Last week’s Blog about the thorny question of margins certainly prompted lots of comments and feedback, so I wanted to briefly return to the subject to share some of the more interesting nuggets I learned.
First up, it seems I may have been given a slightly optimistic estimation of Mytoys’ market share in Germany – but even allowing for that, there’s no doubt that its demise still came as a shock to many. Nevertheless, there was a feeling that its situation was at least partially self-inflicted: people suggested that its range was heavily predicated around certain suppliers known for offering margins at the lower end of the scale. There seemed to be no sense of them attempting to create a margin mix with FOB items, own brand, brands that offered higher margins, clearance lines or any of the other ways a retailer can help to balance the margin equation.
There was also a lively debate about who should be earning the lion’s share of the margin – the (online) retailer, or the developer of the toy, responsible for R & D, product design, packaging, testing, marketing and everything else that goes into driving sales. And as I had brought Amazon into the conversation as another eCommerce retailer allegedly unhappy with toy margins, some quite rightly pointed out that Amazon remains a core part of the problem, with its infamous strategy to match the lowest price in the market (either automatically or manually). Just as John Lewis’ ‘never knowingly undersold” proposition became anachronistic in today’s retail climate, so Amazon’s race to the bottom algorithm has prompted some to point out that it can hardly complain about low margins given its role in market pricing and pricing perception amongst consumers – and I have some sympathy with that viewpoint. Physician, heal thyself…
I also received a call from Gary Grant – a man who is no stranger to joining in with lively conversations about retail margins – who took time out from his busy schedule to give me a very thorough grounding on the nuances of the margin debate. I found it particularly interesting that Gary is no fan of suppliers offering the same margin across the board to different types of retailers, as those retailers all have completely different cost structures. Those differences don’t just extend to brick and mortar versus online retail, as you would expect, but even within the brick-and-mortar channel, the disparity between – say – an out-of-town retailer versus an in-town retailer can be huge. As far as Gary is concerned, a ‘one size fits all’ margin approach does nothing to level the playing field – and hearing the numbers in great detail, I can see why he would think that. Long story short, expect this debate to run and run while trading remains challenging.