Viewpoint: Scottish Referendum

I was asked to write 450 words for the UK readers of Direct Commerce Magazine (the Trade Magazine that covers the dot com retail sector). I found the enforced brevity challenging but thought I'd share it here as an antidote to my normal rather stodgy and bloated posts

Viewpoint: Scottish Referendum

On the 18th of September the Scottish people will exercise their right of self-determination, voting either “Yes” to become independent or “No” to remain part of the United Kingdom. The Union has existed for 307 years and this is a one-way ticket: if the Scots vote for Independence there’s no going back.

Of course I have views as a Scottish citizen, but in this publication I’ll constrain myself to offering my perspective as founder and CEO of M8 Group (comprising petplanet.co.uk and greenfingers.com – two Scottish based online retail businesses).

These businesses have thrived serving the UK market from a Scottish base.  We employ 98 people, have featured as a Sunday Times Fast Track 100 company and are currently enjoying another year of record sales and profitability. Would Independence provide us with greater opportunities or present us with new challenges? 

A simple factual observation: if Scotland becomes independent then the remainder of the UK (rUK) becomes an export market; our addressable domestic market shrinks by 90%.  It is of course a corollary that for rUK based retailers the addressable domestic market will shrink by 10%.

Now I have no fear of export markets - I’m a shareholder and NED of Endura, a business that exports more than half of its sales – but export trade (particularly B2C trade) involves complexities and contingent risks that domestic trade is immune from.  Two obvious headline examples are currency and trade barriers (EU membership).

There isn’t room here to cover all the arguments but having researched in depth I can offer a fair summary: there is a risk that over time an Independent Scotland will end up using a different currency than rUK and/or that one of Scotland or rUK may be in the EU and the other out.

There are other issues (e.g. the loss of Royal Mail Universal Service Obligation) but you can guess where this is going.  To protect our businesses against these risks we would relocate our operations to where 90% of our sales go; jobs would move from an independent Scotland to rUK.  We are not unique in this regard; a recent Treasury report estimated that 10% of Scottish jobs dependent on rUK trade would be “in danger” (with Financial Services and Defence sectors particularly affected).

So these downsides for business and the Scottish economy are clear, but I’m an entrepreneur so I seek opportunities.  I was recently able to ask Blair Jenkins (leader of the Yes campaign) to describe the business opportunities that Independence would create. The best he could offer was to downplay the risks. It would appear that – like me - he is unable to see any tangible upside from Independence.

Exploding the Multi-Channel Myth ...

The following is developed from a reply I placed to a posting in catalogue-biz. The question was about online businesses developing catalogues ... what follows explains why I believe that specialist online retailers will always be able to exploit market opportunities that 'multi-channel' retailers can't reach if they stick to the pure online model (ie. avoid catalogues) ... It also explains why I believe there are opportunities for specialist off-line retailers to develop distinct online retail brands that are free to compete online without fear of conflict with the offline brand.

*****

I have worked in an advisory capacity for many catalogue and bricks and mortar retailers and (with Greenfingers.com) have a successful online business that used to be a catalogue business and has gone from strength to strength since we stopped producing catalogues. Also, with Petplanet.co.uk we experimented with catalogues a few years back and concluded they were a bad idea for us; Petplanet now dominates its category online in the UK.

My distilled view, for what its worth, is that there are very few successful online businesses that would benefit from developing a catalogue. Why? Some of the reasons would include;

• The difference in the fundamental economics between offline and online trading (ie. the required margin structure and therefore appropriate pricing strategy),
• The potential conflict between appropriate online and offline pricing (driven by the above)
• The different buying and merchandising cycles required (print deadlines and mailing dates can come to dominate the rhythm of the business at the expense of the 'continuous' processes required to optimise the web; the optimum range online is different from the optimum range offline)
• The problem of dependency on Royal Mail and their pricing policies for catalogue retailers
• The 'big picture' issue that posting millions of catalogues is simply 'system inefficient'

... I could go on.

Of course if you already have an established retail brand with customers who value your 'range editting' on their behalf then catalogues may continue to play an important role ... but personally I believe (and have for a while) that print catalogues are the past and online is the future (and most if not all of those arguing the value of print are those with vested interests in keeping that 'channel' alive). *UPDATE* The Sunday Times Fast Track 100 adds some weight to my argument about the death of catalogues, read more here,

Similar arguments apply for bricks & mortar retailers developing the online channel. Of course this represents a great opportunity for them and is a fundamental requirement ... but they will always struggle to compete with online specialists because of the conflicts between optimising price and merchandising online versus off-line.

I would not be surprised to see 'off-line category killers' start to experiment with additional online propositions under a different brand from the off-line business so that they can compete properly online.

Basically I think there are 2 kinds of online retail businesses: 'off-line retail brands trading online' and 'pure online retailers' ..

IMHO off-line brands are missing an opportunity unless they realise that to compete effectively with 'pure online retailers' they need to develop a specialist online brand that can be managed without concern for conflict with the existing off-line brand.