From the source: Roger Corbett
Australian retail veteran, Roger Corbett, who needs no introduction, has just ended his most recent stint as an advisor to the board of Woolworths. In this special instalment of From The Source, Inside Retail speaks broadly with Corbett on his views on key issues in Australian retail.
Justin Grey: Was the Aldi threat to Australian supermarkets underestimated?
Roger Corbett: Aldi around the world, and Lidl, who is about to come into the market in Australia, are extremely effective operators. And they are opening price point operators, so where retailers give them the opportunity to have the opening price point in categories, they take it. And they are very effective.
As the volume increases, the type of influence they have getting some brands increases, and because they ramped the volume they had overseas in sourcing material, they deliver very good quality – not best quality, but very good quality – for the opening price point. That’s their success formula, and they’ve done enormously well in doing it.
If retailers let them have the opening price point, as the retailers in Australia did, then inevitably, as they have everywhere else in the world, they blossom. If you deny them the opening price point and you deny them delivering better quality than you’re delivering in your generic product, whether it’s Home Brand or Woolworths or whatever you choose to call it, if you let them deliver better value than you have, then they prosper. And that’s exactly what’s happened.
That’s given them leverage in Australia and they’ve been able to get the market perception they’ve got, the volumes they’ve got and the distribution they’ve got. They’ve done an outstanding job in Australia, but the major retailers have let them do so because they haven’t competed effectively with them on both price and quality.
JG: One of the key issues in grocery is the pressure between the merchants (buyers), who are focused on margin, and the sales people, who are focused on making sales. How does an executive reconcile between these two parties?
RC: He reconciles to always take the customer’s point of view. So a retail executive, if you take [former Woolworths executive] Greg Foran, he’s making sure that Walmart is becoming competitive in the American market by walking around the stores himself and looking at the prices and saying, ‘why aren’t our prices equal?’. That type of on the spot focus. In America, Walmart has had to get more pilots and more planes since Greg has been there, because Greg is out in the stores, as are his people, all the time. He drives the customer’s perspective at store level. That’s what’s vital.
RC: That’s a very complex question, but the answer is yes. But it’s not a straight yes, in that you are providing a different offering. Aldi and Lidl reduce their costs quite considerably by reducing the range that they’re offering. So what they are doing is really specialising their volume in the 20 per cent of lines that provide 80 per cent of the sales. And in those areas you can get enormous economies. And the major retailers, have got to in that segment utilise the economies of their own scale, and technology to ensure that they can deliver those 20 per cent of lines that are delivering 80 per cent of the volumes – that they can deliver those at the same rate as an Aldi and a Lidl, hopefully with better quality, because of their leverage and their focus.
Then on the 80 per cent that only provide 20 per cent, they do so as economically and as effectively as they can – but do it really well, so the attractiveness of those items as an adjunct to people’s functional shopping becomes a lot more exciting than it is at the present time.
So, in other words, fresh has got to be real fresh. So you feel as though you’re going there and it’s almost just off the tree or just out of the ground, and it hasn’t been in the cold waiting for you for months. And that’s what’s happening at present.
JG: You’ve said Masters failed because Lowes didn’t bring the expected hardware experience to the table. How much of Masters’ failure do you put down to that?
RC: I put a lot of it. Masters failed because they were really just out-merchandised by Bunnings. They gave such pre-notice that Bunnings aggressively got all the best sites. When the consultants gave Woolworths their reports, they talked about a fragmented hardware market, and not many big operators, and therefore there was an opportunity for consolidation of the market. That is true, but it’s not completely true. Every little town or suburb has its own little hardware store. So yes, it’s vastly fragmented over a vast area, however there are only a limited number of high concentration urban areas that will support a big box. And Bunnings was smart enough to get all those places. That was the first thing
The second thing is instead of developing it in one of the big urban areas and getting dominance in that urban area, say Sydney or Melbourne, they threw them all around Australia. So they didn’t get economies of scale, they didn’t get distribution economies and they didn’t get marketing economies. This is all basic retailing stuff, and how the management and the board at the time made those mistakes… . And then the execution of the merchandising inside the stores was not nearly as good as Bunnings. And here’s Lowes, supposed to be a world-renowned expert, and the assortments were nowhere near as good as the Bunnings assortments. Nowhere near.
Now, this is a very good example of what may work in America, does not necessarily work in Australia. And the other comment that is fair to make here is – and I’m not commenting upon the current position at Woolworths, I’ll make no comment on that, I’m really looking back over what the market now knows was a massive mistake, and about some of the problems that occurred – there are interesting learnings out of this for the future. It shows that market research has got to be interpreted and understood. The market research here said lots of women buy hardware, so they tried to produce a female version of a Bunnings that was gender-friendly. They ended up with something that was neither a homewares store nor a hardware store; it was somewhere in between. It didn’t have a dominance and an effective homewares feel about it, and it sure didn’t have a hardware feel about it. It just hasn’t got that sharp edge that a Bunnings has got, and I think it’s a bit dissatisfying on either end of the spectrum. Where Bunnings is very effective in being a hardware operation. There’s got to be a resolution between Lowes and Woolworths at some stage, and then I take it the thing will be marketed in some way.
RC: I can’t talk about inside Walmart stuff like that. I can’t answer that.
JG: There’s been speculation that Woolworths may sell Big W. Is there enough room in the discount department store market for Kmart, Target and Big W to all succeed?
RC: I think it’ll be a battle as the marketplace currently exists for these three brands to operate effectively and get their volume. They’re all trying to occupy the same space. The space for David Jones and Myer and Target and Big W and Kmart is a very, very contracting market. It’s under pressure, both from digital shopping and from shopping centres, and the people that will survive in that pressure will be people that have a clearly defined offering that is perceived as being a really good offering, and they deliver that at a consistently high level, with excellent value.
Target was at its best when it was selling a very excellent range of soft goods that was better quality than was delivered by either Kmart or Big W. The great danger of putting Target and Kmart under one management is that the two start to move together. And if they do, then they’re going to end up with a lot of surplus stores. For any retailer to really survive, it’s got to be a distinctive characteristic. Big W was ‘everyday low prices on the brands you know and want’ – it was a clear market theme. Kmart has really prospered by Big W losing its position and Target losing its position. And the great danger of putting Kmart and Target together is that they will merge. And it may give quite a good opportunity for Big W.
JG: What are your thoughts on Costco’s performance in Australia?
RC: Costco has been outstanding in Australia and I would rate Costco as currently being one of the best retailers in the world. The revitalised Walmart in America under Greg Foran would rival Costco now, so I would say the best elements in the volume end of retail are Costco and Walmart equal best in the world.
JG: A number of mid-tier Australian retailers have recently listed in the ASX – what are the pros and cons of such retailers going public?
RC: You can sit on the list if you’ve got a successful business, but, of course, once you’re a publicly listed company you’ve got all the questions of disclosure and exposure. If your business is not too good [and] if you’re listed, then it becomes very apparent very quickly. And there has been some very good examples of that – Dick Smith, Godfreys and others. So like anything else, if you’ve got a good business and it’s working very well, and you’re happy to disclose what’s happening, then you can put it on the ASX. But if your business is not so good, you won’t kid the market for long because accounting standards and the disclosure requirements of a publicly listed company very quickly become apparent.
JG: What do you make of the increasing interest of global retailers coming to Australia and how that’s impacting the potential for growth for the local players?
RC: The shopping centres really replaced the department store. Department stores are under such pressure because the shopping centre has become a better department store. A shopping centre is really just a big department store with great flexibility. In Westfield centres there have been numbers of homewares shops and manchester or home goods shops of different varieties. So [Westfield] just get the best possible concept from anywhere in the world and they’re able to give them exposure in a market. So Westfield are able to encourage the best names from overseas to come to Australia, and they can give them pretty good coverage in the market – you might start with half a dozen sites in Westfield centres.
So the shopping centre bought a flexibility to retailing that wasn’t available previously, and it gives a very good entry point for higher margin operators. If these major retailers have got a product that allows them to charge a premium, as some of these fashion names do, then they can afford to pay the rents the shopping centres want.
Shopping centres are no doubt becoming increasingly aware of the reducing appeal of the department store. Originally shopping centres were dependent on supermarkets and discount stores, but they [shopping centres] have been the very thing that have bought an enormous amount of competition. They’re creating a very competitive market and a very innovative and flexible model that didn’t exist previously.
RC: Clearly the Woolworths management from South Africa is an excellent credentialed management team. They are very disciplined, very effective, and clearly a very focused operation. For Myer to really survive, it’s going to have to equal that focus. And it’s going to have to have a clear offering. To be caught in the midst of no-man’s land where people have a bit of everything, but no clear, defined position, is for any retailer a very dangerous place to be. So you show me a retailer that’s got a clear mojo, a clear operation, like Costco – very clearly located, understands what it’s doing, always focused on doing that, and delivers a wonderful product at really good prices, in bulk.
So that’s what I mean – an offering that is really good and effective.
Everything’s dynamic, everything’s moving, everything’s changing, and your position, even though it might be strong today, unless you’re moving and improving too, then you can be sure someone is closing the gap. And so what happens is retailers relax. There’s great danger in many of those brands we talked about just being insipid – standing for nothing. That’s the type of focus and drive you need. And it requires dedication, it requires absolute commitment. And it’s not a job for money.
During this interview, when asked, Roger Corbett refused to comment on why he stepped down from his recent advisory role with Woolworths and refused to discuss the current state of play at Woolworths.