L a t e s t  N e w s
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FAME Index

Where are the benefits?

International Paper Colorlok trade ad an oasis in a desert of mediocrity. Manufacturers' user ad campaigns carry stronger impact.

We reviewed 27 trade ads in September's edition of OPI and only 2 in our view made a strong impression. Both ads were from International Paper featuring the Colorlok technology papers. They impacted straight away with bold and vivid colours and hammered home the faster drying qualities, leaving readers in no doubt about the benefits. What we admire most is the message is user benefit oriented which is what the trade needs anyway. If it resonates with users it will resonate and sell through the resellers. We rated IP's ad 7.5/10, not higher as it lacked a little engaging personality. Click on Fame Index to see the full review of trade ads.

If we look at the other 25, there is not a lot of credit we can give. Some are too gash and loud…some are too posey…some too anaemic…and some like the HP 'success suits you' fail to engage at all. Fellowes commitment to marketing is admirable…strong user campaigns in airports, business magazines with their '100% jam-proof' shredders and laminators ads are strong but lack appeal to women. They are too macho and carry little appeal to women, ultimately the primary buyers of security type products in the office.

The OPI 'Green Thinking' publication was nicely put together, but why do most ads have to have prominent green coloured images of frogs, trees, leaves, parrots, grass and earth symbols stuck all over them? We get the message, but surely it is the sustainable effect on people that needs to be rammed home more. The office productivity benefits should be emphasised more, because that effectively cuts cost, waste and carbon footprint.

We liked too, the Really Useful Box ad message about 'Black is the new Green' but again it lacked personality which would provide immediate impact, and fell into the same old 'green grass' trap. Similarly, 3M 'focused on sustainability' ad message and imagery was a nice treatment, but wasted the opportunity push the Post-It brand with personality.

If we turn to the current user ad campaigns these are refreshing treatments. HP has chosen the #1 women's weekly glossy mag to feature its sleek Liquid Chrome laptop. Nice message too 'Style isn't always hanging on a rail'. Obviously, the terrific Sony ads over the past 2 years have influenced HP and Dell with their ad treatments.

Sanford's investment in David Beckham  to promote the Sharpie brand of markers has made a positive impact in US and UK. Stabilo has launched a nice TV campaign aimed at the back-to-school market with the 'move easy' refillable roller ball pen (see pic right). Promoted as the world's first left handed and right handed pen we can see this being successful in the wider market too.

Konica Minolta the image and printing giant has launched a viral marketing campaign on a microsite called Masters of Colour. The site features their annual graphic design competition 'Get Yourself Noticed', whereby Konica Minolta are giving graphic designers the chance to change their future and become the rising star of graphic design in the UK. What is unique about this competition is that all entries will be seen by the top people in the industry who are media partners and will be on the judging panel. This includes Marketing Week, Computer Arts & Computer Arts projects. We know that HP tried this interactive and innovative approach to engage with users on digital cameras a couple of years back and we can see this approach becoming a powerful medium.

Finally, Staples have partnered with Toshiba in a UK TV campaign to promote the their latest L300 laptop. After the Toshiba ad, Staples concludes with a snappy close and their powerful 'that was easy' punch line. We feel this is exactly the way to go for original brand makers to partner with resellers in all medium.

Practically, in everyday terms original brand makers should market brand campaigns directly to Lucy, the typical user chooser using personalised emarketing campaigns in cooperation with the local resellers to maximum effect.

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Consumer Electronics giant DSGi -
Half Year results

PC World plummets
Pessimistic chief sees no recovery until 2010. "Switched off" retailer fast becoming a Best Buy option

John Browett (pic right), who joined nine months ago, said that demand had "switched off" and there was little sign of a revival until 2010. Like-for-like sales across the group fell 7% in the 16 weeks to August 23, while margins were 0.75% points/sales lower. DSG expects to make a loss of more than £10m in the first half of its financial year, compared with a £52.4m pre-tax profit in the same period last year.

The trading statement revealed that like-for-like sales at Currys had fallen by 7% in Q1 of DSG's financial year. Sales at PC World tumbled 12%  below the same period a year ago, when the chain cut prices to sell off laptops. DSG added that, despite signs of progress in Italy, sales in Southern Europe had fallen by 12%

Browett said that demand for white goods, such as refrigerators, had slumped by almost a quarter over the summer amid the gloom about the housing market. "Clearly, the economic backdrop is challenging. What I'm seeing is a lack of confidence, a crisis of confidence, really, and, more than energy bills, I think it's down to fears about increases in unemployment," he said. "It's very difficult to predict how Christmas will be, but I expect it will be very tough.

"We are planning very cautiously. I've been very cautious on the economy for a while. I didn't think we'd see a recovery until 2010 and I still don't."

Shares rallied 4p to 57p, an increase of more than 8 per cent, after news that DSG expects to generate a further £25 million of cost savings from its recovery programme, partly through hiring fewer staff in the run-up to Christmas. However, analysts said that they were likely to cut full-year profit forecasts for the group in the coming days.

Phil Dorgan, retail analyst at Panmure Gordon, said: "The business review at DSG has got off to a good start in terms of cost-savings delivery, but we think the hard yards in terms of successful format change and turning round sales lies ahead."

Electrical retailers such as DSG have been among those on the high street hit hardest by the fallout from the credit crunch as fierce competition from supermarkets and lower demand hit profit margins.

Browett, a former Tesco executive, was forced to issue a profit warning within days of taking over in December last year. He introduced a programme to "transform the DNA" of the business in May, basing his plans on improving stores and customer service, improving its website and cutting costs.

Browett insisted yesterday that DSG was making headway towards achieving these goals. The group's biggest Currys Digital outlet, a megastore near Birmingham, would open in the coming weeks offering 200 satellite-navigation systems and 250 televisions. "You will not need to go anywhere else to buy electricals," Browett said.

Editor's comment
We nicknamed the new CEO "Browbeater Browett" after he made his critical and noisy entrance into the ex-Dixons powerhouse less than a year ago. Obviously it must be in his DNA or just an acquired arrogance having worked at the super successful Tesco (UK's leading supermarket with 30%+ market share…the UK's equivalent to Wal-Mart).

It is never a good idea to trash the efforts of previous management or employees, no matter how well deserved. His much publicised long winded '5 Point Plan' to "transform the DNA" of DSGi could have been copied from any 1980's management text book.

Cutting costs may be popular with the City, but what the employees and customers need is inspiration not pessimistic utterances about the economy not recovering until 2010. Anymore negative utterances from Browett and DSG really will become the 'Downward Spiral Group'

We still feel the BIG issue, which he has not mentioned is the Dixons v Curry's brand dilemma. He has decided to replace washing machines with laptops and gaming at Curry's Digital further confusing market perceptions.

If 40% of Curry's stores are to be closed what value has the Curry's brand anymore? Dixon's was perceived as the consumer technology brand on the high street and the home/internet. Hiding it from the high street and making it internet only was a crazy decision. Why try and change consumer perceptions, Dixons has the respect…Currys does not. Change the high street, out-of-town shopping and internet brand to Dixons.

We agree with the PC World focus on value added services to smaller businesses. However being down 12% when brand leaders HP and Dell report booming sales of laptops, indicates a store marketing problem not a crisis of confidence with consumers.

We look forward to Browbeater Browett's reaction when Best Buy snaps up DSGi in the next 12 months and merges it in with Car Phone Warehouse. The Currys store plans look like a copycat of the impressive retail experience at Best Buy stores in the US. Browett has much to learn from their CEO Brad Anderson (pic left) who publishes a short and inspiring webcast on their site. It is well worth a listen. It is inspirational to employees and customers and urges employees to "seize the day" and "help customers enter the digital age".

Now that's leadership…something for DSGi to look forward to?

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Market share gains from improving rates of customer retention, satisfaction and acquistion.

International sales grew 6% in local currency to $700m. Comparable store sales in Europe were impacted by weakness in customer traffic and average order size, decreasing 7%. Total sales Including $318 million of Corporate Express sales for July 2008 reached $1Bn.

CEO's Review

"I am proud of our team for continuing to manage our business carefully during challenging economic times," said Ron Sargent, Staples' CEO. "We are optimistic about the future for each of our three businesses. We're excited about the opportunity to drive immediate shareholder value by integrating theCXP acquisition into our NAD business, we're working hard to improve store productivity in NAR, and we're taking the right steps to build on our foundation for long term growth in International markets."

Q2 Highlights

Total Company

• Achieved sales of $5.1Bn, including $673m of CXP sales for July 2008.
• Operating income rate declined 1.7%/points to 4.84%
• Excluding the impact of CXP, operating income rate declined 1.27%/points to 5.27%/sales, primarily reflecting margin pressure in NAR
• Opened 35 stores, closed five stores, and acquired 65 stores worldwide as a result of the CXP acquisition, ending Q2 operating 2,171 stores

North American Retail

• Achieved sales of $2.1Bn.
• Reported a 2.13%/sales decline in operating income rate to 5.29%, primarily reflecting deleverage in rent and labor expense.
• Achieved all-time high customer satisfaction scores.
• Opened 28 stores, closed one store, and acquired two Canadian stores as a result of the CXP acquisition, ending the second quarter with 1,802 stores
• Reduced average inventory per store by 14%.

North American Delivery

• Achieved sales of $2.0BN, including $355m of CXP sales for July 2008.
• Reported a 1.835/sales decline in operating income rate to 8.83%/sales
• Excluding CXP, reported an 0.11%/sales in operating income rate to 10.55%/sales.
• Contract and Staples Business Delivery call centers recognized by J.D. Power for customer service excellence.

International

• Achieved second quarter sales of $1.0Bn, including $318m of CXP sales for July 2008.
• Reported a 0.73%/sales improvement in operating income rate to 1.46%
• Excluding CXP, reported a 1% decline in operating income rate to 0.72%/sales
• Opened three stores in Portugal, and acquired 63 European stores as a result of the CXP acquisition, ending the second quarter with 337 stores in Europe and 31 stores in China.
• Sustained top line momentum in China, with sales nearly doubling versus the prior year's second quarter.

Outlook

As a result of the Corporate Express acquisition, the company anticipates total annual synergies to build, over a three year period, to a range of $200 to $300m. The company's estimated incremental interest expense is more than $100 million in the back half of 2008. Staples anticipates integration and restructuring expense to range from $30-$40 million in the back half of 2008, and to range from $50-$70 million in 2009.

Dell pays price of market share gains

Michael Dell pledges new and better designs

 
3 Sep 08

Has Dell's turnaround plan veered off course during the summer?

The PC maker reported that its Q2'08 profits slumped 17% on aggressive price cuts, and the company warned of up-and-down profit margins for the next several quarters. The disappointing results came during a strong earnings season for other tech firms, and investors pushed down Dell's share price 10% in extended trading.

CEO Michael Dell called the tepid earnings "self-inflicted" during a conference call with analysts and vowed to improve the situation. "Whenever you're restarting growth, it's an imprecise process," said Dell, who returned as CEO at the beginning of 2007 to try to reverse nearly two years of declining market share and slower growth. "There were certainly parts of our business where we were too aggressive."

Now investors have to wonder whether a four-month runup in the price of Dell's shares may be coming to an end. Since May 1, Dell's share price had shot up 33%. They closed on Aug. 28, before the earnings announcement, at 25.21, or 1.6%. That compares with a flat share performances  for rivals Hewlett-Packard's  and Apple's  share price.

Competitive retail market
Since returning, Michael Dell has pushed for better product designs and expanded overseas operations in an attempt to win back customers for consumer notebook and desktop PCs. Nonetheless, Dell is still slugging it out with competitors on price. That's draining operating profit margins, which fell to 5.3% on an adjusted basis during the quarter that ended Aug. 1, compared with 6.1% a year ago, according to Shaw Wu, a senior analyst at American Technology Research.

"Price is really their only effective weapon," says Wu, who has a neutral rating on Dell shares. "Their products aren't that differentiated. They can paint their products in different colors or sell them in different geographies, but a lot of the other players do the same thing."

The second-quarter earnings fell short of Wall Street's expectations. Dell's net income fell to $616m, compared with earnings a year earlier of $746m. Wall Street analysts had expected Dell revenues of $16Bn. Sales actually did better than expected, rising 11% to $16.4Bn, from $14.8Bn a year ago.

Margins were squeezed by promotional spending that was needed to compete for space on retail shelves. Store sales is a relatively new area for Dell, which expanded rapidly in the 1990s and earlier this decade by selling directly to businesses and customizing computers to order. But industry growth is now coming from the consumer market. Dell, which lost its position as the No. 1 PC supplier to HP, has had to adapt. Dell's consumer business grew 28% in the quarter, to $2.7Bn; consumer sales now account for 17% of its overall revenues.

New notebooks for business.
Aggressive price cuts on notebook computers in Europe contributed to the decline in profits. "Conservative" IT spending by U.S. companies has now spread to Europe and parts of Asia, said Dell Chief Financial Officer Brian Gladden, who arrived in May from General Electric. Investors should expect profit margins to be "nonlinear" for the next several quarters, he added.

Exacerbating the pressure on Dell, the results come amid a generally strong earnings season for computer makers. HP on Aug. 19 reported quarterly profits that beat analysts' expectations, and issued an upbeat next quarter forecast, boosting its stock. On July 22, Apple beat earnings and sales expectations, but forecast thinner profit margins for the rest of the year and into 2009.

It wasn't all bad news for Dell. The company brought operating expenses down to 12.2% of revenues during the second quarter, from 13.9% a year ago. That was part of a cost-cutting goal of eliminating $3 billion in spending each year by fiscal 2009. Dell shed 1,500 jobs during the quarter and has cut its workforce by 8,500 since the beginning of fiscal 2007.

Dell is also expanding its product line with more machines designed to serve niche market segments. "They're trying to go after finer market opportunities in hopes of wringing out more market share," says Richard Shim, a research manager at IDC. In mid-August, Dell released a lineup of new notebooks for business customers, and its CEO said a fresh batch of business desktops is on the way.

The company is outgrowing the overall market. Dell's worldwide PC shipments rose 21.4% during the April-through-June period, compared with 15.3% growth industrywide, according to IDC. Dell now holds a 16.4% share of the worldwide PC market, compared with 18.9% for HP.

But Wall Street is starting to wonder if market share gains are coming at the expense of profits. Its competitors' must-have products and services—Apple's Macs, iPods, and iPhones; HP's printers; and IBM's software and consulting services—make them less susceptible to the vicissitudes of retail price wars, says Wu. _____________________________________

DS Smith interim management statement

Spicers stalled?
IT supplies sales drive fails to lift gloom

3 Sep 08

DS Smith's lack of enthusiasm for OP wholesaling shone through brilliantly in the following interim statement in preparation for today's AGM.

"Against a backdrop of slowing demand for office products, Spicers has experienced a decline in volumes of traditional office products. Sales of electronic office supplies have grown strongly as Spicers has increased its participation in this important, although lower margin, sector of the market. We maintain our drive to rebuild profits in the UK and continue the progress of our continental European businesses."

They describe the EOS products as though they were an optional extra…an area to dip in and out of, to suit the management's mood. We know this was a priority for CEO Rob Vale (pic above) a couple of years back to reinforce the single source service for dealers and their customers.

EOS or IT supplies represent 40% of the expanded basket of OP demand (inc. FM supplies too) and an important destination category for customers. But, EOS is not a sector of the market, it is just the largest driver of OP demand and not taking it seriously as before is not an option. All or nothing?

It seems the 'pure wholesale' advantage that Spicers held over Kingfield after their merger with ISA back in June 2007 has not been carried through with effect. To our knowledge only one large dealer, Martin Luck has switched its wholesale business to Spicers from Kingfield. Whereas, the defectors from Spicers wholesale service to Kingfield in the last year have been significant e.g. Anglo, Total Office and Fenn.

The drive to rebuild profits in the UK is a familiar, but empty goal. Surely the drive should be to win back major dealers' wholesale business and work with them to drive demand through to users.

We believe Spicers will not meet its full potential until it changes ownership to an understanding parent like US #1 United Stationers or US#2 SPRichards. Unless of course rumours are confirmed and VOW (ex-Kingfield) intercept?

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Doomsayer
Darling denied

Cheerless Chancellor crisis call
in UK economy…what crisis?

Edited extracts from Anatole Kaletsky, The Times economic correspondent

2 Sep 08
When Chancellor, Alistair Darling said that UK's economic conditions were "arguably the worst they have been for 60 years", the reaction from the media was either to compliment him for his  "frankness" or to gloat about the way he had "embarrassed" PM Gordon Brown.

This was understandable, because Darling is indeed an unusually straightforward politician, respected and liked by journalists and politicians across the political spectrum. On closer inspection, the Chancellor's reputation for frankness makes his political blunder worse, since it reveals a flaw more serious than deviousness: basic ignorance of economic facts and figures. This is a failing that the minister responsible for national finances can never live down.

Were there any interpretation of Darling's comments that tallied with either economic statistics or the realities of British life – or if the Treasury had rushed out a correction, explaining that he had been misquoted or hadn't meant what he said – this episode might have been forgotten as just another stumble by an accident-prone Government. But sadly for Darling, though luckily for the British economy, there is no way of massaging the facts and figures to make his statement even half-right.

The most obvious contrasts – today's 5% inflation and 5.4% unemployment may feel uncomfortable, but these are just tiny ripples compared with the tidal waves of economic hardship – the 27 % inflation and 12% unemployment – that hit Britain in the 1970s and 1980s.

A similar conclusion comes from almost any other economic indicator: gross domestic product, personal incomes, government finances, employment growth, repossessions. Only house prices are falling faster than ever before – because they were far higher when this downturn began.

And despite all the headlines about a credit crunch, financial conditions are also relatively benign. Homeowners and estate agents may complain about a "mortgage crisis", because banks charge over 6% for a mortgage and require a 10% deposit from first-time buyers, but in the 1970s and 1980s, mortgage rates repeatedly reached 15% and borrowers typically had to save up deposits of 25 per cent or more.

Social and political conditions are now incomparably better than they were 30 years ago. This can be attested by anyone who recalls the three-day weeks and winters of discontent, the petrol rationing and power cuts, the dole queues and miners' strikes, the credit squeezes and currency restrictions of those days. And other social indicators – child poverty, life expectancy, housing conditions, educational qualifications, pension levels, living standards relative to other countries – are almost all far better today than they were in the 1970s and 1980s, despite the understandable feeling that many of these conditions should be much better, considering the huge tax burdens successive governments have imposed.

What on earth, then, was Darling talking about when he described the present economic crisis as the worst since 1948? The Treasury lamely suggested over the weekend that the Chancellor was not really referring to Britain, but to the world economy as a whole. This "clarification", however, does not get Mr Darling off the hook. The US has not yet suffered a recession – much less the once in a lifetime depression predicted widely a few months ago – and only last Friday announced a stark upgrade in its GDP figures.

The European economy is slowing and it may well sink into a mild recession – but, this has not happened yet. Developing countries are still growing strongly and even the global banking system, despite all the hysteria, has so far suffered smaller losses in relation to its total capital than it did in the Third World debt crisis of the 1980s.

In short, it is literally impossible to tally Darling's comments with anything that has happened to the British and international economies so far. Could it be, however, that he meant to offer a forecast? Predictions are, by their nature, a matter of opinion, which means that Darling's comments, if they refer to the future, cannot be refuted by objective statistical evidence even though there is now no respectable economic model pointing to anything like the apocalyptic conditions Darling described.

Suppose, then, that the Treasury decides to spin his comments not as a description of what has already happened but as a prediction that Britain will suffer its worst economic crisis since 1948 in the year or two ahead. If this was what  Darling meant, will anybody believe any economic forecast he presents in his next Budget if this is less than catastrophic? And if Darling does present a catastrophic forecast in a preelection Budget, what will this do to Brown's chances of survival? These questions can yield only one answer: the next Budget will be presented by a new chancellor.

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