Inside This Issue - Opinion
Customers have to come first
March 5th, 2012
by David Pinto, Editor
Retailing is in a rut. Some examples:
• In the aftermath of Whitney Houston’s untimely death, Sony immediately increased the price of her music collections, explaining this incredibly stupid decision and inexplicable lapse of judgment by telling its customers that the lower price was a mistake.
• Verizon Wireless recently decided to charge an additional fee to those customers who paid their bills over the phone or online by credit card, without offering either an explanation or a justification for the charge, which, after a public outcry spurred by the speed of online communications, was immediately rescinded.
• Bank of America, in the immediate aftermath of Verizon’s blunder, made the ill-considered decision to charge a monthly fee of $5 to those customers who used the bank’s debit card. In other words, the bank determined that customers would be penalized for using their own money to pay their bills. After the public outcry, predictable to everyone but Bank of America, the bank rescinded its fee.
The thread that ties together these apparently unrelated events is the inexplicable urge to squeeze another dollar of profit out of any transaction — and to do so at the expense of the customer. How much smarter Sony would have been to issue a commemorative CD of Houston’s works, or perhaps offer the singer’s fans boxed sets of her most memorable recordings. Instead, the company, once admired for both the quality of its products and the ingenuity of its marketing programs, took the easy way to a quick dollar.
Mass retailing is rife with similar stories. Now, out of Australia, comes a perceptive and highly readable analysis by Bill Wavish, a legendary though not necessarily objective Australian retailer, of the rise and subsequent struggles of Woolworths, until recently one of the world’s most highly regarded retailers.
It is the story of a grocery and general merchandise retailer run during its halcyon years from 1999 to 2005 by Roger Corbett, a retail executive of unquestioned ability and unsurpassed intelligence who, six years after retiring from Woolworths, remains so well thought of that he sits on Walmart’s board.
During Woolworths’ rise to dominance in Australia’s food and liquor retailing communities, Corbett was advised, assisted and occasionally intimidated by Jack Shewmaker, who made his reputation by guiding Walmart, and assisting, advising and occasionally intimidating Sam Walton as Walton drove that retailer to the pinnacle of U.S. retailing in the last decades of the 20th century.
At Corbett’s departure in 2005 Woolworths had come to dominate Australian food retailing and, with some $37 billion in sales, had become one of the world’s largest retailers.
Wooiworth’s achieved this success, as Corbett would be the first to acknowledge, by following closely the precepts that Walton and Shewmaker employed so effectively in driving Walmart’s business, primary among them the everyday-low price positioning that came to drive Walmart’s sales and a fanatical devotion to lowering costs, increasing efficiencies — and passing along much of the savings to its customers. Australian consumers didn’t know or care much about the concept of EDLP; they knew only that Woolies offered lower prices. And they quickly became loyal Woolies shoppers. So it was that Woolworths, which at Corbett’s arrival claimed just a four-point share advantage over Coles, its nearest grocery competitor, widened, under Corbett’s tenure, to a gap of more than 10 share points. During the Corbett years store count almost doubled, to over 2,300, while the retailer entered or came to dominate the liquor, hotel and gambling businesses.
The years since Corbett’s departure have not been as kind to Woolworths. The emphasis on low prices was replaced by one that successfully sought to increase margins, with the inevitable result that earnings as a percentage of sales passed 6% in 2010, a figure that Wavish considers dangerously high. More ominous, the obsession with satisfying the customer was replaced by a passion for pleasing the shareholder. As a result, though sales from 2006 to 2011 increased by 73%, only slightly less robust than the sales gains achieved under Corbett, sales gains for 2009, 2010 and 2011 slowed to just 5%, 4% and 5%, respectively. Even that growth was not generated internally, coming instead primarily through acquisitions and increased capital expenditures.
During the post-Corbett era as well, Coles appeared to learn the lessons that Woolworths had apparently forgotten. The No. 2 grocery retailer began lowering prices and reducing costs. The result today is that Coles has become the darling of the Australian grocery community, while Woolworths is struggling to regain its focus, footing and reputation.
The lesson to be learned from the missteps alluded to above is the obvious one: Pleasing the customer, or, at the least, not taking her for granted, is what retailing has always been and always will be all about. This has become an even more urgent concern with the advent of online communications and the urgency with which it sends and speeds customer dissatisfaction around the globe. In simpler times Verizon’s payment fee, Bank of America’s ill-advised surcharge and Sony’s ill-considered price increase might have gone unnoticed. And who knows: Perhaps Woolworths’ insistence that shareholders’ interests are more urgent than customer satisfaction would have made little difference to the Australian consumer.
But these, alas, are not simpler times.