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Saturday, January 19, 2013

The cheap race to oblivion- Part One.

Many years ago I worked for Tesco. You know- “Pile it high, sell it cheap”. That was the company mantra back in the 60s and 70s. Sell your wares cheaper than the opposition. Take the pain until your opposition gives up. It worked- for a while.
Look at the terraced streets in your town. There used to be a Corner Shop on- yes- every corner. One small shop could supply the basic needs of 100 homes. It was a living. The Asians that Idi Amin displaced from Uganda couldn’t buy them quickly enough. They extended the opening hours and worked hard to provide a service to the community. They hope to pass the business on to their children. All in vain.

The first supermarket in the UK wasn’t opened by Tesco but by Lyons (of Corner Shop, Lyons Tea, Lyons Cakes, Lyons Maid Ice Cream fame) Who? Never mind. Just content yourself that fifty years ago they were one of the biggest names in food retailing. Gone now.
The first supermarket in the UK opened in West London in 1951. It was on the corner of their huge factory named Cadby Hall and opposite the Empire Hall at Olympia.
Empire Hall? That was what it was called before Ikea moved in. Cadby Hall? That is now converted into luxury flats after the manufacturing was moved out of London.
J Lyons & Co were famous for LEO, a computer that became operational in 1951 and was used as part of their accounting systems- a world first.
When the Lyons Supermarket opened, the customers didn’t know what to do. Up to that moment, one went into a shop and asked an assistant for whatever you wanted. She (invariably) selected the item for you. Suddenly customers were confronted with shelves of goods and a wire basket and told to serve themselves. Revolutionary.

When I worked in Olympia in the early 1970s I would use the Lyons Supermarket from time to time. It had been open for 20 years and was starting to look tired. It kept “regular” opening hours- it closed at 5.30 and wasn’t open on Sundays. It couldn’t compete with the corner shops nor the likes of Tesco. It closed down in the mid 70s.

A few years later I worked at a huge Tesco in Northampton, having moved from Cadby Hall along with the manufacturing. The store sold furniture, clothes, records as well as the usual food lines. How could a corner shop compete? How could the local chains of foodstores compete? The Co-op? One by one they closed branches. Tesco began buying up chains of supermarkets in their quest for market dominance. The buzzword was “market share”. I remember a supermarket opening locally in a blaze of advertising. They tried to take Tesco on, shaving their margins and hoping for vast numbers of customers to make the numbers work. At the time I said it wouldn’t last and I was proved right. It was window dressing. The store was opened with the apparently sole aim of making it attractive to a rival chain. It was taken over, rebadged and then closed down once the new owners realised they’d been conned. But hey, all’s fair in love and supermarket wars.
The government of the day were all in favour of competition.
Competition good, monopoly bad- the mantra went.
Leave the supermarkets to slog it out and may the best man win- ignoring the obvious. The end result of all this competition would be to leave one firm standing victorious- in other words- a monopoly.
This insane disease of cutting margins to the bone spread to other areas of retail. I was by now working in the book trade, and the sale of books was subject to the Net Book Agreement. Loud voices in the media were all in favour of abolishing it. After all they said- if the consumer could buy a tin of beans for a few pence cheaper in the store next door- what’s to stop them?
Books aren’t beans. The same reasoning does not apply. An author might write a book a year. Prolific authors might write three every two years. Every book is unique- otherwise, why bother reading it? Certain publishers have been successful selling the same book over and over again- Mills & Boon for example, but even they aren’t the same as a tin of beans. You buy a tin of beans, eat it, and then go and buy another identical tin the next week.
When you treat books in the same way- you buy a book, read it and then…..? Wait a year for the author to write another. The skill of the bookseller is to match the customers reading preferences with the books on the shelf. You’ve read all of Steven King’s so why not try James Herbert or Dean Koonz? A good bookseller will know his books and his customers. I was a good bookseller. Our margins were good and our customers loyal.
Then the publishers got greedy. The next Jeffrey Archer or Jilly Cooper (This was the late 80s by the way) was offered to the supermarkets and petrol stations. Instead of selling 400 copies of a new title I’d only sell 100. The braying voices had forgotten that the customer only buys one copy of the book. Once he’d bought it and read it- that was it until the next release.
In amongst the din were those that shouted that they’d sell more books if the Net Book Agreement was ditched. At the time I failed to see how this could be so. I was only going to sell one copy of one book to one customer. My profit margin was around 35%. By knocking a pound off the price all that would achieve was that my margin and profitability and viability would be hit.
Empty vessels make most noise. The Net Book Agreement was scrapped. The owners of the chain of bookshops saw the writing on the wall and sold up. Soon afterwards I was out of a job. The new owners knew best. Right.
A few years later the bookshop was gone. Suffocated by debt caused by bad buying decisions and too small a margin.
Cheapest is dearest.

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