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Business Fantasies
Sep. 6th, 2014 08:45 pmI was pondering the fact that I appear to have four DVD recorders, all functioning, and one DVD player (also functioning). But I don't have my first, which was just a player, and cost more than £200, and which I gave to my mum, and which no longer works.
I bought that player in Dixons in Lewisham around 2002 I guess. That Dixons used to be really busy. But then the stock started to get thinner, and it stopped being busy. And then it became Currys Digital, and now it's not there any more.
Shareholders or private investors will have been be fed a tale that it was killed by Amazon, that it became unviable, but really it was killed by the fact that it was run really badly.
I saw the same at Informa, where the head of the division systematically destroyed value for more than a decade, pushing up the prices of just-purchased portfolios until the customers rebelled, at which point it became unprofitable and was closed doe being "unviable". What is missed is that the unviability is often a result of too high a central cost base that has nothing to do with the product. If there are too many people not involved at the coal face, the cost base will be such that the price you need to charge will be too great for the customer to bear.
Very rarely are companies put out of business because they have been irretrievably undercut by direct sellers. Or, rather, they ARE irretrievably undercut by them, but it's not the direct part that is the major cause. The major cause is that established retailers and large publishing companies have too many people working for them who spend most of their day looking at spreadsheets, or marketing plans, and too little time generating real cash, either by actually making good stuff or by selling it.
Think about it. Where is the cost base advantage when the rent you are paying on your shop is laughably low? The cost base advantage is that the people you employ are used more effectively, not that you are paying a little less rent.
Dixons shops went from good to bad because someone looking at a spreadsheet didn't realize that shops with less stock look dreadful. Informa publications suffered because someone looking at spreadsheets didn't realize that inelasticity of demand does not go on forever up the price scale, and that justifying the price increase on the grounds that they were getting a "better" product. That's like charging twice as much and then saying that you are giving them something with four wheels and weather protection rather than just two wheels and being open to the elements. The fact is, some people want a motorbike, not to be told that they have to pay more for a car.
I see other companies around at the moment that are beginning to fall down the "spreadsheet" hole. Vodafone is one. I walked into their high-profile store just south of Leadenhall St twice this week past. Both times there was a shortage of staff and no indication of how long I might have to wait to get served (and no system in place either). That weakness of staff allocation was also evident in a Costa near the Tower of London. I've made enough on my Whitbread shares, but maybe they deserve to be dumped if that is the kind of thinking going on. By contrast, Caffe Nero seems to have the hang of it.
I bought that player in Dixons in Lewisham around 2002 I guess. That Dixons used to be really busy. But then the stock started to get thinner, and it stopped being busy. And then it became Currys Digital, and now it's not there any more.
Shareholders or private investors will have been be fed a tale that it was killed by Amazon, that it became unviable, but really it was killed by the fact that it was run really badly.
I saw the same at Informa, where the head of the division systematically destroyed value for more than a decade, pushing up the prices of just-purchased portfolios until the customers rebelled, at which point it became unprofitable and was closed doe being "unviable". What is missed is that the unviability is often a result of too high a central cost base that has nothing to do with the product. If there are too many people not involved at the coal face, the cost base will be such that the price you need to charge will be too great for the customer to bear.
Very rarely are companies put out of business because they have been irretrievably undercut by direct sellers. Or, rather, they ARE irretrievably undercut by them, but it's not the direct part that is the major cause. The major cause is that established retailers and large publishing companies have too many people working for them who spend most of their day looking at spreadsheets, or marketing plans, and too little time generating real cash, either by actually making good stuff or by selling it.
Think about it. Where is the cost base advantage when the rent you are paying on your shop is laughably low? The cost base advantage is that the people you employ are used more effectively, not that you are paying a little less rent.
Dixons shops went from good to bad because someone looking at a spreadsheet didn't realize that shops with less stock look dreadful. Informa publications suffered because someone looking at spreadsheets didn't realize that inelasticity of demand does not go on forever up the price scale, and that justifying the price increase on the grounds that they were getting a "better" product. That's like charging twice as much and then saying that you are giving them something with four wheels and weather protection rather than just two wheels and being open to the elements. The fact is, some people want a motorbike, not to be told that they have to pay more for a car.
I see other companies around at the moment that are beginning to fall down the "spreadsheet" hole. Vodafone is one. I walked into their high-profile store just south of Leadenhall St twice this week past. Both times there was a shortage of staff and no indication of how long I might have to wait to get served (and no system in place either). That weakness of staff allocation was also evident in a Costa near the Tower of London. I've made enough on my Whitbread shares, but maybe they deserve to be dumped if that is the kind of thinking going on. By contrast, Caffe Nero seems to have the hang of it.
