From the source: Luke Naish, Barbeques Galore
Luke Naish, like many retail executives, was bitten by the retail bug early in life. His first job at 16 years old was in the fresh produce department of his local Woolworths supermarket, and he supported himself through university by working at Harvey Norman. After putting his legal degree to use for just one year, he found – much to his parents’ dismay – that he missed the fast-paced team environment and human element of retail. Others in his position may have simply applied for a retail management program, but Naish, feeling emboldened, rang up Gerry Harvey.
“I introduced myself to him and said I was considering a career in retail and asked what Harvey Norman could potentially provide for me,” Naish tells IRW.
“We had a one-hour meeting that was very memorable for me, if not for him, and at the end of it, I’d made my mind up to work for Harvey Norman.”
Naish started as a store manager and was eventually appointed a franchisee of a store in Queensland, before going across to New Zealand to set up the company’s computer and communications division in that market. Over the next five years, Naish helped to open 25 stores, handling everything from trading terms to staff selection to shop-fitting, sourcing, marketing and e-commerce.
“We had to really build the business, but most importantly build the brand, because in the early days in New Zealand we were viewed as an Australian company,” he says.
“In that five-year period, we went from being number five in the market to number one. And that was quite a seminal experience for me.”
Naish went on to run Harvey Norman’s computer and communications division in Australia for three years, a $1.5 billion business, where he was responsible for 200 franchisees. After a one-year sabbatical travelling the whole of Africa by bike, he returned to retail re-energised, and five years ago took on the role of chief executive of specialty retailer Barbeques Galore.
Here, Naish talks about switching ERP systems and dealing with the rising cost of rent.
Inside Retail Weekly: Can you provide a snapshot of the Barbeques Galore business today?
Luke Naish: We have 96 stores. Fifty-eight are company-owned and the balance are franchise locations. Our [annual] sales are circa $200 million. It’s an exciting time to be in our industry because the highly engaged customer is now buying two to three different kinds of barbeques to suit different meals, tastes and cooking styles, so it’s driving growth.
There’s still a market for the standard four-burner, flat-plate grill that dad used to cook – or burn – the sausages on a Sunday, but Australia as a society is becoming quite aspirational. There are new influences with the US-style ‘low and slow’ cooking and the growth and beautification of barbeques through the outdoor kitchen range. It’s a status symbol, a lifestyle statement. Customers want a product that’s aesthetically beautiful, functional, durable and provides exciting ways to cook. The market has gone down a couple of really clear areas of specialisation, and we’re working hard to to address all those.
IRW: What are some of the major goals you’ve been working towards lately?
LN: We’ve done a number of different things. Three years ago, we lost our biggest brand in Weber. They walked away from us, which was really disappointing, and we were left in a position where we had to dramatically escalate one of our private brands, Ziegler & Brown. We’re very proud that this brand has been this year recognised as Australia’s favourite, with a five-star Canstar rating. [That situation] really forced us to double down on having a compelling brand strategy – not just a Barbeques Galore strategy, but making sure we have good innovative products that are appealing and relevant to our customer.
Another thing we’ve been working on is being on trend. We’ve invested a lot of time and energy into the ‘low and slow’ category, the solid-fuel barbeque market. That area of specialisation is increasing and growing quite dramatically, and we’ve brought in American brands like Traeger [pellet grills] and Komado Joe smokers. We’re working really hard to make sure we’re at the forefront of that market trend.
We’ve also moved our marketing away from being so promotion-heavy. Promotion is always required but the message from us at one point was all promotion and no equity, where customers were coming into stores and seeing a warehouse-style environment and balloons and paper bags. We’re trying to convey a story around specialisation and being the authority figure in this space, so we created a far more compelling digital offer and added meaningful content that customers can enjoy and explore what’s important to them for themselves.
We recently added better digital applications. We launched an augmented reality app last month to make the exploration process more satisfying, and we have a cooking app that we’re about to finish. We’ve updated the look and feel of our stores to try to bring the outside in through signage, lighting and greenery. We want to make sure when the customer comes into our store, they not only have passionate and credible staff but also an environment where they can visualise how it may look in their home. That all talks to the customer experience.
The final thing we’re doing is working on our backend. We’ve got a very old Unix-based ERP system, which we’re in the process of replacing. We’re replacing it with a new Microsoft Dynamics navigation program, which is due for release in the first half of next year. That will greatly assist our ability to provide better integration with other applications and logistics functions. We know that one of the most sought-after battlegrounds for any retailer is the last mile. When you’re dealing with 100kg barbeques and outdoor furniture, it’s a) a considered purchase and b) the physical size requires assistance. We want to put our customer back in control so, ultimately, they can decide how and when they want it delivered, whether they want it installed and the old barbeque removed.
It’s really making sure that experience is a powerful, meaningful one. That’s something we’re obsessing about at the moment – how we use the information platform to driver better connectivity with our delivery partners.
IRW: Switching to a new ERP system is a major undertaking. Can you provide some more insight into how that process has gone so far?
LN: It’s a big decision. It’s probably the single biggest capital investment in the company’s history. It requires changing all systems, all financial transactions, the construction of all our master data, our view of customers, products, every internal process.
It starts with a mental projection of what good looks like. The second thing is being aware of the limitations of what you’ve got. We had limitations in flexibility, connectivity and security. We got to the point where the ‘burning platform’ was well and truly alight so we had to make a move. If we hadn’t made the tough decision to make an investment of this size, our business would have been vulnerable. The fact that we had an ERP platform that wasn’t fit for use and represented the single biggest limitation to our growth… that was at the top of our risk register. We were very fortunate to have the support of the board and find the right solution and integration partner, and we’re tremendously excited about making the investment.
It also requires the support and investment of the team as well. Once you make the tough decision [to invest], it’s about resourcing for growth and giving your team the bandwidth to learn and understand where you’re going. Keep the conversation small and regular. Every single team meeting we’re talking about it; every second week there’s a newsletter article going out about what we’re doing differently; there’s a change management program that sits behind it, so it’s really got to be an all-or-nothing commitment.
IRW: What are some examples of things you’ll be able to do with the new ERP system that you can’t do currently?
LN: At the moment we use cold data, which means we’re doing inventory updates twice a day. With live inventory, we’ll have accurate records in our warehousing system so we can dispatch immediately and with confidence. We’ll be able to integrate into our logistics partners for delivery in real time and put live inventory feeds of our stores on Facebook and social media to give customers immediate awareness [of stock levels] for click-and-collect. That’s just looking through the inventory lens. In terms of CRM capability, we’ll be able to track the entire life pattern of each of our customers and provide a unique offer that’s bespoke to their behaviours and buying habits, needs and preferences, so it’s a real game-changer for us.
One of the things we’ve been doing for a long time though – and this is the reason we know [the upgrade] will be powerful – is voice of the customer. This is a program where we actively survey our customers for feedback and information about what they like about their shopping experience and what they don’t like. We assemble all the feedback into a log of opportunities that we prioritise and act on. We receive circa 50,000 surveys [through this program], so there’s nowhere to hide. We couple that with some key determinants for net promoter score (NPS). Right now, our NPS is 68, but we want to get to 70.
IRW: Barbeques Galore sells a mix of private-label and third-party brands in stores. What are your thoughts on the rise of the direct-to-consumer (D2C) trend, and what are you doing to mitigate any risks from that?
LN: We believe we’ve hit the high-water mark for private label. Around 90 per cent of our products are private label. We see wonderful growth opportunities in bringing in brands to augment our offer: Traeger and Komado Joe and the ceramic grills. We’ve proven to ourselves that we can run a really good proprietary brand offer, and we’ve got the skillset to build, source, manufacture and market through our stores. But we know we can’t do it all ourselves, so we’re actually looking for additional brands that we can bring into our offer to make it much more attractive.
The big challenge for all retailers is that everyone knows foot traffic in stores is down, and the website is really replacing the ‘just looking’ market, so that experience needs to be really on point. The other thing is, once the customer makes the effort to come into store, that experience has to be really compelling. We spoke about how we’re improving the store environment and empowering the team, but the third thing we’re doing is making sure our offer meets or exceeds customer expectations. We’re talking to a couple new-to-Australia brands now about what a partnership would potentially look like. We want to make sure that if you do come into our stores, we’re not leaving you with any reason not to buy from us. We want to make sure we’re ticking all the boxes.
IRW: But do you see the rise of D2C as a threat or challenge for retail more broadly?
LN: We’re lucky because we have a fully integrated retail offer, and when you control your IP, manufacturing, distribution, marketing and customer strategy it simplifies everything. It simplifies channel management. If you’re a department store – if you’re JB Hi-Fi or Harvey Norman – it’s impossible to have that because you’re known as a house of brands, and if you allow a particular brand to dominate, that’s where you’re vulnerable.
Without getting too philosophical, it’s about keeping a good healthy balance. We’ve always been vertically integrated, and there was a time when we were manufacturing in Australia. We no longer do that because it’s not commercially viable, but if you go back 20 years, we were primarily a wholesaler and manufacturer to the industry. Over time, the dial has switched back to a strong focus on retail. But if retailers rely on other brands for their retail offer and don’t have the scale or capability to direct source, or allow a particular brand to dominate their go-to-market, there’s absolutely a degree of vulnerability there.
I can think of a few examples where retailers would struggle [with this], because wage costs are going up, rents are going up, and if they’re relying on other brands to do all the product innovation and branding for them, and all they’re offering is a means to fulfil and the customer experience… well, if I were in that position, I would feel extremely vulnerable.
IRW: I’ve spoken with one two retail CEOs who have said that rents aren’t really an issue for them. What’s your position on the cost of rents?
LN: I’d like to meet them. Rent is our biggest expense, and if your biggest expense as a percentage of sales is going up, that’s a concern. Lack of supply is a key driver, in Sydney in particular. The lack of supply is creating artificially high prices in the market. It’s something the Large Format Retail Association is working on, but higher rents have an impact on all retailers because somehow those costs need to be achieved and passed on to the customer. In the next five to 10 years, I think we’re going to see it play out where retailers are going to be forced to find a new model to maintain a sustainable cost base.
IRW: Is it purely lack of supply that’s driving up the cost, or are there other factors? One thing you often hear about is the lack of clarity on how store-to-door and click-and-collect sales are attributed…
LN: I think landlords can command higher price points because retailers are willing to pay for them, because if they don’t pay that rent, they’ll potentially lose the site, and they’re losing part of their go-to-market strategy. We don’t really mind whether our customers look in-store and buy online or do the reverse or any combination of physical and digital shopping.
We know through our research that one of our customers’ biggest complaints is the fact that there’s no store near them. Particularly with a discretionary retailer – people don’t buy a barbeque every day – they want to be able to look and feel the product. When we say a customer is just looking, they’re not just looking, they’ve already looked. They’re validating; they’re confirming. So you still need a physical environment to really complete the brand offering.
I think retailers are forced into a position where they end up paying a little more than they’d like on rent because the options are limited.
IRW: Has that been your experience?
LN: I’ve got three sites at the moment in Sydney where I’ve got what I would politely describe as a B-grade offer because it was all I could get. There’s a lack of availability, and it absolutely is very real.
IRW: How are you dealing with this scarcity of suitable retail space?
LN: We’re looking at how we can potentially use smaller physical spaces and bringing in digital assets and technology to amplify the offer. It all goes back to good healthy space planning and figuring out how much inventory you’re going to keep on site. There is a whole myriad of considerations you need to think through, but when rent is your biggest expense, you’re forced to have those conversations.
Our footprint is generally between 750 and 1500sqm. We have some sites that are 650sqm, which is on the small size for us, and over the next 12 months, we’re looking into potentially launching a 400sqm site to complement the bigger flagship stores.