Retail news. Semester 1 of 2014 table of contents

Retail revolution - shifting control to consumers. By: Andrew Pyper. 5 Jul 2013

Worldwide, the power has shifted from the control of the retailer into the hands of the customer and this seismic shift in customer behaviour is transforming the retail landscape, driving customer centricity as the competitive differentiator of the early 21st Century. Retailers are starting to understand that you cannot control the customer; the customer controls you. In the past it was more about retailers presenting their offerings on their own terms and people didn't have as many options. Now, if retailers want to remain competitive, they have to become customer-centric and invest in giving their customers the experiences they seek.

The term 'customer-centric' is one of the buzz words in marketing speak that is sometimes used rather loosely. A carefully designed and proactive strategic process that puts experiences that customers want in the channels of their choice - very different from the primarily reactive customer focus that typified ways of doing business in the past.

Continuous innovation

To remain competitive in the modern economy, organisations have to understand that their customers need to be at the centre of everything, and they have to know how to "operationalise" this strategy and how to sustain the engagement into the future.

One needs to stay ahead of the trends and discern which ones are here to stay. Continuous innovation is key in order to keep up with customer demand and to retain customer loyalty - there can be no endpoint, it must be ongoing.

Fuelled by the Internet growth, companies have phenomenal new opportunities and new channels for buying and selling. The Internet has completely taken over the channels by which people can buy things.

A leading global trend in customer-centricity is omni-channel retail. If you are going to be competitive, you have to service the customer via whatever channels they choose to work with - be it through call centres, online or mobile platforms. Companies have to make that leap to invest in all the channels. Store and Internet retail now has to be seamless, with products available on both platforms and delivered from both platforms (usually at a similar cost).

Zero inventory stores

There is a growing movement towards zero inventory stores, where the shop floor becomes a place to touch, feel and experience, but the selected merchandise is delivered from a central warehouse. Retailers do not need to keep a stock of inventory on site and have the flexibility to customise orders before delivery.

This concept is taking off particularly well in 'experience lounges' in electronic retail, for instance, where customers can spend time in the showroom enjoying the high touch experience of the products before they choose to buy. Here the quality of the experience becomes the critical differentiator for securing sales and retaining customer loyalty.

Consumers now also use the Internet to do their research. They know in advance what features to look for and what the prices of products are. The auto industry is a prime example: very few buyers visit a showroom in order to build an understanding of different models offered by a manufacturer. The buyer comes to the showroom to touch and to feel - to validate his or her decision.

Social media impact

The power of social media has also had a profound impact on buying behaviour. Current statistics show that a company today only owns about 22% of the ability to influence the buying decision. People listening to stories from other customers about how they have been treated or what emotions have been experienced influence 78% of the buying decision. This phenomenon has accelerated the importance of a customer centric business model as a competitive differentiator and the onus is on organisations to earn the right to have consumers tell their story.

Many South African companies are showing great leadership in developing customer centric processes. Although there are remarkable innovators amongst global operators, such as Amazon and Starbucks, the advances being made by local retailers such as Woolworths and Pick n Pay, for example is to be commended.

The conclusion is that there are pockets of excellence from which all business leaders in the country can draw inspiration. However, businesses are not adequately designed and leadership is not sufficiently enlightened to make sure that all processes are joined up in such a way that there is a consistent delivery of a defined experience. We are subject to randomness - that's what frustrates people.

What to consider when purchasing a franchise. By: Jeremy Lang. 9 Jul 2013

The local franchise industry is growing at a progressive rate and according to Franchise South Africa, the country currently boasts over 400 franchise systems and approximately 23,000 franchise outlets.

This fast-growing sector presents an attractive investment opportunity for entrepreneurs, as purchasing a franchise can offer various benefits. Franchisees have the advantage of owning an established product or service that is already familiar to the public, as well as a pre-sold consumer base and household brand-name recognition.

Although the industry offers many opportunities, it is important that entrepreneurs do in-depth research before investing in a franchise. The key to finding a franchise that will generate returns requires insight as to what is being purchased. Due diligence should be conducted in the same manner when purchasing a franchise, as when opening any new business.

I have some tips for potential franchisees:

Know the industry: Choose a franchise in an industry that you are familiar with, as this industry knowledge is an important tool for searching and evaluating business opportunities. Not only will this best suit your background, but it will also aid in your success.

It is also important to have previous experience in an outlet of a franchise that you intend to buy. Should you not have previous experience, choosing a franchise with a thorough franchisee training course will act as a good entry platform.

Choose within your budget: Calculate what you are able to afford. This amount should include the finances you are able to raise, save and will be able to borrow. When calculating the budget, keep the following factors in mind: firstly, too much finance can ruin a venture, so be wary of overburdening your business with too much borrowed capital.

Secondly, calculate the entire investment required, including set-up costs and working capital. Do not limit your funding to include only the franchise fee.

Review the franchisor: The first two steps should dramatically narrow down your search and allow you to focus on a particular franchise. The third step includes investigating the franchisor. Look over the documentation the group provides, but also find out as much as you are able to about the reputation and financial help of the franchise.

Being a member of the Franchise Association of South Africa counts in the favour of a franchisee, but it does not guarantee success.

Speak to franchisees and ex-franchisees: This is probably the most important exercise in the process. A franchisor should be able to give you a fully updated list of franchisees and ex-franchisees, as well as their contact details. If you are interested in purchasing an outlet or a franchise group, test all the assertions with the franchisees before making a decision. Comparing their levels of support, the quality of their training, the profitability of the business, and the integrity of the franchisor's business dealings, will give you a better understanding of your potential purchase.

Investigate the location: Suitability of the location of your outlet, or, in the case of non-retail franchises, the area in which you are going to operate in, is key. An in-depth knowledge of the surrounding market is vital to the success of your business. Make use of expert marketers or neighbouring franchisors for advice, but also do your own independent research to help ascertain your market.

Get the value calculation right: Ensure you are not overpaying for the franchise outlet that you have in mind, whether it is a new or existing one. After conducting your research make a concerted effort to consult an accountant to check your financial projections and value calculations. Although they are costly, industry specialists are an asset for any business.

Get legal advice and knowledge: The franchise agreement the franchisor will give you to sign is a crucial document detailing the rights and obligations of you and the franchisor. Ensure a lawyer, preferably one with knowledge about the franchising sector, goes through the document with you, not only to make sure that it is fair to you, but also to explain any clause that you may not understand.

In the end, it depends on you: The strongest franchise brand can still fail, but with the correct leadership and management this can be avoided. Just like any other business, operational and cash-flow management needs to be realistic.

Bear in mind that a hands-on management approach is also required. If you are an experienced independent business owner, and this is your first attempt at franchising, it is also important to remember that you will need to become accustomed to operating according to the rules of the group.