22 Jul The Case of Morrisons & Kiddicare: The eCommerce mistakes made by retailers, and how to fix them
When I first heard that Morrisons were set to buy Kiddicare, my initial reaction was ‘this is a pretty smart move’. Kiddicare was a small and beautiful dot com, profitable and well run, successfully competing against some struggling dinosaurs. It had the ability to be a real player and steal a healthy piece of market share from the old school. But what made the move really smart was that Morrisons were buying a huge injection of entrepreneurial, dot com spirit. They could learn things about ecommerce from Kiddicare which they could then transfer into their main business. Unfortunately, it didn’t work out for Kiddicare and Morrisons. Kiddicare was sold for £2million last week, leaving Morrisons with a £163 million loss. What should have been a symbiotic match became mutually destructive. Where did it all go wrong?
Kiddicare was successful as a pureplay because of its low overheads, good customer experience and great products at great prices. Morrisons attempted to replicate this model offline. Having had a baby last year, I can say from experience that they appeared to have taken the business model of Kiddicare very successfully into the retail space. But that was the problem; the overheads of retail proved a killer for Kiddicare, which is a shame.
It would be unfair to overly-criticise Morrisons and Kiddicare, because although their failure has been very public, they are not alone. There are many companies I can think of who have lost a lot more money buying into ecommerce, only a lot less publicly. I recently had a meeting with Amazon who told me that they had probably made more mistakes and failures than anyone else. But what made them special was pace: they learned quickly from failure and moved forward.
So, if Morrisons have learnt from this, then the £163 million they’ve written down will have been worthwhile, and may even pay large dividends over the next decade. If the supermarket can afford a bad £163 million experiment, and if that’s the cost of a steep learning curve, it may be worthwhile. That’s why I wanted to write this article. Because the beauty is, we also have the opportunity to learn and it wont cost us £163 million.
Over my career I have seen the Morrisons/Kiddicare story play out before: the traditional retailer attempting to take on a disruptive dot com, but being unable to recreate the magic of the pureplay. Here I have identified five problems and mistakes that prevent these large retailers from really capitalizing on their ecommerce opportunities.
1. The Leadership Gap…
Those who understand and are driving ecommerce and multi-channel are often not the same people trekking the career path to board director. The ‘geek in the corner’, who was called the web master 10 years ago, might now be responsible for 10-20% of turnover. However, very good ecommerce people remain largely data and technology focused and may not be able to navigate corporate politics. Many of the best have given up the ‘swimming through treacle’ reality of big retail and moved to a pureplay or a start up.
2. …and Misunderstanding at Board Level
The leadership gap means that board level decisions on strategy and investment are often made without proper representation from eCommerce experts. Board members have traditional retail backgrounds in buying and operations, and therefore have no experience of the intricacies of eCommerce. These people are historically cynical about online after the dot com bubble burst of the early-2000s, and lack understanding about the work of their eCommerce teams.
3. Spending Too Much Money (or too little!)
The leadership gap at the top of ecommerce is often filled by IT consultancies who are ultimately interested in selling expensive software platforms with built in consulting contracts. This is coupled with a general belief that there is a need to invest tens of millions into infrastructure in order to ‘do web properly’. The level of investment that boards are prepared to sign off is sometimes staggering and makes it almost impossible for their ecommerce department to turn a profit. The alternative is under-investment, where boards are scared off by the cost of ecommerce and put their money into what they know best – more stores.
4. Investing in Tech Rather Than People
There exists a belief that tech is what powers ecommerce, one that is peddled by those who sell technology. The lack of ecommerce leadership means that belief isn’t challenged. There is so much open source and free tech available; success does not come from the tech you have, but those operating it. Technology is constantly changing and evolving and, unlike prime retail locations, becomes obsolete within a few years. The psychology of the traditional retailer is to spend at beginning and not develop over time. Web selling is expensive, but the expenditure needs to come little and often rather than a one off upfront sum.
5. Not Enough Autonomy for Ecommerce
When you acquire a small dot com or set up a new ecommerce department it is like taking a small plant cutting. If you put it straight into the garden it will be eclipsed by the other plants and drained of resources. What you should do is put it into its own pot in the greenhouse, where it is nurtured and allowed to thrive on its own before it can flourish in the garden. That is what John Lewis did with buy.com and B&Q with diy.com: they allowed their ecommerce arms to stand-alone from the larger business until they were strong enough to flourish within it.
So, if as the well-worn phrase says, you must learn from your mistakes, what should Morrisons and the rest of us take from this? I have some key recommendations.
1. The Future is Human, or ‘it’s the people, stupid’
It’s all about the people you hire. If you get that right, and you listen and adapt to the expertise you’ve hired, failure is very unlikely to happen. Whenever I meet retail boards, they agree wholeheartedly with this point but in reality, don’t follow through. If companies spent a fraction on their people as they do on their technology they would see more sophisticated and profitable processes. It is, however, vital to hire the right people. There remain a lot of snake oil salesmen – those who understand what buzzwords to use and can be very convincing. It is important to remember that the people who are really going to drive your business are not necessarily the most vocal or the most expensive.
2. Put eCommerce in the Greenhouse
Those that have had success with their pureplay acquisitions seem to have left them alone and not integrated too quickly. There is a reason you bought it, so don’t crush it. Swallow your pride and remember that just because you are a bigger company doesn’t mean that you know better. The greenhouse analogy is a useful one and true whether you are buying a business, or starting new team. If you cultivate your online business in the greenhouse, there is a risk that you will lose out on some cross-channel integration, but I’m yet to see a traditional business really tackle multi-channel without having an autonomous business unit first.
3. Grow Your Own Leaders and Dig For Victory
Some good advice someone once gave me was to always put your ecommerce person in board meetings, even if they are quite junior, just get them into the meetings. Dig into your existing expertise to see the best results. The leadership gap doesn’t need to be filled by someone as senior as the rest of the board, especially as no one you can bring in will know as much as your own Head of Ecommerce. They don’t need equal pay, just an equal say. Meanwhile put your brightest up and coming leaders into the ecommerce department to close the leadership gap for the future, growing your own ecommerce board members.
4. Don’t Bet the Farm
Ecommerce is an expensive game, so be prepared to spend money. But don’t assume that by spending money you will win the game. Just because you have all the dark blues doesn’t mean you’re going to win Monopoly. There is a reason that the majority of top online businesses started off as pureplays in last 10 years. They didn’t have the money to start off with, so they had to be really, really clever.
5. There Are No Magic Bullets: the earlier you start, the quicker you will arrive
Unlike traditional retail, where you can use your financial muscle to buy into a market, online offers no particular advantage to the wealthy. It’s a democratic landscape and everyone has the same access to the same technology. So, there are no magic bullets or short cuts. I often have lunch with entrepreneurs who have made their money growing and selling ecommerce businesses and they all say the same thing: ‘I just did the basics well’. It seems it’s not rocket science; just hard work and lots of trial and error.
There was a reason Kiddicare was so attractive to Morrisons in 2011, but Morrisons didn’t think with their hearts. When you meet the person of your dreams you don’t immediately set about changing everything you loved about them in the first place. The biggest lesson retailers need to learn, perhaps, is that if you want success online, you must act a little more like an online company. And online companies know that it’s not about the tech, or the money. It’s about the people.