Adapt we must

This is not intended as a doomsday piece as I firmly believe that there is a place for an electrical specialist in every marketplace, be it a local independent or a national superstore. After all, we sell products that cannot be downloaded but which evolve and need seeing, hearing, explaining, demonstrating and installing. Travel agents, music, game and book retailers have died because of this lack of opportunity.  The digital switchover has proved to us how much people need advice and they have rewarded us with bumper sales. However, recent events suggest that there may not necessarily be a place for so many specialists in each location. It pains me to say that we may be more in a fight to a death against each other for that coveted specialist position than against the web or the supermarket which is engaged in its own fight for its own customers. Why this view?

You don’t need me or GfK to tell you that the only growing channels in our industry are the web and mass-merchandisers. Specialists, whether national or independent, accounted for less than 50% of the CE market last quarter which is down from over 60% five years ago. Sadly the market itself is 15% lower over this period meaning that we are fighting for a smaller share of a smaller pie. Specialists have collectively seen CE sales fall by 30% in five years.

You don’t need me or your accountant to tell you what has happened to your cost base in that time. Greater price visibility online and in the supermarket has caused margins to plummet. Overheads have fared no better with upward only rent reviews, inflation and rates rises. As a result, specialists collectively do not make a profit. Worryingly, nor do our suppliers who are in their own fight for survival so there is little scope for seeking charity further up the supply chain.        

Sadly, the clock won’t turn back as consumers have had long enough to form new shopping habits. Supermarkets have committed themselves to large ranges of non-food by opening enormous stores which they must now fill. They benefit from economies of scale and from seeing their customers every week and these advantages are not going away. The web has even more efficiencies, and with an improved logistics infrastructure, these advantages are not going away. We must assume that the lower end and volume part of the CE market will continue to be dominated by these channels.

Things are not helped by the downturn, forcing customers to seek the lowest cost option or the CE product pipeline being barer than usual. No one is predicting an immediate end to lower panel volumes at lower average prices so we must live with this. However we are not without hope as there are four ways out of this bind.

•              Re-position yourself in white goods where the specialist share has held steady at 58% over the last four years thanks to the difficulties supermarkets have with this category. I recently visited a newly opened Tesco Extra that contains all its current thinking. There was a fully staffed electrical department of 7000 sq feet which included a demonstration room but only four white appliances none of which were over £200. Seven million more large appliances were sold in the four years to 2007 than in the subsequent four years. These will need replacing soon as households do not have spare appliances and average prices are now 10% higher.  

•              Improve your efficiencies by out-sourcing delivery, charging for all in-home services or relocating to a larger but cheaper secondary site. Every cost or customer freebie must be under consideration as you can be sure that they will be elsewhere.

•              Look at other income streams that utilise your stock and expertise. This may include trade sales to other businesses, white goods rental or internet specialisation. Click and collect is increasingly important so if you have customer parking then use it. 

•              Out-live your specialist competitors. Margins rarely go up in an industry but those that can survive on these leaner pickings will eventually be rewarded with increased sales from those who can not. It is a horrible truth but one supported by fact as we trade profitably in nine towns where once we had specialist competition but now we do not. Thankfully the closure of Comet and Currys stores and indies who fail to adapt makes this a real possibility.

Finally, don’t waste your time and energy moaning about the market but be grateful for the fact that there will always be a need for an electrical specialist though you may need to adapt quickly if it is to be you.