Tesco's investment in Rocket Internet's Lazada could be seen in one of two ways.
Firstly, as a forward-thinking step from a retailer with a new determination to get ahead of the online game. Or, alternatively, as a desperate splash of cash and a belated attempt to learn from businesses that are beginning to make it look like a dinosaur.
To our minds, too much of Tesco's strategy in the past has been aimed at getting a foot in the door and keeping it there until it decides whether it actually wants to spend money. A form of 'disruptive' strategy that has seen it enter everything from insurance, pawnbroking, food delivery and convenience stores to launching its own US grocery business.
But has the disruptive strategy, which knocked a complacent Sainsbury's to one side, become more and more reactive?
Let's take this 'reactive' business argument and place it onto its online non-food Tesco Direct business.
By the early years of last decade Tesco had developed a huge non-food business in its stores and had dabbled with the online model selling CDs and books. But by 2005 everyone had realised that online shopping was here to stay which threatened Tesco growing dominance of the non-food sector.
It's best defence was attack and in 2006 it launched its Direct business. But to make it look more like an aggressive move than a defensive one, it billed the strategy as an assault on Argos and other high street retailers who it inferred were losing the plot as shoppers drifted away to supermarkets for non-food essentials.
The talk was big. Newspapers at the time talked about next-day guarantees, two-hour time slots, seven days a week delivery and finance director Andy Higginson opined that he knew how 'frustrating' it was to have to wait around for delivery. Commentators were predicting the demise of Argos.
With its foot in the door, over the next few years it quickly developed its £500 million Tesco Direct business selling everything from furniture to car satellite navigation systems.
But there was a problem. It wasn't really making money - largely because of its reliance on low-margin electronics and entertainment categories - and it was also cannibalising its own sales. The other problem - which wasn't really a problem at the time but it is now - is the reality of such a fast, competitive delivery model was difficult to uphold.
The idea that products could be delivered with your grocery order - most of which are still picked and packed in store and put onto vans - would only work if all the non-food products were available in store. Of course the vast majority aren't.
It's delivery schedules for Direct still don't mention anything about guaranteeing delivery time slots and, in fact, the £5.95 next day option excludes Sunday and even excludes many entertainment products.
The fashion proposition never quite held its own - something Tesco is trying to address only now with a new in-store layout for its clothing areas - and we suspect the furniture business, the core of the Tesco Direct message - is small.
Oddly too, Argos kept insisting it hadn't really felt the effect of Tesco Direct. We're sure this was as much bravado as anything else but the fact it was able to say it at all was a testament to its own resilience, the pace of growth of the market and the fact that Tesco Direct wasn't really doing its job properly.
It has to be said, at this point in time it looks like the Tesco Direct business came off worse than Argos.
The problem, we think, is this: rather than focusing on developing the online business in a market-beating and profitable way, Tesco appears to have left its foot in the door - a tank parked on the lawn to come back and retrieve later - and moved its collective brains and brawn, in the shape of its capital expenditure, on to more exciting and blockbusting things like the Fresh & Easy business in the US and the its banking plan.
That shift in focus seems, from an outsiders point of view, to have been near fatal for its Direct business, at least in terms of profitability. As more non-food product purchases shifted online, Tesco seems to have been caught off guard. It's Direct business was not up to the job of facing off growing competition and its stores were not attractive enough to present the best aspects of its general merchandise - clothing and home, for example - in the way that was required to work hand-in-hand with online.
As Debenhams and many others retailers trying to haul their businesses into this century would argue, you still need to present some part of the offer in store so your customers know - and are impressed - by what you are doing.
So rather than developing a cohesive strategy - certainly a broader one and perhaps even a global one - the Direct business drifted and it was left to defend itself against the likes of Amazon, Argos, eBay and anyone else who cared to get involved as the internet shopping thing really took off over the past four or five years.
Looking back to 2006 and all the big talk, it is almost impossible to have imagined that Tesco would have been offering a few tens of millions of pounds to take a peak into the world of a German-funded internet businesses strategy in southeast Asia.
Tesco Direct should have spelled the end of Argos and now been measuring up to Amazon, at least on its home turf and maybe elsewhere, but none of those things happened.
How did it fall so far behind? The fact is it had backed the wrong horses.
It is still even now building large out-of-town stores in the UK despite pruning back plans significantly after admitting hypermarkets are a thing of the past. It is battling with declining sales in most of its overseas markets and, basically, fighting wars on too many fronts.
The fact is that so many plates was it spinning by the time Sir Terry Leahy left the business that they all appear to have come crashing down - leaving, of course, a respectable time for him to get to a safe distance.
Tesco was once famed for being the most paranoid of retailers but in the end it swapped that canny paranoia in the race for global scale at all costs.
As commentators, including eBay, step forward to dismiss Amazon's drone plan it is worth remembering that in 2006 Tesco was unbeatable and Argos looked like it was a failing business. For this lesson, Jeff, ever fearful of being 'disrupted' looks like the canny paranoid one.
Incredibly, today, Tesco's chosen online adversary Argos looks like it has a handle on things and many of Tesco's collective problems look like they could take years to sort out.
In amongst all this its investment in Lazada looks meek. We can only hope for Tesco's sake that it is the tip of a very large strategic iceberg but at the moment the Lazada investment just looks like a drop in the ocean.
No comments:
Post a Comment