The downturn in consumer spending in recent months is most evident inir pockets but, says Mary Huntington, the news is not all bad for the consultancies which specialise in this sector. the High Street where some of the UK’s biggest retailers – Burton, Marks & Spencer and Boots – are reporting disappointing sales. But what impact is it having on the consultancies which support the retail sector?
George Wallis, chief executive of retail specialist Management Horizons Europe, says the sector is getting very tough. “We are still pretty busy but there has been a slow down in work compared to last year.” Projects include strategy, working with companies on the development of international markets; operations, buying and merchandising, category management and supply chain management; location network planning; store and business design. The firm employs 40 consultants and its fee income amounted to #6m last year. Says Wallis: “Italy is very strong for us and the UK and France are good. Germany is a more difficult marketplace as companies there don’t tend to look outside for services.” Retailers are very focused on like-for-like sales, he says. “They are finding it very difficult to match last year’s sales and costs are still rising. To remedy that they are concentrating on operational efficiencies and supply chain improvements.”
Chris Holmes, a director of Arthur Andersen’s retail industry group agrees.
On the revenue side, he adds, several issues are key. “Most of the large retail organisations believe that gaining market share in the UK going to be difficult so they are looking for alternatives increase their revenues – increasing numbers are looking to develop business overseas. And there is a lot of uncertainty about how alternative channels to market are going to develop, whether through the Internet, interactive television or other forms of home-based shopping.”
Arthur Andersen’s practice is very busy, according to Holmes, who focuses on the supply chain side of retail. Clients look for a broad range of services, he says, including the simplification of core processes, selection and implementation of core information systems and operational efficiencies.
“There is quite a trend of organisations believing that there are opportunities to reduce operational costs but not wanting to take the slash and burn approach – they are more interested in taking a holistic view and simplifying business operations.”
Another major player is Andersen Consulting, whose European group serves increasingly multinational clients. Oliver Benzecry, a partner in the retail practice, sees the slowdown as very much a UK phenomenon, which has not affected Andersen because of the nature of its European practice.
He says that the market for consultancy in the retail sector is massive and growing. “Retailers are coming across all sorts of things they haven’t come across before. Globalisation is the obvious example but brand extension, channel extensions and using customer loyalty data to get more offer precision are all accelerating.”
Clients want a wide range of services, says Benzecry. “We do a lot of work on globalisation and related issues like mergers and acquisitions, and supply chain reconfiguration.” He adds: “While retailers continue to research alternative channels such as the Internet, their main concern is how to make more of the space they’ve currently got or get space from somewhere else – which is why we are seeing acceleration of internationalisation and mergers.”
At the opposite end of the spectrum is Pragma Consulting, which boasts only nine consultants and two support staff. The firm, which has been operating for 11 years, focuses on the revenue side of the equation, undertaking strategic projects. Says joint founder and managing partner Roy Palmer: “What differentiates our offering in the marketplace is that we do quite a lot of qualitative and quantitative research into the spending behaviour of consumers and what drives the sales line.” Recent projects include work for retailers Monsoon and Moss Bros on how customers and non-customers perceive their brands, but, says Palmer, Pragma’s skill set can move quite easily across associated sectors. Other work includes branch design for the Bank of Scotland, and range extensions of the Mercedes brand into other products such as watches and leather goods. Shopping centres, airports and leisure centres are also clients, says Palmer.
He is not convinced about the much-vaunted recession. “It’s basically a confidence issue,” he says. “In previous slumps there has been high inflation, high interest rates and high debt exposure. Today property values are back up, people have fixed rate mortgages and debt is covered, interest rates are down and saving levels are high.” He adds: “Retailers are undoubtedly suffering from consumers saying it’s not time to spend because of general vibes saying back off, a recession might happen.”
He doesn’t see this lack of confidence affecting Pragma too much. “It may affect those working on big projects but clients come to us with a short-term requirement: it could be a need to understand a change in performance at the retail level or a desire to go in a new direction. Either way those projects come whether the market is up or down.”
He thinks the general mix may change slightly, however, as companies attempt to maximise profit or sales opportunities within existing operations.
“Blue sky strategic issues will probably take a back seat,” he says.
“If you’re up to your neck in alligators, you forget about draining the swamp.”
Some clients though, he says, are not really suffering at all. “The retailing propositions of Railtrack and Zurich Airport, for instance, stand up whether there is a recession or not.”
He thinks that retailers in the UK must get closer to their customer base if they want to alleviate their problems. Marks & Spencer is a case in point, he says. “Its current problems are all about losing track of where it was in the market and what customers were doing.”
Retailers have also been poor at building rapid response systems, he adds. “It is easier for retailers to respond quickly than an oil refinery, for example: they can effect a change and test it in a model store, see the results and rapidly roll it out elsewhere.”
Establishing and strengthening brands is also important. “Body Shop and Laura Ashley, for example, failed to get their brand propositions in front of customers in the right way.” Ikea is a good example of a retailer who is getting it right, he says. “It has very strong brands and propositions and is fast to respond – its range evolves very quickly and almost sets a trend.”
SAP logo partner Team 121 began targeting the retail sector 12 to 18 months ago and is looking to increase retail turnover to #5.2m over the next year. Colin Galbraith, industry sector manager, retail and commercial at Team 121, is optimistic about the future. “We haven’t seen anyone cancelling projects due to the economy,” he says. The company has been working with organisations like Vision Express and B&Q on replacing core finance and purchasing systems and implementing SAP’s IS Retail solution.
Retailers’ need for a more effective and efficient view of their product and category data is driving growth for Team 121, says Galbraith. This is very much part of a focus on supply chain extension. “SAP’s Scope initiative, supply chain optimisation planning and execution, aims to extend the supply chain from the producer of the goods all the way to the end consumer, providing more information on products that sell and the lifecycle of those products. The supply chain can then be optimised for that range – perishable goods, for example, have to be handled very differently from fashion items.”
Galbraith calls upon a retail team of about 25 people within 121, who work across disciplines: logistics, finance, development and technology.
Most came from business backgrounds rather than consulting backgrounds and were cross-trained in SAP. Says Galbraith: “We looked for people with retail experience: some of those recruited had IT roles while others had operational roles in organisations like Marks & Spencer, J Sainsbury and Vodafone.”
Such hands-on experience is valued by consultancies generally, says recruitment consultant George Pincus. Although things have cooled down in the last three months, he adds, there has been very strong demand for people with the right skills. “IT and strategy are important areas,” he says. “Generally employers want people who have worked in a store, so that they have some customer focus, but they also want hard experience especially in logistics and the supply chain. Managing stock or category management is preferred to sales and marketing experience.”
Increasing internationalisation means that languages are very helpful, he adds; an MBA from one of the top business schools or a specialist retail MBA from places like Bocconi University in Milan or Strathclyde’s part-time course, are also useful.
Pincus would advise anyone wanting to get into retail consultancy to try to get experience in logistics, supply chain or operations in a successful, blue-chip, international company.
Ian Tomisson, a director of recruitment consultancy Douglas Llambias, concurs. “A proven track record is vital because retailers are a bit sniffy about those who don’t understand the retail sector – and quite rightly because it is one that you have to have an instinct for.”
Andersen Consulting’s Benzecry agrees that clients want their consultants to have deep industry experience but adds: “They also value experiences from outside retail. For example, it is very early days in internationalisation in retail: other industries are much more global and if you can say in the car industry it works this way or in FMCG, that way – that is a bonus.”
Andersen’s recruitment process, like all the Big Five, is ongoing at graduate level across the board, but it also takes on experienced hires to supplement its skill base, particularly around category management, says Benzecry. Recruits have come from blue chips like Kingfisher, but Benzecry stresses that Andersen is not in the business of poaching from clients.
Arthur Andersen’s Holmes, who joined the firm after 15 years with M&S, also favours industry experience because it is appealing to clients.
“We are recruiting people with supply chain and logistics, category management and consumer products backgrounds,” he says. “Ideally we would want experience from a variety of organisations so that the candidate can take different perspectives on issues.” A key criteria, he adds, is chemistry: the candidate has to fit in with the firm’s style of consultancy.
Management Horizons Europe, which numbers some ex-Big Five consultants among its senior staff, is also recruiting on an ongoing basis, although chief executive Wallis says that having expanded the workforce last year, the firm is being a bit more cautious for 1999. “We recruit some people direct from retail – typically line managers or internal analysts with knowledge of best practice, and some from bigger consultancies who want to specialise in retail and have relevant experience in supply chain or IT, for example.” He adds: “Personal skills are critical: recruits must be able to work well in an internal team, be conscientious and have the personality to get along with clients, presenting themselves in an authoritative and credible way.”
Even tiny Pragma has been expanding its workforce, taking on two new staff from retailing backgrounds in recent months in a deliberate move to boost its client-facing side. But Palmer highlights a recruitment dilemma for niche consultancies. “We are not able or wishing to match the salary levels of a McKinsey but we want people of that calibre and quality. Putting that spec to agencies would be a waste of time because of the salary level they can attain for such a candidate elsewhere.”
He thinks that many people in consultancy are very highly paid for what they actually do. He cites an acquaintance who joined a big consultancy straight from Oxford University, securing a salary of #34K. “There’s no way that represents value for the client.”
Pragma’s very success creates a related staff problem, says Palmer.
“The quality of our work and success with client relations – 65 percent of the firm’s work is repeat business – means that our staff are approached by other consultancies. Our people are one of our best products.”
Pragma will be looking to grow further, says Palmer, but “we are very much about keeping ourselves focused and not growing too large”.
Caution seems advisable in such an uncertain marketplace, albeit one which owes more to hype than reality. For consultancies, however, there is a cause for optimism: both Holmes and Wallis anticipate that once Y2K compliance and EMU issues are out of the way, retailers who have put things on hold during the process will focus on other priorities, creating a significant demand for services.
An appetite for variety: Alison Garbutt is sold on retail at Management Horizons Europe
Alison Garbutt has been with Management Horizons Europe for just over a year. Previously she had worked for John Lewis’ for three years, joining its graduate trainee scheme after a degree in politics, philosophy and economics at Oxford. A project management role during a store relocation whetted her appetite for more of the same. “I looked at the skills I had developed and decided that the opportunities to use them in a retailing environment would be few and far between,” says Garbutt.
She decided that consultancy was a more appropriate sector. A discussion with a friend who worked at a recruitment consultancy led to her eventual arrival at Management Horizons Europe.
“I am officially in the strategy department but I have worked across most service lines, including operations and supply chain,” she says.
She has been involved in assessing the viability of new distribution centre locations and strategic reviews of a High Street catalogue retailer and the branch networks of a major building society, looking at opportunities to provide more customer services. The varied nature of her role is what she enjoys most. “I like being really focused for a period of time and then moving on to something else. In retailing you are tied to a cycle of seasons and the year is clearly mapped out. Here you are not driven in the same way, you are driven by clients.”
The move from John Lewis has widened her outlook a great deal, she says, “but there is a lot I need to learn”.
Garbutt would like to travel in the course of her work but so far hasn’t been anywhere very exotic. “I don’t have language skills which is a bit of a disadvantage,” she says.
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