COMMENT: Revenue up 82%, profits up 125%, cash flow up 131%. This is just another day in the office for Apple who earlier today reported a bumper $8 Billion dollar profit.
The stunning result has most probably left a bitter taste in the mouth of Gerry Harvey who puts himself about as the master of retailing and the architect of discount marketing.
The salient message for the likes of Gerry Harvey, the Good Guys, Harvey Norman and JB Hi Fi is that their model of discounting everything that is walked through the doors of their stores is well and truly broken, Apple have proven this by selling their products at full bore retail.
Apple marketing sells benefits and not discounts, as a result consumers pack their stores day in and day out. They even pay a premium to shop in an Apple store, where the same iPod/iPhone devices that are sold in mass retailers are sold in an Apple store at a premium price.
The recent slump in David Jones’ profits is a direct result of their manic obsession to run sales 12 months of the year.
Research shows that consumers will pay a premium for a brand and new technology, but this appears to count for nothing with mass retailers who are more obsessed with what their competitors are doing than making a profit.
I remember a period when the likes of Jerry Harvey tried to dictate terms to Apple, they told them what they could do and could’nt do in their stores. Oh how times have changed.
Recently Samsung and LG launched some very Smart TV’s that are packed with new technology that has taken years to research and deliver, within hours the mass retailers were discounting the products in an effort to attract consumers.
These are the same dumb retailers who failed to recognise that online retailing was set to strip revenue from their stores. Their attitude has been to stick their head in the sand, allocate no budgets to online development in the hope that consumers had nowhere else to go but into one of their stores.
The only problem is that consumers and overseas retailers are smarter than most retailers in Australia with consumers now flocking to overseas web sites to buy goods.
Most mass retailers of consumer electronics and IT products don’t have a clue as to who their customers are because they deliberately avoid engaging with a customer. All they want to do is gouge cash out of their pockets and hope that the consumer returns to their store.
Meanwhile over at the packed out Apple stores staff are trained to engage with their customers. They collect names and address when a customer buys a product and wrapped around every Apple product is a web site where consumers can buy applications and entertainment products.
Talk to anyone of the mass retailers and they will tell you that collecting information on their customers is a “pain” that slows down their transaction process.
The problem now is that most mass retailers have no customer databases to transition to an online operation. Amazon recently told me that they already engage with over one million Australians online. They know their names, whether they have bought multiple products and where they live.
Apple has over 4 million online relationships with customers who are happy to fork out money for online purchases after buying a product in an Apple store.
This is a stark difference to the world of Australian retailers who after dictating ridiculous terms with vendors then go on to bury their brand in a sea of discount retailing.
Technology development cost millions, if not billions and if retailers continue to kill off vendors revenue streams there is a real chance that vendors will be forced to deliver cheap discounted products as opposed to premium products.
Metals will be replaced with plastic as has happened recently, with a premium iPod attach device that is now being sold at a discount in mass retailers as opposed to being sold as a premium priced product that was made from premium materials.
TVs, notebooks and PCs are all being stripped of premium components so that retailers can discount, while at Apple consumers are prepared to pay for the very best in components with price being the least of their worries.
Vendors have got to stand up to this rampant destruction of their brands as retailers open their own shops like Apple or by going online. They have to take control of their brands destiny because if they don’t many fine brands will simply be a name on a shelf alongside some tacky made in Asia brand that gets pushed by retailers because they are getting a bigger margin.
House brands are growing at the expense of brands who invest in technology research. Ask yourself when did you last see, a Chinese brand other than Lenovo deliver a breakthrough product that was packed with new innovation and capability similar to what the Apple, Microsoft and Samsung’s deliver every day?
Nine times out of ten cheap Chinese brands are copies of other people’s technology. They get away with it because retailers are making money selling their products at a discount.
And while brands like Sony, Samsung, LG and Panasonic spend big dollars marketing their products driving consumers into stores, the retailer is going to take advantage of this investment to flog yet another house brand TV simply because it is cheap.
This madness needs to stop and stop soon.