The return of discretionary spend, rebuilding balance sheets and an opportunity to grow. Economics is important – just remember the numbers represent actual people and you’ll be OK.

Its been a while. I used to write a quarterly digest of all the economic data for my old companies with implications for clients. I liked doing it and the feedback was always good, providing, as it did, something new to think about and a broader context upon which what we did (media buying). I even presented it to clients and media owners on occasion and again the feedback was always good, with the feedback usually centred around how I made “dull charts of numbers” come to life.

Since I left my last role a year ago i have contemplated doing a digest for this blog. It’s been a fascinating time with regards household finances but I’ve always come back to the fact that all the data i use is in the public domain and “surely” people are looking at this stuff. Also many of the serious news outlets do a digest. However, now I’m not so sure. As such this post is going to be view on what’s happening at the moment based on the most recent available data. Its also been a useful exercise in giving me a quick overview of the market and the current dynamics, any exisitng trends prior to Covid and reviewing LONG data (the important kind).

For those of a TLDR variety the following paragraphs summarise what you see as you make your way through what is a fairly large digest of data, i couldve included even more as there is loads of free stuff out there but lets leave some of those analyses for another day..

So… what we are seeing is a a twin-track recovery. There is a lot of talk about a K-Shaped recovery and while I’m not sure the letter does full justice to the effects we’re seeing i’ll leave it at that. When i say twin-track, what’s really happening is that the rich have got richer and the poor have got poorer (in brutal and simplistic terms) and this isn’t confined to Households either, its at country levels too (and businesses as well).

So you have a Macroeconomic effect being replicated at a Microeconomic level (which doesn’t always happen).

At an aggregate level we see the economy beginning to warm back up with rapid rebounds across the board. At a HH level we’re seeing consumption rise, employment rise, wages rise and confidence rise but; against the spectre of price increases driven by an imbalance in demand vs supply (brexit and covid combined are a powerful force). UK Households have been prudent (on the whole) at paying down debt during the last 18 months whilst rapidly increasing savings but; this is skewed by overall income with the wealthiest HH’s benefiting most.

To use a business analogy, HHs have discovered their real fixed costs but the difference between sustenance levels is less than discretionary and therefore as a % of total income are higher for lower income HH’s. In many cases those affected have seen no material reduction in outgoings either i.e. they had NO discretionary income anyway.

So what does this mean for marketers? Well as a whole, its a bit of an issue seeing budgets reduced so considerably, even if that’s understandable. Businesses have weathered the storm in a similar way to households (twin track) some will need to rebuild balance sheets but others will be in a strong position having reduced capital projects and expenditure significantly. Therein lies the benefit of Marketing and Comms. It can help rebuild/strengthen cash flows into the business and the opportunity is certainly there from a consumer perspective.

I don’t subscribe to a twin track strategy though.

Most businesses have an audience in mind, whether they are catering for higher income families or lower, its rare (grocery being a prime example) to get a mix (in fact most of these “middle” brands are losing their way), therefore focus on this. Single minded, consistent investment over the next 12-18 months will certainly be beneficial. There will obviously be some groups that are “hidden” within income levels (youth, part time workers, the self employed), but ultimately brands are a neat “heuristic” for people to self-identify and exercise choice with i.e. for most people know what you deliver already.

Second guessing a specific group is always a poor choice (as is pretending to understand them), so speak to these key groups and individuals within your focussed audience but also acknowledge that they won’t be the only buyers and look for what unites not differentiates. This isn’t about trying something new yet, that can wait until the balance sheet is healthy, this is about accelerating cashflow in the immediate whilst supporting the long term. Focusing on what the company knows works and hammering that home. There may be some tactical opportunities but at this time its likely that they will generate less money than the cash cows so focus on the big stuff.

The opportunity is now for marketers to demonstrate their commercial nous and position their specialism as a powerful tool in either rebuilding a balance sheet or extending growth. It should be an dynamic time with plentiful opportunity for businesses that are able to respond and react fast enough.

Now into the data and the trends, there is a lot here, all linked back so even if you can’t be bothered at least we i’ve summarised a load of useful links…. &

The OECDprovide quite a wide spread of options although there has been a clear shift in expectations driven primarily by the vaccine roll-out in richer countries. &

It’s also clear that at a country level that the recovery is varied by sector and Govt. policy i.e. stimulus. This “uneveness” or twin-track effect is a concept that we will return to again as it seems to be the core principle to understand behind this economic shock. We also appear to have overcome the worst of our economic uncertainty with the trend falling from its April 2020 highs which is a hopeful return to a more stable period (at least economically).

Some may ask, why look at broad brush stroke global data first, the key is to understand the macro trends and see how/if these follow through. Its appears true that the Macro currently reflects the Micro and what happens on the global stage is a mirror-image of Household economics (conceptually of course). So we have this twin-track recovery. This was/is perhaps to be expected as a simple function of timings and differing policy responses to the Covid emergency whilst at a household level we have the fixed cost of subsistance (with little flex) vs. income calculation.

At a UK level we’ll start with the classic indicator GDP. Now we know that Covid had a massive affect on MoM data so I’ve tweaked the Y axis to make the chart a bit more readable. For readers information the peak and trough for the covid impact were some 16.5% and 19.3% in Q3 and Q2 2020 respectively. I always point out the remarkable stability of the long term trends combined with some striking average MoM growth figures for periods of time.

There are that from post war 1955 to 1979 = 0.7% mom growth. The birth of neo liberalism1980 to 1997 = 0.6%, Labours cool Brittannia 1997 to 2007 = 0.8%, Post crash 2008 to 2019 = 0.3% and then we have Covid..

The Total data set average (mean) is 0.6% inclusive (and exclusive) of Covid. What this clearly shows is that there are some economic “epochs” that fundamentally change the levels. The rest of the time its business as usual, according to epoch. That’s the key with much long data, picking out the signal from the noise.

Looking at which sectors have been driving the recovery we see a suggestion of a new economic “epoch” when it comes to GDP growth at play here. All three major sectors have rebounded but appear to be at a lower “base level” than previously, this could merely be classic the “pent up” rebound but it appears more stable than that currently.

Bearing in mind that the post 2008 average quarterly growth was 0.3.% (or 1.2% per annum vs the previous average of 3.6%) could we be emerging into a sub-1% average annual growth economy? Thats a concern on many levels although its likely that as lockdown is fully removed we’ll get some BIG rapid numbers before we settle down again.

So… Lets dive into a bit more detail with these categories. What is driving this? Construction is up first and whilst you can see the impacts of Covid in 2020, since then its been a mixed bag although Govt. Infrastructure investment appears to have been a major driver, supported by private work as Households have invested in home improvements to enhance their WFH experience. We also have a significant bump in leading indicators like enquiries supported by employment and workloads reported by smaller constructions companies across the country. we know there are issues in the labour market (thanks Brexit) and supply of materials (thanks again brexit) which are exacerbating the other inflationary pressures (the main one being significant demand). & &

The manufacturing industry also appears to accelerating out of Covid with consumer goods production rapidly improving to support current and expected demand for products. This natural restriction of supply (playing catch up) when combined with other factors could be linked to the rapidly increasing levels of inflation (more on this shortly).

Finally the engine of the UK economy, services. Looking at ONS data its clear that the early 2021 lockdown was weighing down the numbers as the primary headwinds. Whilst providing powerful deflationary factors this period has now passed and we can see the impact with historic levels of growth and significant inflationary pressures due to excess demand and restricted supply (similar to manufacturing). Rapidly increasing prices at a time of economic need (the UK is still some 8% lower than its pre-covid peak) will need expert management by the government, if indeed it continues at this rate or is merely a short term blip as companies get restarted. Currently the BoE believe that Inflation will be short lived as excess capacity is used up. &

Retail and e-commerce have been one of the stories of the pandemic. There are many fundamental implications on business and society which cannot be covered here (but will be covered elsewhere in the near future by me and my co-author) but its useful to view Retail on its own due to the importance of the category to the consumer driven UK economy and Households in particular (before we delve into their financial situation). The first chart is a simple plot of 12 month rolling total value in retail (excluding fuel). Its worth noting that late 2019 had seen a clear flattening of the historic trend. This is also reflected in the indices with the rapid ups and downs pivoting around what appears to be a consistent base. We’ll see this trend develop more over the next 12 months.

What’s clear when you plot out the totals split by typologies is the fairly limited level of e-commerce penetration across the whole economy AND the size of food as a sector. Looking at non-store as a % split out on its own you can see the shift. At one point over 40% of non-food was e-commerce led (but that’s still a lot that’s not..), its also worth noting that whilst its unlikely to fall back down to the 20% mark the trend line was increasing its rate of annual growth anyway (even pre-covid).

When reviewing the BoEs predictions its clear that the big worry is rapidly increasing prices. This echoes the signals we’ve seen elsewhere in the various economy driving categories. Excess demand and restricted supply – price pressure. One way to potentially help support supply and meet demand is through increasing capacity rapidly. We saw how quickly the economy readjusted to lockdown, we should see the same ingenuity applied to boom time (it won’t happen but we can dream).

And our wonderful own IPA provide some interesting insights. A significant rebound in expectations but no proportionate shift in budgets, double digit declines in the marketing mix vs expected increases across the board going into 2020. It does feel at this point as though Marketers haven’t done the appropriate job of convincing their CFOs and CEOs of the growth potential of their craft. If the brand and businesses have survived this far then surely the opportunity is present to accelerate a recovery, support cash flow, fulfil demand and take advantage of rapid growth and significant consumer held wealth.

Ah! finally we get to the good bit, UK Households! the people who drive the economy forward! But first a recap. it appears that globally we have an imbalanced recovery as different countries have applied different policy actions and financial support, this will affect international supply chains so get ready for continued disruption. There appears to be a skew in terms of the type of countries who are fairing best with lower income and emerging economies suffering more..

Stepping down into the UK economy we have significant bounce back across all categories as pent up demand filters in. This flood of demand is having a significant impact on price inflation due to the limited supply the market has built up but the spare capacity in the market is predicted to even out towards Q4. Looking at UK retail in particular there does appear to be a step change in e-commerce penetration however we’re still talking around 30% of non-grocery retail and less than 20% of all, its noted that different categories will contribute to this average figure. But; physical shopping isn’t going away.

When it comes to our industry (marketing) it does appear that the market is undercooked. Bearing in mind all that pent-up demand, you would’ve expected a bit more support. That said, some businesses may get a bit excited by their ROI numbers (which would be entirely wrong of course).

So.. .. the other side of the coin.. What’s happening behind our front doors? At first glance it all looks good in terms of trajectory, consumer confidence is “on the rise” but its worth digging into some of the supporting metrics too. What appears to be an issue is not finances (debt, income and disposable income) but rather wellbeing inclusive of job security, childrens education and mental welfare. The ultimate legacy of the pandemic may well be a pervading level of general anxiety. & &

The following data from the ONS’ wellness survey shows confidence interval spread of “mental health getting worse” (LHS) and Happiness (RHS). Its clear that Covid has had an effect on both and whilst the spread of Mental Health Worsening has reduced we still seem to be experiencing a significant increase whilst happiness, again on the increase to an average of 7.2 (out of 10). The Deloitte tracker provides historical context to non-covid movements i.e. in reality Covid has accelerated an already visible trend. &

As mentioned, job security (if not financial security as such) has been a more pressing issue but what’s really interesting is that unemployment wasn’t particularly forced up during covid and the actual numbers made unemployed were relatively low, furlough certainly helped here staving off redundancies. Obviously this is a “cold” way of looking at things as these are households directly affected but its worth understanding the numbers and the likely economic impact as a whole. In addition company incorporations have rocketed with significant growth onto the register and a classic V-shaped recovery in terms of dissolutions (also note the remarkable consistency of the GAP between dissolutions and incorporations over time) suggesting that many took Covid as an opportunity to start something themselves. This coould be another significant shift, a rise in the number of self-employed or small businesses. & &

In terms of what people have been spending their cash on, its been the basics (unsurprisingly) but with an expected significant shift into the discretionary in the coming months. The time to buy big is also returning which is something brands should already be aware of and way into supporting planning for. Much of the theory of “spending during a downturn” comes in here. By the time a marketing campaign is planning and shot, you’ve missed the consumer period if you haven’t been thinking about it. This has been coming for a while. Marketers should be investing. &

This issue is that prices are likely to be elevated for a while with letters flying from Threadneedle street to No 11 starting up again. We also see that wage inflation is significantly higher than price, this is likely to feed through too. However; this is a false view to a degree as It’s argued that this income rise is a function of the reduction in employment affecting lower income HH’s rather than a raft of pay rises all around. This means that its underlying wealth i.e. savings and credit may be more useful in understanding what comes next. & &

What we have is a evolving picture of rising employment, rising wages (to a degree) and rising expectations. Reviewing underlying household economics by looking at savings and credit will enhance our view before looking at the linked disposable income and assets classes (Houses and cars).

To start with we have a significant (and historic) rise in the Savings ratio to 25% due to covid, which is mirrored by the huge and consistent reduction in the credit flows i.e. consumers are paying down debt. This culminates in the huge rises in disposable income which are reflected across the whole country with 11 out of 12 regions seeing double digit growth in the last two quarters (the region that didn’t was London). HH’s have been paying down debt, saving more and have seen their disposable income increase, all positive news for marketers as we exit the covid era because people want to spend and enjoy themselves again. & &

In terms of asset classes we have Housing, where the tax holiday, combined with WFH pressure and covid-restrictions have warmed up the market considerably. Always worth noting the remarkable stability in the number of houses solid over time. There are suggestions that the short term boom may be just that with instructions declining again, however as house moves are a consumption engine its clear that this will have an impact when people are able to invest a bit more i.e. home interiors, construction, white goods. Nothing gets the economy going in the UK like a house move & &

On the motor side of things 2020 was a big shock to the category but the market appears to have rebounded back. The ues market (LHS) is very interesting with 2021 behaving in a very atypical manner, new cars are back to a level again but expect this to drop off slightly again. Again worth reviewing the stability of the movements and levels over time. Human beings are remarkably consistent. & &

Finally, on the consumption front I suppose its worth mentioning the leisure industry which has been battered by covid and almost shut down. Its clear that HH’s are ready to spend in this area but its highly likely that the return will be staggered based on the type of activity and the confidence of individuals as they return to crowds and travel. A trip to a restaurant is “lower risk” than a flight or Gig and these will all take time to return to full occupancy.

So i said that its a twin track recovery (but its also a twin track economy). Data show that the last 10 years have been particularly bad for income but; in the context of Covid its clear that lower income families have been particularly hit. This is a function of the basic level of subsistence requiring a greater proportion of income for those affected. Lower income families were more likely to have dipped into their savings AND not reduced their outgoings creating a double whammy on wealth. I think this is one to be acknowledged but also one that may not affect as many marketers as is thought, these HH’s are unlikely to have had discretionary income on the whole and whilst that feels very harsh, this is not a blog post about ethics.

Brands have specific audiences and groups of buyers and are positioned as such. Its likely that these brands will have researched their own target during the pandemic and be acutely aware of their circumstances specifically, the real opportunity is that an opening up of the economy returns discretionary spend to the market for all brands (because that’s who light buyers are..) & &

And that is your lot. Hope you’ve enjoyed a tour through the economic data.. maybe I’ll review these old economic posts next


John Lewis and Waitrose – A changing business

First, a caveat. I used to work on John Lewis, ostensibly as a Comms Planner but later as an “in effect” Marketing Strategist and Consultant. I have great affection for the business but I’m also (and was) clear sighted about the problems that had been building up for several years before the recent visible financial troubles. I’ve been out of the business for over a year now. December 2019 was the last time i was at Head Office but whilst i attended meetings in 2020 they were under the auspices of the ‘intermediary’ restructure instigated prior to Dame Sharon White taking over and implementing her vision.

Anyway on to the update and it’s an interesting one. Part of this is because as a private business there is no nessecity for the John Lewis partnership to publish this sort of information. One of the first casualties of this was the weekly sales results they used to publish. It was a fascinating bellwether for the business but also a wonderful source of useful data that i imagine analysts at all the competition (what’s left of it) used. That said we still get the twice yearly updates and the unaudited full years have just dropped. There have been changes to how the data is structured and the emergence of a little more corporate obfuscation which i would suggest is linked to Dame Sharons background as an economist. Also it makes sense. Why give your competition the financial keys? Reading a few of the summaries yesterday (i don’t work Thursdays) and reading the announcement today, I’m caught by how many have failed to point out some of (what i would see as) the salient points. So into that….

To start with its worth looking at the revenue figures. When people say that high street brands are dead its worth looking at the amount of money these so called “failing” businesses are actually doing. In John Lewis’ case, they still managed to post est. £3.7bn which i’ve got as around 1% down YoY . It should be noted that this includes an extra week of trading but we’re still talking about a huge business from a consumer perspective. Also worth noting that the L4L is posted at 0%.

To put this into context I estimated that Debenhams was a £1bn business last year, whilst i estimated that M&S would do £1.7bn (discounting for a successful Xmas) and Next has suggested its profit would be circa 2/3rds of total which when applying a simple scale up (plus Covid cost estimates) suggests around £3bn. So John Lewis pull in a lot of cash and on this benchmark they’ve done/doing very well!

On the Waitrose side its been decent too with a 10% increase in revenue to £7.044bn. As a flavour for the rest of the market its remarkably consistent and whilst most of these results aren’t full year and are therefore extrapolations they are fairly uniform and paint a good picture for Waitrose. When i say uniform, we’ve seen the following at Tesco (8.5%), Sainsbury (c8%), Morrisons (8.6%) and CO-OP food (8.8%)….

I’ve charted the figures up over the last few years to give you a sense of what’s happening –

Yep, its down but nowhere near what you’d expect
A significant jump due to covid

The next step of this analysis jumps into how this actually converts into profit though. Historically i’ve used Operating Profit excluding exceptional items and the bonus (and tax) as the ultimate figure. Exceptional items are a “funny one” although historically they’ve not really appeared all that often, although in recent years it seems like its been open season. 2020 was when it started to get complicated though.

There are two reasons for this. One is strategic whilst the other is legislative. The legislative one is related to the value of leases (IFRS 16) and therefore there is an argument that we should go back through the numbers and estimate the historic “book value” that we’re seeing. This isn’t going to happen. Therefore it can only really be seen in the new figures. This creates a bit of an apple and pears situation, not idea but unvoidable it seems. JLP flag this in their recent report and there is a (£53m) effect (page 7) and its all against the JL estate, rather than Waitrose.

The other element is strategic and there are lots to this one. Firstly there are the emergence of group efficiencies which mean that going forward we won’t be able to view segmental Operating profit (it will be one figure) which applies one level of opaqueness to separating the two businesses. Secondly we had some whopping exceptionals. The first is a £249m addition caused by closing the final salary pension scheme. I’m not an accountant but this is booked against 2020 in its entirity. This isn’t real money as such and the benefit will be felt for years to come in increments rather than all at once. There is also the presence of a (£63m) amount which is related to strategic operations and redundancies AND a (£110.3m) write down of the John Lewis estate due to the shift to online business (we saw this again this year). You can see why the pension scheme amount is useful. It basically allowed JLP to add £107.4m into the year as exceptional. Without this we’re talking about a (£150m) amount in a year where the profit before tax was £146m. (see all this here). So whilst 2020 looked decent, we’re already on less steady ground, although the cash generative nature of the business is still strong with £753m generated with £600m on the balance sheet.

One of the big changes to JLP reporting is that they no longer provide segmental breakdown at a profit level (few public businesses do) from 2020/21 onwards. We have historic data so we can work with these margins to estimate though. This is where it gets a bit more interesting. For the first iteration i’ve left off 2021 as there is a lot more going on.

A few things of note here (as i’ve split the data by Half too) is that John Lewis are truly a H2 brand. All the profit now comes from H2 and most of this will come from the golden quarter. Everyone sees them as a Christmas brand and this is what that looks like. Waitrose on the other hand (bar 2018 when there was a price hike and Waitrose refused to pass over the price rises to consumers) are clearly moving back to where they were and seem to be well positioned.

So what about 2021. How do we estimate that? The best place to start is H1. Now the headline for H1 was a £580m loss due to a write down (we’ll saw this again in the full year results naturally). Stepping back to the figure that JLP use before exceptionals gives us some insight. This totalled -£55m. So prior to the huge write down they were making a not insignificant loss as a group. Looking back at prior years we can see that Waitrose has cross subsidised the John Lewis business before but not this year. With this in mind we can estimate the contribution to this loss by brand. We know that Waitrose was up around 10% in revenue terms. Taking the 2020 H1 ratio between Revenue and Net profit of 34.8% we can apply this to the 2021 figure to give us our estimate. We can also then simply work out the differential between this and the -£55m. This gives us +£128m for Waitrose (£3.7bn revenue at 30% conversion) and therefore a figure of (£183m) for John Lewis. That is a BIG loss in H1 and also includes some £50m from the Govt, for furlough.

Then we come to the full year view. Again, the comparison is difficult so assumptions have been made but we can estimate that Waitrose made £104m in H2 on revenue of £3.3bn. This looks like this –

What does that mean for the John Lewis brand? Well bearing in mind that the total group profit for the year was £131m we can run through the following calculation. Waitrose contributed est. £232m to the pot in the year. We previously suggested that the H1 loss to John Lewis was (£182m) so simple maths says that the John Lewis total year loss was (£101m) which means that H2 was actually positive at £81m. BUT, £190m of this was government cash. There has been much debate about whether JLP should hand back some of the Govt. money as Waitrose benefitted disproportionately (remember its up 10% vs other brands at 8.5%) and this is why they won’t. Essentially the group comes in at (£59m) without this. Then you add in the write down of the estate on top (it halved in value) of (£648m) and you can see where the headlines came from. Without government help the business would have written an £707m loss. Obviously the huge caveat is that Im not a financial analyst so i can’t absolutely guarantee these figures are perfect. You’ve also got an increase in cash generation to £832m.

OK. So why does someone with a background in marketing look at all this stuff. Well, i’m interested for a start. That and by following the money you understand the business better. It also allows you to disabuse yourself of narratives.

So what are the implications for all of this? It’s clear that the business is inefficient. John Lewis especially has struggled to convert good revenue levels into profit. There is too much cost and I would imagine the closures represent stores which have struggled to provide any sort of profit. Too big, too expensive, not enough demand. The closure of the bullring store in Birmingham is telling. 5 years old and flagship status (until Westfield), paints a very poor picture of the historic decision making processes. Like M&S before them, closing these stores will benefit the business hugely BUT; are JLP missing a trick? It’s last man standing now (Debs and HoF having “disappeared”) and there will surely still be a place for city centre malls, especially when John Lewis have never really had the large scale footprint of the others i.e. more manageable. This puts them in an enormously powerful position to renegotiate rents and leases as there is no-one else. The business is also still driving significant demand i.e. revenue as well. People still buy from John Lewis and even if that’s via the website, its a remarkable strength especially relative to their competitors.

So where does marketing come in? The John Lewis brand is very well known. It’s CEP (category entry point) is clearly Xmas but it has to be more than that really, they can’t keep carrying H1 as a passenger. The issue is more about the future and the Prime Ministers partner Carrie Symonds was recently quoted as suggesting that she wanted to get rid of “the John Lewis furniture nightmare” is probably an accurate representation of what many believe to be behind the John Lewis doors. Expensive (relatively) but also quite beige. Black Friday is now a major electronic goods period but essentially acts as a black hole before Xmas and whilst the returns policy is probably what drives demand, as cohorts age the awareness of this will drop (and electronics are hugely online and price sensitive as a result, not a good place to hang their hat). Clothing is an odd fellow within JLP. They have lots of brands (their own and 3rd parties) but there is no one real style or reason. You know why you buy at M&S but do you know why you’d buy at John Lewis? What are people buying when they go in? Could John Lewis have bought Jaeger for example? If fashion is to continue then a clear reason needs to be built. Brilliant basics has been a clarion call for many in fashion retail for years but this is a very competitive area. A Best of British position, could be an interesting platform through which to create distinction and support young DTC companies that are desperate to increase their distribution (acquisition in this space could also be investigated…)

The official documentation suggests a reinvigorated focus on Nursery and Home. It does feel as though there is a John Lewis effect when you start a family. You’re stressed enough as it is and therefore you benefit from an “all in one” shop, it’s a shame that when i bought it up buying up the UK Mothercare franchise there wasn’t the decision making apparatus in place. Ultimately JL is a lifestage brand and leveraging this for new cohorts would be a good idea whilst refreshing the older groups who have lost their lustre. You hit the John Lewis age range as a 30 something and then you’re in….

The suggestion of smaller more accessible stores is interesting but leveraging Waitrose is a better idea and should be prioritised. Small stores would only work as specialists and we already know from closures that the home-alone model doesn’t work. As to financial services and rentals, this is where the direction veers a bit. John Lewis Finance is profitable but it’s not distinctive in market. There are suggestions of new products being released but they’re playing with commodities in home insurance. Its not a game changer. Becoming a Peabody trust for the modern world is a fun idea but again this is a whole new unfulfilled area and the point with Peabody is that its a charity and therefore not cash generative, what’s the benefit to John Lewis here? It all feels as though the answer is being sought outside retail. Thats quite a leap for a retailer who is currently struggling to get the basics right (and by basics i mean generating profit from large revenue streams).

As for Waitrose. It seems like its on a reasonable course. All the grocers have benefitted and there was certainly a fortunate element to Covid and the handover from Ocado which forced immediate scale up. The issue with Waitrose is long standing and thats the quality/price differential. As value retailers increase their quality the gap reduces whilst the prices remain the same. You’ve then also got the “return to local” & “farmers market” elements that push against its positioning as the place for quality food.

The relationship between JL and Waitrose is also interesting. If you look at Sainsburys and Argos (plus multiple other brands) you can see a strategy in place that is founded on monetising shop floor space. Tesco and Morrisons are vertically integrated whilst Co-Op are local. Lidl and Aldi are opening lots of stores (and running up lots of debt). So how can the JLP work better together? Operationally there are clearly cost benefits that we’ve mentioned previously. The horizontal integration approach of Sainsburys seems to be an easy win but even Sainsbury’s had to try to merge with ASDA to supplicate the city (and that failed too) but here is the rub. JLP doesn’t have to profit maximise. It only has to keep running in the mid term and keep its partners happy in the short term. The £400m target for profit is just over half what Next does in a normal year and JLP is twice the size when you roll the two businesses together. There does seem to be a lot of cost within the business as mentioned but if this cost is used to provide elevated services then there is no reason why it cannot return to its thriving state. This is the key. It may not have to be efficient but it must invest the efficiency gap into something that consumers want and value, that could be pricing (which is alluded too), quality of product or simply expensive signalling. Its worth remembering that Selfridges wrote a £80m op profit last year from a handful of stores. Harrods does very well too, whilst Frasers is going all in on Flannels. Luxury (or mass premium in the John Lewis world) is something people will pay for however first of all your have to fix the inefficiencies in the operations and that’s easier said than done. The forward guidance of £800m investment does sound interesting though! Let’s just hope it’s spent more wisely than the £35m spent on John Lewis store in Birmingham.

ASOS vs BOOHOO who got the best deal?

Some big moves on the High street recently with the purchase of Debenhams (as a brand = no stores/warehouses etc) for £55m by BooHoo and Topshop, Topman, Miss Selfridge and HIIT (a small brand within the Burton stable) for est. £265m by ASOS.

Debenhams had circa 125 stores in the UK whilst the other brands had around 300, whilst we’re talking nearly 200 globally and 500 respectively. In terms of staff we have an estimated 7,625 at Topshop and Debenhams employed around 12k. So a fundamental impact on the high street, and a huge impact on available employment for disproportionately young and female workers. So not great, really. On the other side you have two doyens of the modern UK fashion industry (although BooHoos crown has slipped a bit recently with allegations of modern day slavery in Leicester) looking to hoover up interesting brands and assets whilst also feeding the city some bumps in valuation (although neither have ever paid a dividend, natch!).

With this is in mind, who do I think got the best deal and what are the strategic implications? Many have written about this deal already and its only a week or so in. Mark Ritson is pretty clear that BooHoo will benefit most however; lets look closer…

I suppose the best place to start is the official statements.

John Lyttle (the ex Primark boss now CEO of BooHoo) said the following –

“The acquisition represents an exciting strategic opportunity to transform our target addressable market through the creation of an online marketplace that leverages Debenhams’ high brand awareness and traffic through the development of beauty and fashion partnerships connecting brands with consumers.”

Interestingly enough you used to be able to buy Debenhams brands on ASOS, i imagine this will stop. The key element here is that the ambition is to turn Debenhams into an online marketplace so more like Zalando than the ASOS e-tail front. This is an interesting move and whilst all the information is not available the suggestion is that the scale of the Debenhams brand is what enables this. This is where it becomes interesting. The number “300m visitors is thrown around” a lot but similarweb estimates around 180m per annum (not uniques of course) which is half what ASOS get and 70% what gets (the brand not the group) according to the same platform. This isn’t a great starting place i.e. its relatively small. Some will say “oh but you only need 1,100,000 to spend £50 a year and you’ve paid back”, yep thats true but thats still a lot. So headline level we’re already asking questions…

…Reviewing Debenhams published accounts prior to their purchase by a banking conglomerate (their accounts are filed in Jersey which makes anything later than 2018 impossible to see) gives us further insight.

Debenhams was a big retailer. It did nearly £3bn worth of revenue in 2016 and PBT (profit before tax) of £114m, however the trajectory was negative and in 2018 it was down to £2.2bn (-25% in two years) with only £35m PBT. At this point in time it was estimated that £530m was coming via the website (so 24%). In 2018 there was also a non-cash write down of c£500m. £300m of this was goodwill i.e. value of the brand and a few other things leaving a book value on the balance sheet of £500m plus there was a debt pile of £312m.

Now of course Boohoo haven’t bought all this, they’ve bought the brand and website (remember that £500m goodwill book value). However this data is 2 years old. If it had continued at the same trajectory with the same proportions then you could argue that the business is doing around £1bn revenue (factoring in Covid) of which maybe £300m – £400m via the website (generous although corroborated by a non-sourced article in the FT). This is where we can get a bit creative with analysis…

How have I got this figure? well Next deliver around 49% of income via online currently (although naturally that’ll has gone up to circa 60% + this year, suggestive that Debs has only done £600m this covid-year) and back in 2018 they did 46% (which is nearly double what Debs were doing at the same time) so i’m being very generous with the 30% – 40%. Also note that online does half the profit (see Next) that offline retail does (we’re back to how hard it is to do e-commerce) .

Back to that goodwill value on the balance sheet, Next currently put a book value of £40m on intangible assets. In 2018 debenhams had a £500m value against intangibles. Next was worth £4bn back then and Debenhams £2.2bn. Admittedly i’m not an accountant but something doesn’t really add up does it, especially as intangibles are usually amortised over 10 years or so. Why is this important? Because it’s an attempt to put a value on the “brand”. Intangibles usually include strategically important assets like trademarks, software or “goodwill” (an ephemeral cost associated with purchase price of assets) and often represent significant value over and above fixed operations and stock. Its worth noting that intangibles are usually amortised over a 5-10 year period on the balance sheet.

OK, so there are clearly some “unknowns” here.

Let’s delve a bit deeper, because ultimately purchase price isn’t the only cost that needs to be reviewed here. BooHoo have to turn Debenhams into something it’s currently not. An online market place. Assuming that current customers will just carry on visiting is a very poor assumption after all.

Admittedly for £55m and in the context of BooHoos cash pile, (£190m + £92m profit this year), it’s not going to put a huge dent but; it will still require significant investment to convert it into the type of marketplace that BooHoo envisage. The marketing approach that has been used in the past for the rest of the BooHoo brand stable won’t be appropriate here. I’d suggest that it needs to be BIG and broadcast and consistent (Next don’t do this because they have store presence, a clear strategy, excellent execution and don’t need resuscitating). I’m thinking £20m+ a year for starters, absolute minimum, in addition to the digital availability stuff that needs to be done to establish a marketplace (double or triple that on top = £40m) and thats £60m per annum.

For context remember that Debs last registered accounts suggested £2.2bn revenue with a £35m pbt. Estimates now put that at £600m (of which maybe half is online)… with a less profitable online operation.

A review of Boohoos accounts doesn’t give an exact insight into marketing costs but we do know its bundled with adminstrative costs which have grown by nearly £100m to £292m in 2020. The importance of marketing in driving growth through endorsement and social media is repeatedly mentioned throughout all Boohoos company reports so further educated guesswork would intuit a large proportion of these admin costs, especially as we’re talking about multiple brands. I’d guess that £80m is not out of the realms of possibility (just for comparison ASOS spent £120m on a single brand, globally, for a business some x3 the size but hey…)

There are a few more things to take into account and they are the category elephants in the room, Beauty and Homewear. These are huge potential prizes at stake (according to many commentators who seem to mistake offline retail with online seemingly). In beauty you have the The Hut group at this price point (doing £300m in the UK), the remaining department store (John Lewis, where it contributes significantly to profit margins) plus the emergence of players like Sainsburys edging in (i say edging but we’re talking 134 stores now). You also have a raft of unprofitable DTC brands that play in this sphere with very strong brands, hunting for a buyer.

From my perspective the immediate future/opportunity for this type of mass premium make-up market is grocery because with 87% of sales coming via traditional stores (weekly shop exposure to beauty is therefore heightened), its certainly not another marketplace. You’ve also got Boots Walgreens as a huge player (divesting of the pharmacy offering is an excellent move) who have the pure size to really dominate if they get the premium element sorted. Beauty is a category in flux, because of the reduction in barriers to entry and is atomising not aggregating, that said, atomisation causes confusion. Most people just want it easy and historically thats meant retail halls, something which (a small reminder) Debenhams won’t have. That means building out e-commerce capability and experience online, which as we know is not easy or cheap, adding further cost to the change. Beauty is not fast fashion.

The second elephant is Homewear, despite its profitability, a very difficult transfer to online only (its also not really a historical strength or area of importance to Debenhams as demonstrated by its aggregation as a depart with Fashion). The mid-low end of the market is already well catered for by IKEA, ARGOS, Dunelm and smaller players like delivering high quality design at reasonable pricing with decent fulfilment networks in place. Building out that sort of capability is very hard and again very different from dresses and jogging bottoms, even if Debenhams is a pure intermediary marketplace. Also why would you come to Debs here when you can get the products elsewhere and they are a single click away, what would the value proposition be without the presence of the physical stores?

BooHoo mention those well known brands like Principles (hey the 90’s called), Maine (yes 90’s Dad) and Mantaray (Who??) that they’ve also bought and that they will stock in the marketplace. Now don’t get me wrong but when Debenhams was doping its best work was during the “designers at debenhams” era. Nobody was specifically going “yep, the debenhams brand is ace, such hidden gems” it never had the M&S own-brand cache and it never had the BHS “Lighting” specialism either (did you know BHS still exist and they even have to pay for a 1st page google search mention so they’re obviously doing very well for an ex retailer going digital)

Even if product isn’t the ultimate aim this feels like a Johnny-cum-lately proposition. Next have a marketplace for other brands (worth £500m a year and growing at 20%+ a year) whilst The VERY group is exactly this and has been in doing it for a long time (with a highly profitable finance engine behind although admittedly some big financial problems beneath the surface). Do we need another? Is it worth it?. Are th Debenhams brand clothes that strong (and the 90’s cast-offs too) to drive visitation? especially if you can get the rest of the stuff elsewhere online. The recent move towards owned brand by department stores and owned distribution (Nike) is actually in the opposite direction. It’s also the opposite of Boohoos modus which is buying in brands to enhance its offering and extend its demography.

To aid contextual analysis its worth reviewing the old Debenhams strategy (as of 2019) which was to apparently turn shopping back into a social trip (they were in the process of dialling up all the experiential parts of the stores) and you have a lot of problems to overcome (note that post-covid its likely that we will see a return to this behaviour as people do their best to “go back”). If Debenhams was previously all about the social aspect then what happens if you go in the other direction?

I’m sounding very negative now but the other element worth considering is Mike Ashley offered a reported £125m in October. Mike owns 27% of debenhams (and had built up a £150m position that is now worthless). I appreciate that the golden quarter was awful for Debenhams the existence and reality of the £55m sale (admittedly without the back end) vs the x3 price offered 3 months earlier says everything about the financial performance of the business and the costs that were mounting for the owners.

Some of you will be aware of my work using Share of Search and i’ve previously analysed the department store market as follows i.e. its a good proxy –

©Vizer consulting

Note that Debenhams underperforms vs SoS (i.e. its actually bigger than you’d expect), the hypothesis is that its presence on High street is what has driven success i.e. physical availability is the strong business lever vs mental availability. However; that’s not the only point. A quick look at the current positions shows just how far Debs have fallen. The following shows Share of Search over time. M&S is a bit unusual because what you now get is a combination of GM and Food vs. pure GM a few years ago (this makes it slightly complicated when directly comparing).

© Vizer consulting

Reviewing this data in context we can see that Debenhams comes in at around 12% market share vs. these chosen competitors (this isn’t full market share obviously but its useful for benchmarking). We know that Next (c30%) have expected profit of 50% value vs last this year but in revenue terms its reasonable to expect a 40% drop for full year at £2.6bn. Applying that ratio to Debenhams reinforces the estimate that the business is (at best) barely a £1bn business (with the majority done at stores, not online, which are the biggest driver of usage) and supports the above rationale that Boohoo are going to struggle to revive the Debenhams brand, even as an online marketplace, without significant investment which puts a lie to the “cheap” nature of the acquisition.

To summarise, Boohoo have paid £55m for a brand that appears to be of little value from an operational perspective due to a web portal that is heavily reliant on its store footprint to drive usage and is also in traffic freefall. Simply put, take away the stores and does the Debenhams brand still exist meaningfully? The profit angle is also worth looking at here as online is significantly less profitable and whilst Debenhams were running to Gross margins of 11% in 2018 thats a world away from the 54.7% BooHoo currently report (this is definitely going down by the way). Add to this the costs required to actually doing all of this, the marketing and operations, and I would be very cautious as to whether the numbers actually stack up meaningfully in a reasonable period of time.

As i’ve been writing this I’ve tried to think of other brands that have done similar things and the two that sparks are the Very group (Shop direct back in the day) and Mike Ashleys Frasers group. From a Very perspective, they bought the Littlewoods brand in 2005ish, it was a catalogue biz up until 2012-13 when it shifted full web based and its done significant revenue (VERY is really about the finance offering though). They also bought Woolworths in 2009 but closed it in 2019. So two scenarios where a brand was bought (with zero retail) and used as a direct only “marketplace”/dept store. Did this work for them? Well 2013 saw Shop Direct deliver its first profit in 10 years so it took a long time and a lot of effort post brand investment to get them there and that was a pre-digital world with lower expectations on a direct business. Since 2013 the group has had a somewhat Yo-Yo financial performance, however 2020 has seen a covid driven profit vs 2019’s loss but; on the whole fairly inconclusive and the Littlewoods brand is officially being managed to invisibility due to strength of VERY as the core brand.

As to the Frasers group, and the House of Fraser purchase, delaying the publication of your accounts multiple times does not provide confidence and from a reporting perspective the numbers have been hidden in “Premium Lifestyle” which has seen growth, but also includes a number of brands. Looking at 2019 you can see that HoF was making a £50m loss on revenue of £300m (woah!!). So despite a few store closures its unlikely to be helping just now (another tick in the box for increased cost for BooHoo outside of the purchase price of Debs brand).

This post is getting on now and i haven’t even looked at ASOS and Topshop as of yet, however that part should be a lot easier. There are three reasons for this. Firstly, it’s a more obvious fit and secondly the amount of data available in the public domain is limited and thirdly its a simpler job i.e. they are not trying to create anything new. From ASOS’ perspective, they have recovered from the “blip’ a couple of years ago when their share price dropped due to warehouse fires and a rise in debt . The point here was that the debt was fuelling capital expenditures with a clear strategic goal to enhance distribution through the development of additional hubs ( most prominently in the US). This capital intensive push has subsided now and the business is cash rich and cash generative. You can see this in the following stats taken from their company reports –

ASOS all in £2017 201820192020
gross margin48.649.948.845.9
net cash position160m42m-15m407m

Its worth noting that the increased cash position in 2020 was supported by a c£200m cash boost which was essential in funding the £265m purchase of Topshop, Topman, Miss Selfridge and HIIT (a small subsidiary of Burtons).

Following a similar protocol as the Boohoo analysis the official statement is pretty telling as to expectations, with the brands settling in to become ASOS Brands, which delivered c£1bn in 2020. In 2018 Topshop/man did £800m worth of business whilst in 2020 evidence suggests that onsite Topshop sales on the ASOS platform grew 41%. The statement also mentions some £265m of annual revenue (this would be covid affected although the language is opaque even if essentially this suggests that ASOS have literally paid £1:£1 on revenue, worth thinking about that… buying a set of brands on a £1 to £1 revenue basis in a severely depressed year) Its also worth remembering that both Topshop and ASOS are international businesses with roughly half of both revenue outside the UK (this is in stark contrast the the more local pattern seen at Boohoo).

Taking this into consideration we have a simple logic flow on the value of the deal. Topshop was growing on ASOS at double digit levels. ALL that revenue & profit could taken in-house if it was bought and owned by ASOS (assume profit positive). 50% of total Topshop revenue is/was done outside the UK, this broadly matches ASOS and reinforces their international outlook. In a non-covid year and a VERY poor conversion figure of 40% online its reasonable to put a figure of £320m of potential digital revenue which will be directed to ASOS’ site with some quick SEO optimisations also it includes a significant proportion already on-site at ASOS (I’d imagine that AOS was a very important reseller for TopShop. This excludes the Miss Selfridge contribution which, whilst admittedly smaller (estimated £25m revenue pa max) provides additional £ into the deal of the £320m revenue vs £255m purchase price.

I’ll be honest here because much of this is “fag packet calculations” but they show the clear difference between the two deals i.e. one is “buying revenue” whilst the other is “buying costly potential”.

I told you it’d be a quicker piece of analysis but in conclusion the ASOS & Topshop deal is likely to be self-funding whilst the Boohoo & Debenhams deal requires significant investment to make it work (its not a simple port).

ASOS’ acquisition is also in-line with the business strategy (international expansion) whilst BooHoos is a step away (previously Boohoo have just acquired cheap fashion brands in a Mike Ashley style to extend their demographic mix) with a lot more risk inherent in the assets transformation.

This is a reminder that it’s not always about the headline figures with these deals, it’s what goes on behind. Topshop is a “going concern” in the way its been bought but Debenhams is a distressed asset that requires much work.

Strategy is choice. Risk is inherent in choice but analysis and synthesis suggest that one option is a lot riskier than the other. The ultimate upsides are comparable however. If i were a betting man, I would say that both would no longer meaningfully exist in 5 years. ASOS will have subsumed completely the TopShop brand and may even have moved into physical retail (its kept the flag ship on Oxford Street), whilst Debenhams will have gone the way of Woolworths, a loved brand that no-one really cared enough about to still shop there.

Why Digital Availability aids Strategic decision making plus why digital ads aren’t analogous to rent or signage

I published a paper with WARC a couple of weeks ago that expanded the detail on one of my earlier blog posts on a concept called Digital Availability. I’ve tweaked and extended it a bit here –

  • Researchers such as Professor Byron Sharp have written about the need to build mental and physical availability. These are rightly considered key factors in driving brand growth because it makes it easier for people to notice and buy your brand.
  • A lack of nuance in language and detailed knowledge mean that a third “availability” should be added to improve understanding and serve as a partner to mental and physical availability. Digital availability is concerned with improving the breadth and depth of a brands distribution brands online.
  • Digital Availability channels include the likes of PPC, affiliates, mobile commerce, social commerce, review sites and third party retailers like Amazon or vertical specialists like or the various websites of The Hut Group

By enhancing the nuance around ‘availability’ we can improve our communication with the C-suite by clearly talking about all the levers at play to help brands grow in three simple classifications – mental, physical and digital.  


  • Many digital availability channels and routes to market are more akin to merchandising/purchasing models rather than advertising models which require a whole different way of thinking and skillsets, including complex fulfilment engines required to service and stock goods
  • If you view digital channels as separate (Digital Availability) the budget and structural implications become clear. You cannot compare a Google Shopping or Amazon link to a TV ad – although they both fall under the auspices of the 4P’s one is concerned with Place whilst the other with Promotion.  
  • Just like Physical Availability a true cost benefit analysis still needs to be done for Digital Availability channels to make financial sense. 
  • Strategic decision making is improved through enhancing the nuance around the options to drive growth
  • All ads with a CTA are signage not just certain types of digital “ad”, and the term “signage” lacks nuance as these “units” are more akin to being stocked in a shop i.e. shelf space
  • Digital Ads aren’t replacements for RENT because there is so much more that goes into e-commerce over and above placing ads (storage, fulfilment and distribution) plus accountancy terminology treats them very differently (revex vs capex)

THE BIG definitions

Physical availability = brands being available to buy in more places (offline )

Mental availability = being the first brand in mind when an individual comes to buy

Digital availability  = brands being available to buy in more places (online)

Here is where we start –

Mental and Physical availability, according to Professor Byron Sharp (source HBG 2011)

At first glance all seems fine. The all-encompassing nature of the Physical Availability definition seems to encapsulate every eventuality, including availability to purchase within the digital sphere.  In fact Professor Sharp has on occasion stated that PPC (as an example) is simply a Physical availability channel.  I agree. To simplify, view Google as similar to Tesco.  Brands merchandise their product within the Tesco store just as much as they could in Googles “store”.  Brands negotiate with Tesco about where their product will sit on shelf (or Gondola end/POS) just as they do with Google’s search listings.  

So why am I suggesting that a new categorisation is required? Much of the world is digital and if the COVID-19 era has taught us anything it’s that conceptually Physical vs Digital distinctions are less important than maybe we thought. That said, whilst concepts can be great, in the real-world language matters, and over-simplification can lead to blind spots.

To enhance an already influential and well known concept is risky. However; I think it’s worth learning from the realm of science that Professor Sharp has less time for, the social sciences, and in particular Behavioural Economics. I believe “Physical Availability” has a Framing problem. Words matter and it’s a simple truth that for some people the word “Physical” clouds their thinking to physical-only environments (like Bricks & Mortar) and whether we think that’s foolish or not, it’s still a fact. 

Taking it one step further, If we take Sharps/Ehrenbergs heavy and light users, we can apply them to knowledge too.  The “heavy users” in this example will know the complete definition of Physical Availability and be comfortable encapsulating and communicating every potential distribution channel however; the majority (the light users) will simply use the term “physical availability” and a proportion will trip up on the language and consider it only in a Physical sense not a Digital Sense.  

This has major strategic implications and as marketers we should be looking to enhance understanding through communication rather than dismissing the “light users”.

As such I have proposed an expansion of the Availability Duo to an Availability Trio.

Now I’m sure there will be many, including Professor Sharp himself, who will think this is pointless, it confuses, “we spent years trying to educate people that digital isn’t a separate thing” (privilege is writ large here) and I agree it is, for those who are “heavy users” that is i.e. those who know the definition inside out.

You could also argue that a simple “be available to buy in more places” and “be the first brand to appear in someones mind at point of purchase” would suffice. I actually prefer this but we’re working in a world where Physical and Mental Availability are known concepts and have worked their way into the lexicon (even if they are jargon)

But; a reminder, we aren’t doing this for the “heavy users”. This isn’t for them, it’s for the light (and non) users so that we can grow the influence of marketing at the boardroom level by effectively talking about all the levers at play to help brands grow.  In other words I’m talking about driving penetration growth of the availability concept.  Better thinking and better marketing helps everyone. The concept, in practice also aids allocation of resources within client businesses where Marketing is very separate from Operations (and on and offline ops are also separated).

So, that’s the simple extension of the concept and its definition. That said it’s also useful to understand what Digital Availability channels are and which brands are demonstrating an effective and strategically beneficial use of them.  Like most things in strategy there is a degree of “it depends” at play but for simplicities sake here’s a (definitely) non-exhaustive list:

  • SEO – Optimisation of availability (this works across e-commerce platforms
  • Generic PPC and Google Shopping – Using Googles shop to sell
  • Affiliates – Essentially using a digital  3rd party to sell your product,
  • “Collapsed” ad formats (click to buy etc)
  • Mobile commerce – Can you easily buy the product via a mobile device?
  • Social commerce – Do you have social media commerce capability activated?
  • Review sites – Are you present with click to buy activated?
  • Third party retailer listings (online only retailers including amazon  or vertical specialists such as The Hut group or a website like Mastersofmalt 

The list could go on and on. Each one opens up a new avenue to purchase. A new avenue that services a potential new customer and could extend market penetration. Obviously, the cost of set-up and ongoing fulfilment needs to be validated against the potential opportunity. Some of this would be Revex  and some would be Capex (adverts are typically defined as revex in financial parlance whilst capital builds e.g. website builds are capex) which takes you further down the road with strategic applicability and C-suite influence.

Another key thing to point out is that many Digital Availability channels and routes to market are more akin to merchandising/buying models and require a whole different way of thinking and skillsets. Strategic choice requires you to factor in the complex fulfilment engines required to service and stock management implications too, e-commerce is rarely easy as I have written about before here and here.  

The point being that if you view these type of digital channels (Digital Availability) as separate, the budget and structural implications become clear. You cannot compare a Google Shopping or Amazon link to a TV ad (the same difference is akin to comparing product on shelf at Tesco with a TV ad) although they both fall under the auspices of Marketings 4P’s (Price, Product, Promotion and Place).  Even in this categorisation of marketing tasks its clear that Google and Amazon are Place whilst the TV ad is Promotion”.  I believe that by splitting out Digital Availability in the way I have choices become more transparent and therefore more useful to strategic decision making.

The recent COVID-19 impact on e-commerce really sheds a light on those who are being successful in this field and on the strategic intent that comes to light by creating distinction from Physical Availability.  

One of the most interesting is Nike who are shifting their Digital Availability emphasis away from third party vendors towards owned assets .  At face value this suggests that they are reducing their digital availability however strategically they have made the choice to “own” the full brand experience, relying on fewer intermediaries where they have little control. A decision which; over time may lead to greater profits (there is much more going on here that won’t fit in this paper).  Obviously this approach isn’t open to everyone and therefore it’s certainly a problem for CX and UX management for brands that can’t.   There is an argument that there is no real difference to relying on Tesco to appropriately manage your sales channel.  That said, Tescos are a retailer, Amazon are not (really).

This stands in contrast to Adidas who have signed a deal with Zalando to run their digital fulfilment which requires a truly integrated strategic partnership between the two German companies .  Adidas are essentially outsourcing this function rather than owning it, allowing Zalando to run the CX and UX for a large proportion of sales online.   The implication being an acknowledgement that e-commerce is tough to do right and even the biggest brands need a little help in making it all work. There is a loosening of control here and a different kind of risk, which is clearly a strategic choice.  Whether it is the right choice will be seen.

Looking at the UK grocery market as another example, you can see that very few are really “outstanding” when it comes to e-Commerce.  What do I mean by this? Well  a review of the financial literature by these players suggests that they all saw penetration double  as a result of covid restrictions, this suggests that no one Brand really outperforms/is stealing share via Digital Availability i.e. it’s not driving relative growth.  That said, all the brands are active in this space meaning that it’s probably restricting loss i.e. game stakes.  There are clearly different models of fulfilment within this category though which is probably another article in itself.  

In the opposite direction many direct-to-consumer brands are finding that despite their success (in building digital availability) they are reaching a ceiling due to a lack of physical availability. Brands like Harrys and Fenty have looked to build Physical availability via merchandising deals with large retailers.  

This duality between Physical and Digital availability is clearly a balance and a strategic choice which needs to be identified at a brand and category level.  

Just like Physical Availability a true cost benefit analysis still needs to be done for Digital Availability channels to make financial sense.  This is another reason to split it out and make it separate .  The immediate capital investment for much digital availability will be lower but; there are other implications linked to the full value/supply chain that need to be factored in.  Just because you can doesn’t mean you should, you still need to ask “Is there really enough demand to justify creating the avenue and also is it driving incremental sales?”  

Why Ads for online businesses are NOT rent or signage – The pursuit of nuance

Related to the above concept are a few papers written in the summer. Around this time Grace Kite published a paper on the two-types of online advertisement. This states there are two types of ads online. One that is similar to traditional “brand” ads and the other that of a signpost for e-commerce businesses, it also suggests that marketers may not be aware of this dichotomy. I’m not sure i agree here. There is clearly a “future cashflow” & “present cashflow” or Brand & DR situation going on online (much like in the offline world) but also a third type of solution which is really what this is about. This concept of of “e-commerce signposting” relates more strongly to the concept of Digital Availability.

There are some similarities to my thinking, not least the belief that there are some quirks in the online advertising ecosystem that mean that some of the “ad” solutions aren’t actually ads at all (and are closer to the traditional retail Merchandising or Buying roles) however this is the 3rd type of “ad” not the 2nd. i also don’t think the term “signpost” is that helpful. All ads with a call to action are effectively signposts, whether they are online or offline. Bundling terms is great but not when it reduces nuance and there is plenty here.

Furthermore the water was muddied somewhat with the paper in WARC based on another paper in the Economist suggesting that Ads are similar to Rent. So, is it Rent or a Signpost?. Does it matter? Yes, i think it does. As mentioned above, i think “signposting” is incorrect as it doesn’t add enough nuance to the debate. I also think that when thinking about these Digital Availability channels the term Rent is also incorrect. There are two reasons for this, both from an accounting perspective and also from a task perspective.

I’ll explain – Rent is a periodical cost and is typically Capex. Ads are a variable unit cost (they’re typically CPC) and are typically Revex. So in simple accounting terms we have clear difference (and remember part of this exercise is to help improve communication at a c-cuite level).

These “digital availability” placements are typically situated in online marketplaces, listings or e-commerce platforms i.e. you are paying upon completion of a sale by another entity. Google is allowing you to use its “shop”, Amazon is allowing you to use its “shop” etc There is no signage (you could argue that a partner ad placed by a media agency next to the listing is signage). It’s like being stocked on Tescos shelves (as i mention above). Would you consider being stocked in Tescos as “rent” or “signage”? I’m sure you wouldn’t. BTW this isn’t an attack but more an attempt to pursue clarity and aid strategic decision making.

Ben Evans has also alluded to this here with a little more nuance as he groups the trade-off between online and offline in a way that acknowledges the difficulties of e-commerce. That is, its not as simple as just transmitting offline rent into online ads, you must also include fulfilment costs, returns, storage etc etc, so that the Rent signifier obscures a lot of additional cost associated with trade online. Its striking how many people still think that e-commerce is cheap and easy, this sort of labelling does nothing to dissuade this thinking.

In all of this, that should be our objective, to aid strategic decision making with enough nuance to provide context. Words matter and we’re in the effective communications industry after all.

The rise of E-commerce, changing expectations and the great unbundling (Retail and motor)

A few weeks before Christmas I was invited to the annual “future of technology series” run by . It was a great line-up and the videos are all here for your perusal including my own short presentation. I took the opportunity to present on how changes in consumer expectations are likely to drive structural changes in logistics and last mile fulfilment and why understanding the commercial impact brands can mitigate through their businesses strategies. I specifically focussed on the Motor in this presentation but some of the insights are cross-category. It was whistle stop and i’ve certainly gone deeper here than i did for the 10mins i had then, with some more examples, so hopefully it may help spark some interesting thoughts of your own…

So, the first slide started with ONS data showing the shift in share of retail (online vs offline). Obviously grocery is overwhelmingly offline (penetration is around 13% which is double pre-covid but still low) but even total retail excluding grocery only comes in at 27% i.e. lets not accelerate the decline of offline by believing its dead already. That said, there appears to be a step change of around 7.5% which is not insignificant and a new baseline.

That said, the previous chart is in % terms and when offline retail effectively closed in LD1 (lockdown 1) its perhaps unsurprising that e-commerce saw a % increase. To add more colour to the scenario its worth looking at actuals and as you can see whilst there has been a clear acceleration, the total offline retail dwarfs the online world. When you hear people calling for Amazon to be broken up because of the stranglehold on retail, its worth remembering this chart. Amazon is only a proportion (and a small one) of that red line. Its certainly not a monopoly here.

Something that this change has affected though is consumer expectations. When it comes to e-commerce and delivery the biggest impact Amazon have arguably had is on perceptions of service. We expect cheap, quick delivery with the minimum of fuss. I’ve written previously about e-commerce and how fulfilment is expensive and hard and how the costs of decent delivery have to come from somewhere but its worth reiterating

Fulfilment networks are costly. The set-up is vastly different from a retail outlet and the limited distribution required to stock fixed units plus they have “last mile delivery” issues too. The “hub-and spoke” model of Argos and the regional and local hubs operated by Next are designed to mitigate this and improve efficiency/reduce cost. Interestingly the key, non-covid, statement in last years Next company report, for me, is “The focus will be on systems that consolidate items, quickly and accurately, into individual parcels”. Why is this important?

What do i mean by this? Well its about distribution, especially that last mile. Its one of the problems with the food delivery businesses like UBER and Deliveroo and explains why they are trying to shift into broader logistics because what’s that problem?.. marginal costs. Let me explain, a van or bike (plus driver) represents a cost and as soon as you have a single package this cost is incurred. The first parcel is always the most expensive whilst subsequent packages reduce that cost by spreading it, that’s marginal cost, the extra cost incurred for each subsequent unit.

In traditional store based logistics this is fine. You fill the lorry to its capacity and off it goes. In the new e-commerce model where parcels are being delivered to multiple houses in a small geographical area plus the expectations for instant delivery (and cheap) set by AMAZON you have a problem, because its unlikely that you’ll be able to send that package out on a full truck, ergo its highly cost inefficient. This is happening all over the country too in multiple locations, every day. As a business you could hire 3rd parties to do this part for you, but; even with multiple potential clients this can still be a problem and there is an elevated cost for utilising their network because they know this and clients pay for the inefficiency. This is what I mean by “stepped” because each vehicle started is contributing marginal cost that is not optimal, kranking up the negative effect on margins and explains why brands that operate in the mid-low end of margins struggle with e-commerce and have to find the savings somewhere else in their business (see the BOOHOO paper again for the wrong way to do it). Back to that mention in NEXTs report. They’re looking to cross subsidise this uncontrollable aspect by focussing on their own operations and reducing inefficiency there. clever stuff eh!.

So, why did i leap to bundling and unbundling. Well everything above is fairly general. This is an actual trend and its fuelled by consumer expectations with clear commercial impact. This is also where the implications start. So, a reminder, if the logistics scenario above is the the case, businesses have a choice. Either continue to run their own logistics networks or utilise someone else, a good example in modern retail is NIKE vs Adidas.

Over the Summer Nike were raving about the rise in e-commerce, they’d pulled off some of the big ecomm platforms and the shares were skyrocketing. Read the company reports again and you’ll notice that margins declined and admin costs also declined hugely (including demand generation or marketing). In simple terms a huge cost centre was removed which lended a glossy glow to the bottom line figures BUT also; despite full price sales increasing (this is a function of an excellent stock management system) margins have consistently declined. check here, here and here for more info. I’m digressing from my original point a bit here but if you remove £3bn (combination of operating expenses, they namecheck flights!! and marketing here) from £10bn revenue its going to look good on the bottom line (and its also likely to come storming back when covid is over) but also that consistent 1% drop in margin is due to the owned e-commerce focus and represents how difficult it really is to cross subsidise the old world with the new and stay the same. Adidas on the other hand are currently piloting using Zalando to do their fulfilment. How does this relate to bundling and unbundling, well its simply do your logistics or don’t?

The bundling vs unbundling example Is clear in this example. Hiut the specialist jeans maker from Wales who “ONLY DO JEANS” and make a virtue out of it or Tesco and Booker and a vertical integration play that is arguably Sir Dave Lewis’ finest gift to the TESCO business. Especially when you remember the context of the business he came into, with multiple acquisitions struggling to do anything other than drag. He made one BIG play and it was a step up the chain I.e. a big bundle. So onto the car market…

Its worth reminding everyone at this point that the thesis of this presentation was e-commerce has risen (but not as much as you’d think), but its real impact is on the expectations of service. E-commerce is a drag on margins because of marginal cost inefficiency and therefore businesses have a strategic choice to make, do they bundle or unbundle…. So Motors and motor sales, a market ripe for disruption.

There has been an acceleration of new brands in the car buying space in recent years but the two that catch the eye are Alex Chestermans Cazoo and BCA’s Cinch. Why is this and how does the above trend feed in? Simply put, if buying a car is shifting to the e-commerce model then imagine the commercial implications of the “last mile”. The car has to be dropped off at a house. Its going to be either driven (in which case you need a following car) or via a truck (which has only one car on board for residential streets, probably with a HGV driver and a sales person on board) which means the marginal costs are steep. The opportunity costs are also huge because that sales exec can only service ONE delivery/sale during his time on the van vs the multiple ones he can manage when on the forecourt. You can see how costs are going to rise exponentially! Now i’m not saying that buying online is going to be mainstream anytime soon, its still a tiny % but combine this with the national coverage of online sales (imagine i’m in London but buy a car in Glasgow) and the whole regional/local garage model is under significant pressure. OEMs (original equipment manufacturers) for new cars can’t do this and whilst they often handover control to sales networks, that becomes complicated too as they’re often not fully national.

So (longwinded) that leaves the door open for the aggregators to step in and they’re perfectly placed to dis-intermediate the sales networks by building out their logistics back end + a digital forecourt front end and cover the whole of the UK, essentially bundling sales and logistics up and leveraging economies of scale. BCA already do logistics for the motor industry (and they own We Buy Any Car) but Cinch is them entering the new car sales marketing (they’re a £2.5bn business) whilst Cazoo are coming from the other direction and going sales platform, supported by a logistics network (and then they’ve bought some forecourts, probably as a holding pen).

If i were to conclude this rather rambling section I’d say that size matters in the e-commerce sphere to mitigate those changing expectations and bundling sales plus logistics plus forecourts/warehousing is the future. OEMs would be better placed to just give up sales (unbundle), whilst the sales networks themselves face an existential threat.

Ah yes TESLA. They can do it. They sell direct after all (despite Elon backtracking on closing his forecourts) Well can they? They’re already losing money and as we’ve set out the e-commerce model doesn’t help here. In fact it does the opposite. So its really not the DTC model you need to be worrying about. It’s the aggregators who bundle.

WOW. I definitely added loads of other stuff in there that was in my head especially as the original video was only 10 mins long. I summarised here and i still think this is the best overall way to do it, so i’ll leave it at that.

Who is losing influence at a boardroom level?

Do i still believe this?

An old colleague has recently caused a stir in Ad-land with a WARC paper on the death of the creative planner (behind the paywall). It reminded me of the following essay that i wrote back in 2013 for the IPA excellence diploma. It scored me my only “distinction” (Merit overall) and the feedback was that it caused a lot of consternation with the markers (overwhelmingly creative side) who disagreed vehemently. One thing i do know is that its a well constructed paper (if i do say so myself) and remarkably well sourced…

In hindsight, and knowing what the old IPA ex markers used to like (controversy or metaphor) maybe i’d have been better placed extending this as my “future of agencies/branding is…” essay. Nevermind! ( i did write about a new model called BrandEQ based on Golemans concept of Emotional Intelligence instead but i’ll save that post for later)

Anyhow, this is a long read. I’m not sure whether I agree that Media agencies/groups are still in pole position or that it matters. Maslows hammer has become remarkably prevalent whilst media owners have taken up the creativity mantel (often media agencies just brief out and then “rate” the ideas which is pretty uninspiring and completely short sighted) amongst other structural issues but i thought i’d share. Its a long and ongoing debate and the fact its still being had 7 years after i wrote this suggests the future is slow in coming… Have fun!

“The loss of agency influence in the boardroom of clients is widely mourned by those who remember how it once was: how and why has this come about and what practical recommendation(s) would you make to re-build influence in the modern era.”


Multiple factors are presented that demonstrate that  agencies (plural) have not seen a multi-lateral decline in influence and that in fact media/comms agencies have seen their influence in the board room rise in the “modern era”.  Combining learnings taken from shift in the balance of power and added to the practical application of decision-making theory at every level of the industry, the agency world can deliver what business requires and maximise their influence in the boardroom.

Why media/comms agencies already hold the keys to influence in the boardroom

“We’re math men not mad men” – Sir Martin Sorrell 20130

Vizeum MD Richard Morris has just returned from introducing the new CEO of Burberry, Christopher Bailey, to Dentsu management in Japan.  My senior IKEA client acknowledging that Vizeum are lead agency on his business.  In 2009 working for Walker media on KFC, I alone presented the comms approach to the senior franchise board.  The rapid blurring of the line between media and transaction and the gradual automation of digital creative across all media including such strongholds as TV and Outdoor, all these small examples (I could name dozens more) are, I believe, examples of a shift in the balance of power and influence within the agency/marketing services world.

I disagree that agencies have seen a multilateral decline in influence.  I believe that in fact ad agencies are gradually losing influence whilst at the same time media/comms-planning agencies are establishing a greater say in the boardroom.

Why this is my belief, in summary

I believe this can be traced back to the mid-90’s and the emergence of digital media as a viable communications platform1.  This shift has been accelerated by subsequent developments in the science and understanding of communications, the value and accountability of media, the emergence of BIG DATA and the convergence between media and transaction.  I believe the latest neuroscience and decision-making research provides an intellectual platform that explains this process and also provides the theoretical rigour upon which I base the predicted success of my additional recommendations to increase agency boardroom influence.

My essay provides answers to the following 2 questions

  1. What factors have enabled comms planning agencies to increase their influence at a time when ad agency influence has declined and what can be learnt from them?
  2. How do the latest decision-making learnings help deliver innovation at every level of the industry in order to build agency influence?

What factors have enabled comms planning agencies to increase their influence, at a time when ad agency influence has declined?

I believe that we are in the process of a changing of the influence guard. Understanding the drivers of this process is key to understanding what agencies must do now and in the future to elevate their influence.

I believe there are 2 drivers that explain this shift and provide learnings

  1. A broadening of remit 
  2. A focus on accountability

Media/comms planning agencies have benefited from a structurally driven broadening of remit

The establishment of frameworks such as POE2 and signalling theory3, the importance of context as the key driver of association4 and the convergence of media and transaction5 all establish the intellectual & functional foundation that have enabled media/comms planning agencies to justify and deliver upon a wider remit.   

This remit puts media/comms planning agencies in the perfect place to advise clients on the increasingly fragmented nature of not only media, but also all the agencies that provide specialist channel advice.  These developments justify the media/comms agencies place as the expert in creating strategy, identifying roles and responsibilities and managing the communications touchpoints from end to end, from on-pack, to shopper media, to online search to traditional TV.  My experience is that increasingly media/comms planning agencies are looked to for advice in bringing POE channels together to provide a fully integrated solution for clients.  In the “Golden era” (1950 – 1980) of agency influence this role was held by the “account man” of a full service ad agency.   Essentially the orchestrating role has shifted!6

Media/Comms planning agencies have focused on accountability

A great representation of the “empirical science” blind spot from an ad agency point of view comes from Rory Sutherland who suggests that the industry is very conservative and tend to behave like ostriches, acknowledging the “lion” of new thinking but sticking their heads in the sand rather than actively dealing with the issue7.   

An example at a more micro level is the presence of less than 25% of the current IPA excellence intake coming from ad agency backgrounds.   If this truly is the “MBA OF BRANDS” then surely ad agencies need to ensure their best and brightest understand the needs of the board and how to elevate their influence.

So why have media/comms agencies naturally gravitated to this area and seen their influence grow? I believe the reason is straightforward, media/comms planning agencies own the investment8.  They buy the media and therefore are regularly challenged to justify the value of this investment at every level within the organisation especially at board level.  

This constant justification has for example led to the purchase of D2D by Aegis9 and the establishment of specialist OpCo’s such as Mediascience10across media land.  In addition their analytics departments are mushrooming in size as boards cry out for help with understanding and managing BIG DATA11.  

Influential books/articles on the science and maths of branding and advertising12 have been utilised (in my experience) primarily by media/comms agencies as they typically discuss the effectiveness of planning touch-points and investment13.  Boardrooms thrive on predictions of effectiveness and models of future performance and with this understanding of the mathematics it is the media/comms agencies that are more comfortable delivering in this area with a few exceptions14.    

This change of affairs betrays the origin of the account planner as a researcher, comfortable with statistical analysis and quantitative proof.  It’s worth asking the question “If Stephen King worked in agency land today would he sit on the communications planning side?”

In this vein you would be hard put to find a media/comms agency not talking about physical and mental availability15, applying the SOV vs. SOM16 relationship and ESOV ratio to budgets setting or planning investment using econometrically built demand curves and ROI hierarchies of performance.  Recent commercial developments like that between Aegis and Sandbox17 and the Vizeum “like” project18 show that communications agencies are focussed on developing further expertise in putting science, maths and the true value of communications at the heart of what they do.  

This approach in applying scientific rigour to marketing communications has begun to breed confidence and influence in the boardroom their takeout being that there is a real understanding of the value of this media investment and what it adds to shareholder value19.  Those that own and apply this knowledge i.e. media/comms agencies, are those that are growing in influence.  In essence media/comms agencies have by accident or design begun to communicate in a manner that delivers upon the implicit and explicit goals of the board20.

So far I have shown how and why I believe the balance of influence has shifted between ad agencies and media/comms planning agencies, how they have benefited from developments in the understanding of how communications work and how through the ownership of the accountability agenda media/comms agencies have implemented an improvement in the language and therefore lines of communication between them and the board.

There is more to be done and innovation is the key

The answer to increasing influence already exists and whilst accountability is key, recent research21suggests that to truly to increase influence in the boardroom, agencies22 need to demonstrate innovation23 as well.

This combination of innovation and accountability should come as no surprise!  In fact, Ian Priests IPA presidency is based on the commercial creativity24 agenda!  However despite the work of the IPA and isolated examples throughout ad land25, it is notable as shown, that the accountability agenda has been taken up and driven primarily by the media/comms planning agencies.

Delivering innovation to clients

Just as I believe and have shown how fulfilling the boards implicit and explicit goals26 supports why media/comms agencies have succeeded in owning the accountability agenda.  I will now show how further elements of the decision-making literature can be applied to deliver and communicate innovation to increase boardroom influence.

Innovation can have many meanings, I prefer a broad definition

“Innovation is the application of better solutions that meet new requirements, inarticulated needs, or existing market needs27.”

How do the latest decision-making learnings help deliver innovation at every level of the industry in order to build agency influence?

I believe that innovation should occur at 4 levels 

  • The individual level
  • The agency level
  • The group level 
  • The industry level

At each level I will show how through understanding and applying the latest communications theory we can deliver innovations to improve our clients businesses.

Level 1 – How physical and mental availability can drive an individuals true understanding of a clients businesses

How can agencies deliver better solutions if they don’t understand the current client needs?  E.g. less than 10%28 of agency people read their clients company reports!  To help improve this understanding I propose the wholesale return of the agency secondment29 or at least a regular agency residency within our clients businesses.  This increases the physical and mental availability30of agencies and business towards each other, combats the “them and us”31 view and generates true understanding of the client business challenges and how they make money.  

Since the P&O team at Vizeum have taken to spending one day a week working at the clients office we have seen our NPS scores rise significantly, whist feedback has specifically mentioned increasingly relevant and innovative strategic recommendations.  To implement this effectively their needs to be an open and honest discussion about agency remuneration, no longer can individuals’ time be allocated over 100% as client placement demands focus of service.

Level 2 – How agencies should change their implicit signals 

Signalling theory32 shows that most communication is at the implicit level.  Better solutions from a Boardroom perspective require functional, demonstrative action plans that are easy to understand, they require the confidence that their investment is being spent wisely and effectively and they need to know that risk is being managed but not to the detriment of new thinking.  A review of any board level document shows that better solutions come from clarity of communication and a focussed approach to strategies that can be proven.  Overlong PowerPoint presentations and unnecessary, unscaleable innovation33 betray a lack of business understanding, whilst a lack of conviction in terms of business outcomes does not inspire the confidence required34.  

In order to remedy this state of affairs I suggest the application of three simple process innovations that implicitly communicate directly to board requirements.  

  • Utilise the 10-slide presentation35 or PechaKucha36 approach
    • The best ideas are always the simplest.  This approach forces agencies to concentrate on a simple understandable strategy that can be easily implemented brilliantly
  • A mandatory “This will deliver….” page
    • Communicates confidence, effectiveness and forces rigour
  • Applying the 70:20:1037 approach to innovation to every challenge
    • Reinforces confidence in risk management and establishes the principle of consistently managed innovation, testing and learning38

Level 3 – How at group level loss aversion puts “agency skin in the game “

A criticism often aimed at agencies is that they deliver solutions and then walk away already concentrating on the next deliverable39.  Delivering true innovation can come from a radical approach to the agency model.  This recommendation is based on the theory of loss aversion40moving agencies from mere suppliers to owners and/or distributors too.  If business knows we have “skin in the game” then Boardrooms are likely to take more notice as we begin to share in the risk or our recommendations.  

The Dentsu business model provides a template that can and has elevated agencies from mere suppliers.  Dentsu invest not only in media buying but go further up the chain to invest in entertainment rights and talent management, which they then sell to clients and non-clients.  They effectively move from poachers to gamekeepers.  This fundamentally ties Dentsu into making a success of these rights not only to allow them to benefit directly but also for their clients business.  Dentsus’ presence on client boards in Japan41 and SE Asia is testament to the success of this model and having bought Aegis for over £2b they are keen to roll this model out into the rest of the world.  What could be more innovative than an agency network buying the rights to broadcast the World cup in Russia42 or competing with BSKYB and BT for the next tranche of Premiership rights? 

Level 4 – How industry level collaboration can promote WYSIATI*

Ian Priests ADAPT agenda43 is a great first step in reinvigorating the client/agency relationship whilst promoting creative commerciality; however I believe the right audience still isn’t being included. We need to step beyond the marketing sphere and include those non-marketers at board level engaging these key stakeholders in the process.  As these senior stakeholders become exposed to our thinking, perceptions can be changed instilling the Kahneman principle of WYSIATI44 so that the whole agency world benefits from this reflected glory.


The essay question makes an assumption that agencies (plural) have lost influence in recent years.  I disagree and believe it isn’t as simple as that, I have shown that in fact, media/comms agencies have increased their influence, aided by understanding the power of context, frameworks such as POE and the convergence of media and transaction but; most of all from the desire to prove the value of media in achieving the explicit and implicit goals of the boardroom.   These developments set out the new base level of client expectation that other agencies should look to learn from.  

However, more is still to be done to facilitate innovation for our clients, whether through greater understanding, better delivery, agency offering or improved client relationships in order to further elevate the influence of agencies in the boardroom.  

The future is bright, we have the vocabulary, we have the techniques and we have the answers, we must now apply and not ignore them.


  • “Research, plus direct marketing and digital-well over half of our business is scientific or science-related. The rest is what you might call pure art and big ideas” – Sir Martin Sorrell 2013
  • The first clickable web ad was served in 1993 whilst the first ad-server platform was developed in 1996
  • The application of the biological principle of signalling and the communication of brand intent via body language.  Exploiting the Implicit, Pete Buckley, (2012)
  • The associative machine. Thinking fast and slow, Daniel Kahneman, (Penguin, 2011) and Framing, the “autopilot” frames our experiences, Decoded, The science behind why we buy, Phil Barden (Wiley, 2013)
  • The digital world has facilitated the convergence of the consumption of media and the ability to purchase.  In 1-click consumers can see an item advertised and purchase it in an instance.  This powerful engine of change shifts the onus of media from an advertising device to a distribution and sales channel, elevating it to a directly attributable business channel
  • Whilst acknowledging the “decision architecture” theory of Sustein and Thalers Nudge.  Nudge, Thaler and Sunstein (Penguin, 2008), this term most directly references the work of Nick Hirsts experience architects. Nick Hirst, Why experience architecture is the future of planning, (ADMAP, 2012) and the conclusions of  datamine 3 Kate Cox, John Crowther, Tracy Hubbard and Denise Turner, IPA dataMINE, New Models of Marketing Effectiveness – From Integration to Orchestration, (WARC, 2011)
  • The record of the marketing services community to what seems to be a Copernican revolution in the behavioural sciences has so far been notable by its absence.  The past reaction to earlier work by Ehrenberg, Jones, Stephen King and so on – which challenges assumptions with real empirical evidence – suggests that marketers may do what they usually do: show great interest and appreciation of this new information, before carrying on doing what they have always done” Taken from the foreword written by Rory Sutherland in Decoded – The science behind why we buy, Phil Barden (Wiley, 2103)
  • Media agencies were after all created after being flung out of full-service agencies in the 1980’s to provide an independent view on investment, separate from the revenue requirements of the ad agency.
  • This occurred in 2012 bringing econometric modelling into the Aegis OpCo business from an established and well respected entity
  • Brandscience are an OpCo within Omnicom, Businessscience are based out of Mediacom whilst MEC have OHAL inhouse.
  • BIG Data has been the business worlds buzzword for a number of years IBMs From stretched to strengthened (2009) details it as a key issue facing business whilst 3 years later 2012s Are CMOs ready for the digital marketing era (2012) showed that data was still a major headache topping the list of unpreparedness (79% said they were unprepared)
  • The varied work of the Ehrenberg institute summarised by Byron Sharp How Brands Grow, Byron Sharp, ((200, Oxford University Press), Kahnemans lifetime of output, Thinking fast and slow, Daniel Kahneman, (Penguin, 2011), The Decoded businesses approach to neuroscience, Decoded – The science behind why we buy, Phil Barden (Wiley, 2103) and the seminal publications by Binet and Field, The long and the short of it, Binet and Field (2013, IPA) and Marketing in the era of accountability, binet and Field (2007, IPA)
  • Whilst there is some attempt to measure creativity by Peter Field in The value of Creativity, Peter Field, (2011, Market Leader) which concludes that creativity is great for effectiveness it is difficult to construct a tool kit to deliver “creativity”.  How do you create a process that consistently delivers a concept that is fundamentally in the eye of the beholder!
  • Whilst much of this evidence is based on experience or hearsay, it is telling that the only creative agency with a visible effectiveness department is that run by Peter Field for Adam and Eve/DDB.  Across clients as varied at the Lloyds Banking Group, The Department of Health smoking cessation department, IKEA and KFC (to name but a handful across a range of different ad agency partners) it has been the media/comms agency who have pursued the effectiveness agenda and put forward recommendations
  • Physical availability relates to the ability to maximise distribution so that consumers can purchase via as many outlets as possible.  Mental availability relates to the mental proximity of a brand to a consumption opportunity.  How Brands Grow, Byron Sharp, ((200, Oxford University Press
  • This relationship has been known about for over 30 years although most recently the seminal Marketing in the era of accountability, binet and Field (2007, IPA) has established its usage more widely.
  • Sandtable are a business that develops Agent Based Modelling tools.  Agent based modelling is the next step in agencies ability to predict likely outcomes based on certain inputs.  Agent based modelling essentially creates a simulated world of individuals in a computer programme .  Rules are established and then variables such as NPD are entered into the model to see what the response is.  I was part of the project team that originally led the creation of a model for DoH Tobacco control which helped prove the rationale for the month long quitting event “Stoptober” Aegis media have signed a contract with Sandbox to work exclusively for a period in developing standard worlds to enable clients to simulate business inputs at a lower cost that building a unique world from scratch.  
  • A project detailing the value of a “like” to business
  • Boardrooms are targeted with maximising shareholder gains.  As such the impact of investment upon shareholder value should be the number 1 target for any service business providing investment advice.
  • Essentially Comms planning agencies have begun to fulfil the explicit and implicit goal* requirements of the board.  Boards deal explicitly in facts, science and measurement, allowing risk to be managed and investment performance to be predicted and whilst a full brain scan of the board is unlikely I believe that you would typically find that comms agency behaviour has begun to align with the implicit goals of security and discipline* a key requirement of successful communication according to Decodeds neuro-boffins. Decoded, The science behind why we buy, Phil Barden (Wiley, 2013)
  • CIM, marketing wave confidence monitor wave 5.  Reference by Professor Vincent-Wayne Mitchell in the October issues of Marketing magazine
  • Whilst the research explicitly references marketing, as marketing services businesses we need to enable marketing as James Murphy states here  as the deliverables apply to both.
  • Innovation is a broad term and I have taken it to mean innovation is the broadest sense whether it is innovation in service, product, or delivery.  This reference relates to the evidence shown in ref 7
  • Most notably the work of Les Binet and Peter Field in developing the IPA databank, the datamine series of publications and Binets effectiveness lab at Adam and Eve/DDB
  • The need to match implicit and explicit goals Decoded, The science behind why we buy, Phil Barden (Wiley, 2013)
  • Based on a survey monkey survey conducted within Vizeum UK and scaled up.
  • The physical proximity, close to point of consumption i.e. the completion of work, of working together increases the physical and mental availability of agencies and clients towards each other stimulating communication and reinforcing the knowledge of capability in the same way advertising can increase the mental availability of a brand in the minds of a consumer.  How Brands Grow, Byron Sharp, ((200, Oxford University Press
  • A direct outcome of the first Adaptathon on Alliances
  • The application of the biological principle of signalling and the communication of brand intent via body language suggests that agencies may implicitly communicating the wrong things to the board even without saying anything.  Exploiting the Implicit, Pete Buckley, (2012)  
  • The meat snacking helmet for mattessons fridge raiders is a cannes award winning idea costing over £500k to reach the Syndicate group of 3.5m individuals.  With these ratios it’s difficult to conclude that this was a worthwhile business recommendation with little scalability and impact.
  • Consultants deal in confidence bands.  They will enter a business; make a guarantee using case studies and norms based on previous work and then base at least part of their fee on delivering upon it.  The confidence that is implicitly communicated by these actions explains in part why they have influence in the boardroom.
  • Whilst I worked on Lloyds Banking Group, Catherine Kehoe, the head of marketing and brand was quoted as saying she hates slide number 5.  As such we changed our whole way of presenting so that slide number 5 never materialised.  It forced us to pinpoint exactly what we wanted to say and provide the rationale as quickly and efficiently as possible.
  • Based on the Google approach to innovation that was stolen from 3M, this breaks down time or spend into 3 elements.  70% of time or money is spent on what we know works, 20% is spent on activity related to the 70% but that tests a new area.  The final 10% is all about the disruptive, innovative ideas that could provide the step change in business performance. 
  • This constant test, learn refine approach is key in maintaining an innovative approach.  It harks back to the reductive approach to reasoning the logic of scientific discovery, Karl Popper, (2005, Routledge) and helps business and marketing manage risk whilst pursuing an on-going innovation program.
  • Original Innocent founder Richard Reed was fond of telling agencies that “why should I trust you, you have no skin in the game”
  • The principle uncovered by Kahneman and Tversky that demonstrated that human’s value losing more than gaining.  Thinking fast and slow, Daniel Kahneman, (Penguin, 2011)
  • Two examples are that Dentsu staff are present on both Honda and Sonys management boards.
  •  Dentsu have previous having bought the rights to the 2002 world cup in Japan and South Korea
  • What You See Is All There Is the Kahneman discovery that the System 1 mind makes decisions using immediate info at hand and if it doesn’t have that information then it substitutes and creates explanations to maintain cognitive ease.  When applied to this context it is about creating the simple associations in the mind that the agency world understands and can add value to business.  By implanting this knowledge and developing this heuristic in the minds of non-marketing board members the industry can take advantage of the unconscious minds processes for its own benefit. Thinking fast and slow, Daniel Kahneman, (Penguin, 2011)

The most important metric you’ve never heard of

So earlier this week I WARC published the first of a two part article shining a light on an insight that i alighted upon around 6 years ago. The aim of this article was to get this out into the public domain alongside a number of practical applications that would help people use it. The article is here

I chose WARC because the bar to get published is high and it’s also THE journal of record for Marketing effectiveness. It also provides reach, because this is a pretty impactful piece of research that we all should be using.

The feedback has been phenomenal but; many have said they cannot access the article because it’s behind a paywall. I cannot post the article here in full because of copywrite (and neither would I) but there are certain principles that i can and will. Thats what this post is about!

So what is the metric?

Which might seem a bit uninspiring!

And that with a few small tweaks in EXCEL (or other common garden spreadsheet package) you could open up a world of relative performance analysis and contextual understanding for your brand or business vs its competitors in category!

So first step is to work out who the number 1 player in your market is and in Google Trends type that one in first. This is your BASE and is the brand against which all the others will be measured. Then add in your brand and the other competitors in market.

You’re limited to 5 at a time so just make sure you download the data before changing your brands BUT remember to keep the BASE (biggest brand) in.

The next part is some simple manipulation in excel. You’ll have c180 cells per brand if you use the “go back to 2004” option and this may “jump around” a bit. So to smooth it out turn that data into a 12 month moving average.

So what you should have is 168 data points per brand now but it’ll show a smooth line for each over time. Total this number for each Month (that represents 12 months average) – Still with me?

Simple maths here. Divide each brand by the total of that month. When i’m in excel I have the months down the side and the brands at the top. You can then just stack the various calculations without losing anything.

So this is the BIGGY now

Yep you’ve discovered Share of Search……………………………………………….. and when i use it in this sense i don’t mean like you would in PPC or SEO. This isn’t Share of Search as an input its Share of Search as an OUTPUT. This is important because THIS Share of Search (SoS) is a proxy for something quite important and in reality its a pretty simple calculation to do.

And why is Share of Search (SoS) important? Its because its an accurate proxy for Share of Market (SoM)

Thats a good observation but what is the INSIGHT?

To those who question whether people search for FMCG products, well i’ve got news for you. They do. And even if the volumes aren’t as great as say Nike or Apple they will display “relative patterns” i.e. bigger brands have more searches!..

So this is good and I’ve validated multiple times. Here are a few examples but for more the WARC paper has them and a full list of the categories analysed.

Now. I know the quants amongst you may be getting twitchy now. At a category level the simple linear regression certainly looks decent (and strong) but at a brand level there are some outliers. The key here though is that whilst there is some variance the trajectory movements are pretty accurate.

Which means that you have a mid-to-long term proxy of business performance relative to the competition AND it’s also available to everyone. Now, I’ve noticed that some have suggested this is predictive. It kinda is and kinda isn’t. The use of a 12 month average means that any single month has a limited impact on the rolling figure, ironing out the kinks. This means that performance MUST make enough of a splash over a number of months to register (changes in Market Share are slow moving after all) but it also has to do that relative to all the other brands and the category. So if the impact is BIG enough to shift the 12 month dial then obviously the impact will remain in place for a period (so its kind of predictive but not really) i.e. positive or negative trajectory is “fixed” for a period.

Its worth thinking at this point too about buyer behaviour and the known models/laws such as NBD-Dirichlet, double jeopardy, buyer moderation etc like any good strategist would to make sure we know what’s going on with the human beings engaged in buying behavior because like any analysis you have to engage the brain. If something looks odd then investigate it and hypothesise an explanation. When House of Fraser was in the process of going bust its SoS went through the roof and we know that was nothing to do with revenue generating actions!

Obviously I go into this a lot more depth in the WARC articles as this also opens up a wealth of analysis techniques and methodologies I hope to share some of these in subsequent blog posts.

Why the BooHoo story tells us more about e-commerce than we’d like to admit, plus other inconvenient truths…

It seems that covid-19 has reinforced the thought that e-commerce IS the saviour of retail as we know it and that the future (or today for some commentators) is purely an e-commerce world (i’m being extreme here). The implication being that if you don’t have that capability then you’re dead (again extreme). DTC brands “dominate” the world and the old fusty shops (and brands that utilise them) are dying a death. Hopefully this post will clear all that up or at least provide a clear point of view backed up by some recent events and data to suggest that, like with many things, it depends….

So lets begin, to start with, its clear that e-commerce has benefitted from Covid-19 (if you can call e-commerce a separate “thing”). Many retailers went 100% e-commerce during the period but; its worth remembering that their physical retail was closed…. so obviously… The following chart does show that covid-19 has sped things up quite considerably (US of course but there is reason to suggest it is little different to the UK) and this is the key, things have sped up, in the direction of an un-predetermined end. We don’t actually know what that end is yet (some people think they do) but i’d hazard a guess that 100% e-commerce is neither appropriate for most OR desired by many still. It should also be noted that through necessity, lifetime penetration of e-commerce services has increased, new people have used it and some barriers are likely to have fallen as a result. This means that we won’t go back to the levels of pre-covid but how far will we slip from an almost perfect situation?

Brands, businesses (and consumers) all over have certainly changed to embrace new opportunities and safe guard their futures which is why i think this innovation under pressure has actually benefitted the economy in the mid-term as it puts it in a better place , due to the expansion of physical and digital availability (both recent blog posts here).

TL:DR, essentially the supply capacity of the market has increased through a shift in the curve leading to a higher potential equilibrium point vs pre-covid 19. To put it another way, is your local coffee shop going to stop offering take-out burgers on a Friday night? Probably not. It allowed them to earn whilst shut and there are only operational costs associated, what is the margin on burgers after all (don’t ask GBK although this seems to be due to onerous leases and too rapid expansion).

Anyway, i think we can agree that e-commerce as an offering has increased during lockdown and has also seen an increase in consumer uptake (and penetrations ) through necessity but; is it a replacement and are we going to see a permanent change at this level? I think there is plenty of evidence that suggests no (at the levels seen vs an elevated level vs pre-covid) and whilst also pointing to an unwelcome element too, the first place to look is in the good old UK grocery market.

We’ve just had Q1 results for Sainsburys and Tesco and Ocado came out this week with a blockbusting 27% revenue growth (retail only) with UK retail Ebitda rising a whopping 87%! However let’s deal with Tesco and Sainsbury. They both posted remarkably similar figures for the growth of e-commerce i.e. doubling. Its worth remembering that grocery penetration in the UK for online grocery shopping pre-covid was only 5% so with the similarity (the two biggest players totalling over 40% of the market) we can hypothesise that its now about 10%.

Each brand was up roughly 8-9% yoy with much of that driven by a reduction in discounted items (we’ll return to this point in a bit) plus a tiny bit of stockpiling (and it was tiny, most supermarkets run on JIT and market planning so even a small deviation can cause havoc, just 3 extra days shopping is nearly 50% extra in the basket!). So far, so category effect. No one really changed shopping brands, some changed how (if they could) but we’re still talking 90% of grocery done in store, thats quite a lot of physical shopping still.

Ah, i hear you gasp, what about Ocado, those figures are way up. Well yes, but also something else is going on. Ocado stopping accepting new customers. So all that revenue growth was from current customers and they maxed out capacity. Bigger shops and fewer drops increased efficiency which is good but we missed the key point. They were at capacity and couldn’t grow anymore. £200m extra and that was it. Admittedly they did grow 0.2% market share over the period but we’re not talking earth shattering and that’s because its expensive to scale if you’re tied to distribution centres which have a clear physical limit that can’t be scaled easily (I suppose they could’ve done a Tesla and built a production line-esque development in 168 days or less). This vs. the combi store picking/dark store model of the big supermarkets which can be scaled very quickly indeed (Tesco hired 4000 extra temp drivers) and it’s no wonder that Ocado are looking into positioning themselves as a tech fulfilment business!

So lets continue the story. Part one is that e-commerce isn’t as scalable or flexible as people think, fulfilment is really tough to do well and there is a BIG player whose business sets precedents that are hard to replicate (thanks Amazon!). It’s so tough that Sainsburys spent £1.3bn on Argos’ “hub and spoke” distribution model (you didn’t think they just paid for the general merchandise element did you?) just to buy in expertise. It’s also really expensive to run this fulfilment engine. In fact Simon Wolfson has talked about this at Next. Online sales actually have lower margins despite selling more full priced goods. Yep that’s right, Next sell a greater proportion of full price goods via their website The problem is it costs them more to run and do the distribution. Thats not ideal is it. Especially when e-commerce is the future because its “more efficient”!

Then this came around on twitter which shines a beautifully powerful light on the whole situation (note that Ocado are building out their Micro-fulfilment centres and you can see why!)

So actually all this e-commerce stuff is really really expensive (and tough to do well & scale). Back to clothing and we can see why Primark, despite a £650m a month black hole, still refuse to get involved with e-commerce, although there are some tentative noises about Click and Collect in the pipeline. For Primark it just doesn’t make financial sense. Even with C&C you can imagine the additional costs of having to having to hire store pickers to fight their way through the “jumble sale” like floors to source clothes and then they have to reserve an area in store for C&C and staff it permanently plus the digital infrastructure that needs to patch into the current merchandising systems so that stock is replenished. This is from a brand at the lower end of the market competing with price points such as TU, F&F and George. They simply don’t want to be giving away margin needlessly, especially as it’s the star of Associated British Foods (all their other activity is commodity led)

Quick summary again. E-commerce is difficult to scale, its complicated to do well and its expensive and margin draining. OK, so what’s this all got to do with BooHoo? Well BooHoo, after posting some very healthy numbers, Revenue up 30% in the UK and 45%+ globally, they got into a little bother with their suppliers, based in Leicester (note the firewall and the legal complaint made against the Times).

Now traditionally many of the big clothing manufacturers looked to the far east and the Indian subcontinent for garment supply but this makes responding to trends in an Insta-friendly world pretty hard because of the supply chains. Inditex (the worlds biggest clothing manufacturer including brands such as Zara and Massimo Dutti) subverted this norm and pioneered a local approach in Spain with 54% supplied via the region surrounding A Coruna, the rest are from Portugal, Turkey and Morocco (all very close nearby). Boohoo and the private (and recently loss making natch ) MissGuided have copied this approach in the midlands (over 50% is supplied) allowing them to grow rapidly and face off against the older (but bigger) ASOS (i’ll look at ASOS another time) and steal a growth march.

In BooHoo’s case they have also been buying up other brands such NastyGal, PLT, MissPap and a raft of distressed assets which point to a desire to broaden their base to include an older more affluent audience via Karen Millen, Oasis, Coast and Warehouse.

Its an interesting strategy as it’s clear that they are trying to avoid the audience growing (and earning) their way out of their “brand stable”. This is a phenomenon that has plagued Shop Direct over the years (Very and Littlewoods now but i’m sure some will remember Kay&Co and Marshall Ward if you’re of a certain age) , you can’t be 21 forever!

Anyway, i digress. The issue is that to deliver the clothes on time and on budget it looks as though Boohoos supply chain management protocols have forced them into a scenario where oversight isn’t what it could be. A whopping £3bn was wiped off their value in a couple of days in early July (not long after they’d announced a huge £150m bonus for their leadership) due to this issue, whilst big brands that sold their product (next and ASOS) distanced themselves (lets forget that less than 5% of their clothes are sold this way, it’s the point that counts) and this leads to the another issue with e-commerce. The need for the low low prices and the rapid turnarounds demanded can lead to some unfortunate circumstances. You can’t beat the system and in some cases it looks as though someone needs to be cheated to get it to that level.

To hammer home this point some fine chap on Twitter looked at that the financials of Gym Shark, the cool e-commerce led brand of sexy gym wear. The suggestion was that it had over £50m in the bank. I mean, its possible for a brand that makes £14m per annum but it only started 2012 so its been putting away a tidy amount every year since (still possible, just. although remember the cost of e-commerce!) but; its a lot of money and closer inspection by the analyst suggests that with Accounts payable stipulated at 163 days plus accounts receivable at 30 days plus existing inventory stock we have a business that is essentially holding cash for a significant amount of time. Great for Gym Shark but pretty awful for their suppliers whom i imagine are in a pretty inelastic situation when it comes to what they can do with such a large party requesting their goods. Some will argue that this is business but surely if some businesses are waiting 1/3 of a year for payment then its not quite fair (especially as the money is available).

Once again someone loses out in a pretty bad way to fund this e-commerce only jaunt.

This is becoming a long post so i’ll wrap it up now. Essentially e-commerce isn’t the be all and end all. Its hard to do, expensive and difficult to scale , lowers profitability (if you can even make it pay, i may do a DTC post on the make-up market at a later date) and in some cases doesn’t just work on its own unless you try to game the system (don’t tell Prof Galloway). This isn’t, of course to say that e-commerce isn’t a major part of the future, its just to put some perspective out there. Its not a quick fix, at least doing it properly isn’t. It requires thought and a proper strategy. In addition to the growth of platforms like Shopify (only half an e-commerce solution) An interesting development is the emergence of “Fulfilment to let” systems. Inditex and IKEA are to begin offering it but essentially its the usage of their distribution platforms. A neat new opportunity in market for them to earn revenue and a quick way of piggy backing on a well made and well run logistics platform. Either that or buy a ready made solution, like Sainsburys. The key thing to remember here is that delivery drivers are still Key Workers too.

So, what do you do? Well, i hate to say it but Omnichannel is still a thing and in the purest sense its about spreading risk and maximising physical and digital availability so that people can buy (profitably) wherever they can, even Amazon are opening physical shops now. Develop an approach (that should properly included some e-commerce functionality however its executed) and build out with the above elements in mind, eyes open. You can’t just magic e-commerce success into being (even with seemingly simple off the shelf solutions), the financials of retail make that difficult. I know i sound pessimistic and i’m not say we’re going to reverse to pre-covid levels (almost certainly not) but its worth adding a bit of realism to the debate and i’m not the only one. Raconteur published this over the weekend (with specific relevance to DTC brands), it says basically suggests that BIG brands will benefit more from this shift, if they respond well, due to their in-built Omni-channel and mixed model and THAT, i believe, is the future. Simon Wolfson and Next have an interesting model (and having made c£750m profit over the last few years they really are worth looking at) and if you’ve got 30 mins or so this document paints a picture of the next 15 years.

You’ll note that physical stores are still present but they are smaller and leases are a lot closer to residential or office space (we’re seeing this equalisation at the moment). It makes sense if 80% of returns come that way and adds incremental revenue opportunities once you have them in store, so have fun and hopefully this has been interesting.

We need to talk about Byron Sharps availability issue

Yes, that is a little bit click-baity and this could be a blog post about how we should call out unpleasant behaviour, views and general rudeness (having a different opinion is fine though) from those in positions of influence but; its not (well that bit was, just a little). Its more about his contribution to the world of marketing science and that is a point that is inarguable. Yes there are elements in HBG that were originally discovered by Andrew S Ehrenberg but Mr Sharp reminded us of them after the industry seemed to forget it all for 20 years.

The other thing that Sharp did was create the simple heuristic couplet of Mental and Physical availability to sum up How Brands Grow. Every Tom, Dick and Planner throws these words around with aplomb and as much as i’m sure many would prefer these concepts to just fade into the background they are here to stay and a good thing too, in my humble opinion.

But (there is always a but), whilst Sharp “hates” behavioural economics and is highly scornful of the work of Khanaman and Tversky and Thaler and Sunstein its worth applying some BE thinking to these two (very) broad categorisations because they can be problematic to those who don’t truly understand what is meant by them.

That’s what this blog post is all about. The unintended consequences of their general labelling for the vast majority of people who could and should be using them to help grow their businesses and brands. What this post aims to do is add an element of nuance and easy directional language to improve these concepts and their understanding and consequentially their application.

I am well aware that Mr Sharp would hate this and dismiss it as pandering to the ignorant. He may even point such individuals to his book and suggest they read it because if we look at the precise definitions, there is NOT MUCH WRONG.

First lets start with those definitions –

They are pretty precise and all encompassing, so far so good. But, in my opinion it’s the Physical Availability categorisation that i believe has a Framing problem and its the use of the word “Physical”. It conjures up physical stuff, like stores and retail and bricks and mortar but; it means so much more and this is a problem because this is where confusion can potentially start.

Think about PPC (generic terms) or Affiliates. Both are often considered advertising and for the uninitiated they could be classed as driving “Mental Availability” (clue: they’re not) but if you consider that you, the marketer are using Googles shop or Awins network of affiliates to sell your product for you, what is the difference between them and Tesco? The phrase “digital shelf” is bandied around and whilst it has specific relevance to e-commerce listings and SEO optimisation its worth considering what we’re saying when we use that term. PPC and Affiliates aren’t about improving the probability of a consumer remembering your brand, they’re about breadth and depth of distribution. As a marketer you’re putting your product up for sale in more places, they just happen to be digital.

At this point you can see where i am going. These are Physical Availability channels but aren’t always considered as such because of the Framing of that word Physical. I propose a build and the build is an additional categorisation called “Digital Availability”. Some (including Byron, probably) will rail against this as admittedly the original definition is broad enough to include digital distribution but; we’re in the communications industry and words are powerful. By adding a subset and finessing the definitions themselves we become more precise and its easier to understand.

So what is Digital Availability? Well its the obvious things such as an e-commerce website, its media channels such as PPC (generic) and Affiliates (as previously stated), its SEO and online supermarkets, its anywhere digital where you are placing your product for sale. Its distinct from Physical Availability because of the framing effect and its more directional and precise. It helps us communicate with clients and ultimately the best way to Help Their Brands Grow is to make our recommendations crystal clear.

One BIG implication is on budgets and structural issues. Physical/Digital Availability has much more in common with Merchandising. Thats a different skill with different outcomes and requirements. Would you take budget from Physical store merchandising to invest in TV? The same with Digital Availability. You cannot compare a Google Shopping link or an Amazon listing with a TV advertisement. Whilst both under the auspices of Marketing (in the 4 P’s sense) they’re not even in the same ballpark. This isn’t Long vs Short even , its discipline and specialism vs discipline and specialism.

As to proof of concept I’ve been using this for a couple of years with clients and it helps them distinguish what they’re doing and manage stakeholders effectively internally. Its also helped with budget management and ring fencing. It does work, even if some may prefer it not too. Its worth remembering that we’re trying to make these concepts understandable and useable in the real world not just in “planner world”.

#Tesco #Sainsburys Q1 A good covid response but underlying challenges persist #Hankinshottake #retailweek

So; this is the first of what i hope will be many “analyst style” notes that i will produce. I’ve tended to publish under the #HankinsHotTake label. Its a bit corny, i know that, but its an attempt to cut through some of the “fluff” out there and provide a little insight into what can be quite dry, sometimes vapid content. The last week has been particularly busy and the ambition is to get these notes out a bit quicker and contemporaneous, couldn’t be helped but; to that end I’ve bundled Tesco and Sainsburys together. I don’t do every update and whilst i skew Retail, Tech and Media i do sometimes look at other businesses that interest me. There is also a UK focus typically although I will mention International implications if relevant

I like to follow a simple format

Headlines – These are the topline performance figures taken from various reports. Its easy to find this stuff so i don’t dwell too much

Statement – This is a digest of the various accompanying news excerpts of validating information

Implications (the HOT take) – This is my view on the strategic implications and context of the headlines and the statements.

Tesco Logo transparent PNG - StickPNG

First up is Tesco

Headlines = +9.2% up as a group. +9.1% (UK and Ireland) +6.1% Booker. Like for likes were up 8.7% in the UK whilst Booker was up 0.6%

Statement = A positive update, bursting with can-do attitude and CSR nods in line with the prevailing cultural winds. Big outtakes include positive switching from ALDI for the first time in a decade, a significant shift away from promotions (28% to 14%) and a clear split between Food (+12%) and GM (-20%). Worth noting that incremental costs are expected to contribute some additional -£300m (when business rates relief of c£500m is taken into account)

The Hankins Hot Take = It all looks rosy for Tesco at the moment in the final months of Dave Lewis’ reign. The near 50% increase in delivery is certainly impressive and this was done without the help of the urban distribution centres that are currently under development. The positive shifts against ALDI are also to be welcomed although this is probably as much a function of ALDIs weakness in e-commerce and a store set-up ill suited to social distancing than anything fundamental by Tesco. In fact when looking at Kantar Worldpanel data its clear that Tesco actually lost share during the period going below 27% for only the second time as far as this data goes back with this slipping to the smaller players.

The shift to “everyday low prices” is an interesting strategic choice although it fits the simplification approach that Dave Lewis has applied to the whole business so is to be expected. It will certainly help in the next few months if the economy slips further rather than V-bounce in line with the BOE estimates. There should also be concerns about the Booker business. The majority of its growth was driven by acquisition and whilst its wholesale business was up, supplying as it does the local store network of brands (Budgens etc) that witnessed positive share growth in lockdown. The catering business, perhaps unsurprisingly was down significantly.

With all this in mind Ken Murphy is likely to come in with a few jobs on his hands. Accelerating the ongoing distribution capex is the big one, whilst the other the shorter term impact of the flight to local which was the biggest impact on share. The discounters aren’t going away and have a significant slate of openings planned and with no such expansion for Tesco there needs to be a concerted effort to drive demand and maintain the net movement switching from them into the mid term.

Media tool kit – Sainsbury's

Headlines – 8.5% up and 8.2% LfL. Grocery sales up 10.5%, Online sales up 87% and Argos up 11%

Statement = Another positive update (like Tesco) with some remarkably similar figures. Doubled e-commerce (this aligns with a category doubling), a large cost implication of £0.5bn broadly covered by business rates relief and some positive shifts in price perception. This being Simon Roberts first real chance to communicate there is an argument that it couldn’t have gone much better.

The Hankins Hot Take – The immediate thing to notice is the negative trajectory that has been reversed for Sainsburys. Last year was a bit of a shocker for the business with profit and sales down along with significant declines in share. This was reversed at Christmas and the Covid effect on the category has benefited all. The jewel in the Sainsburys crown so far has been the significant growth of ARGOS. Its telling that whilst Tescos saw a decline here, even with stores closed, ARGOS performed well. Its renown “hub & spoke” distribution network eminently suitable for lockdown.

I suppose the BIG insight is that nobody seemed to fcuk up in grocery over the covid period. All have pulled out the operation stops and delivered meaning that no-one has really outperformed the market. Even the estimated costs are proportional to size meaning they’ll all have the same “asterisks” attached come full year. What this means is that the same challenges persist. Sainsburys has a clear strategy to utilise its square footage but how to guarantee growth? Mike Coupes gambit with ASDA failed and hes now gone. There are no attractive other mergers on the horizon and with L4L’s under pressure last year I’m sure we’ll see that return. Sainsburys typically do well at Christmas as a function of the “scale-up” phenomenon, they are a seen as a step up from Tesco and the discounters but they need to create a clearer proposition in consumers minds to stand a chance of growing.