Analysts by their very nature do a good job of looking at historical numbers and then making predictions. They are a key source of information in the process of deciding where we should put our money in order to be able to “make money while we sleep,” as one wise Hong Kong businessman once told me.
That said, they are only one source of information in the mix and, in their observations around the performance of the retail brands that make up Woolworths this past week, I found myself strongly disagreeing.
Analysts “think sitting down”, looking at large spreadsheets, analysing historical numbers behind a screen in a CBD office – a retrospective view of a scoreboard, if you will.
During “the great game” between Russia and Great Britain in the 1800s, the term “pundit” was adopted to describe arm chair experts who made observations about the Crimean Peninsular or Khyber Pass from the comfort of London’s gentlemen’s clubs.
In the world of marketing products to shoppers inside stores many of us, like Paco Underhill, “think standing up”. We walk around stores in different locations at different times of the day and night, with all of our senses working – all to allow us to experience what a shopper is experiencing. Is it an average experience or a good experience? (Never mind genuinely bad experiences – those stores don’t stay open long enough for most of us to experience them).
Where there is a great experience, shoppers spend more money and more time in stores. We, as happy shoppers, naturally enhance the profit of well run retailers just by our emotions and actions.
Very well run retailers then extract more of the profit from our good experience by controlling their costs and, specifically, the cost of inventory. They don’t worry about whether we’ll come back because, as long as they have given us a great experience, there is very little to prevent us returning.
Back in December 2008 I walked through JB HiFi stores and saw thousands of happy shoppers lingering longer and spending money. At that time most analysts were recommending not to buy retail shares because the economy was about to tank, and retail would hurt the most.
Let’s just say that I thought standing up. Based on my observations of the shopper experience, I bought JB HiFi shares at about $9 a share. Nine months later they were closing at around $20 each. The share price (the scoreboard) moved because the fundamentals of the experience JB HiFi offers shoppers is excellent. Thus it makes good money consistently.
The same, I would humbly suggest, is true of Woolworths. The shopper experience in Woolworths banners, from grocery through mass merchant and into liquor, is consistently great for their shoppers.
If you don’t believe me, drag yourself away from the spreadsheet on your PC and walk some stores to observe shoppers.
Woolworths shoppers like their experience in store and Big W shoppers like their experience too, so they keep coming back. Those who run Woolworths, from Luscombe down, are retailers through and through. They come from a long legacy – and swim in a great pool – of very successful retailers. They make good returns from great shopper experience and will do so for many years to come.
Before I finish, let me make a prediction about another upcoming float that I plan to buy into: Myer. Bernie Brooks, a graduate from the Woolworths ‘university’ of retailing, has transformed the shopper experience in Myer in 18 months. In Myer now you see lots of happy shoppers – the majority earning over $75,000 a year – spending. This will translate into a consistent profit stream.
But on the converse some other retail floats slated for later this year may not be as prosperous. Shopper experience needs to change sufficiently (and I’d argue hasn’t) to create a pool of very happy shoppers, with a correspondingly long and consistent profit stream.
So, with all due respect to the pundits, I certainly argue that buying Woolworths shares and holding them in a super fund for a long time could be a good way to go.
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In his role as CEO of CROSSMARK, Kevin Moore looks at the world of retailing from grocery to pharmacy, bottle shops to car dealers, corner store to department stores. In this insightful blog, Kevin covers retail news, ideas, companies and emerging opportunities in Australia, NZ, the US and Europe. His international career in sales and marketing has seen him responsible for business in over 40 countries, which has earned him grey hair and a wealth of expertise in international retailers and brands. CROSSMARK Asia Pacific is Australasia’s largest provider of retail marketing services, consulting to and servicing some of Australasia’s biggest retailers and manufacturers.
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