s what gives us a competitive advantage.”
With that in mind, Baldock says the retailer can push ahead with its goal of becoming the “standard bearer in ecommerce in the UK”.
He says: “We have all the raw materials to build it, a very clear agenda and the right people to deliver it.”
From catalogues to iPads
The future of Shop Direct is digital according to chief executive Alex Baldock, which means that the catalogue will play a less prominent role in the future.
“The role of paper will evolve after time,” he says.
“The twice-a-year blockbuster catalogue thumping on your doorstep is already much less important than it used to be. In the last year we’ve gone from 8.2 million catalogues to 4 million. It’s declining fast.”
However, Baldock says that as long as customers want to shop via paper he will make it possible.
But Shop Direct’s main focus is to keep up with ever-changing consumers and their preferred shopping method.
Mobile accounted for 27% of online sales last year, up from 17% the previous year, and is fast gaining ground on desktop sales, observes Baldock.
The retailer is now preparing for the growth of interactive TVs. “As long as it’s digital we’re going to make sure we’re technically set up for it,” says Baldock.
Fast moves to change business
As part of its mission to become a world-class digital retailer, Shop Direct is changing all of its business practices from being a catalogue-first to a digital-first operator.
In practical terms this means adopting a fast-fashion approach and constantly offering new product online, as opposed to the season-based catalogue offer.
Former banker Alex Baldock, who joined Shop Direct from RBS-owned Lombard, says he is adopting ‘Lean and Six Sigma’ practices to make the retailer more efficient. “We’re bringing this to retail right from the factory in China to the doorstep in Warrington. We’re going to make that end-to-end supply chain slick, predictable and efficient.”
He expects to gain substantial lead time benefits on products. “I’m not talking shaving days off the process, I’m talking about shaving weeks off and, in some cases, months,” Baldock says.