Daniel Mitchell's Blog

Browns Footwear, Agility and Engaging with Customers

This weekend our client Browns will open their new dedicated shoe store in Brook Street, London. It is good to work on exciting new projects and hear of growth from our clients in the current climate and it has got me thinking further about patterns for successful business in difficult times.

There is lots of talk of this recession "weeding out the rubbish", it sounds like Darwinian "Natural Selection" for business, but clearly this doesn't really apply, large companies with catastrophically poor performance (RBS, Northern Rock, various auto companies) will still survive, albeit owned (or bailed out) at least in part by government - perhaps the principle of survival of the fittest holds truer for small business, although of course some small companies, through no fault of their own, are struggling.

The truth is in fact survival of the most agile - in SMEs, including the hard hit fashion and retail sectors, success is down to product and service but also agility (perhaps the banks could be considered to have been agile in having achieved change in ownership rather than collapse). Many businesses are having to look at adapting resource to fit changing dynamics in terms of which areas of the company are doing well or struggling. Good reporting systems in companies can allow leaders to analyse and respond rapidly to changes in trends, the natural progression for success and growth now is to build on the areas of opportunity and quickly drop areas likely to be hit over the coming year.

Even in recent months there have been a surprising number of success stories in the fashion and retail sectors, all with important lessons:

New Look
Great sales figures, particularly online, with plans now to extend their transactional websites to France and Belgium. It is worthwhile considering broadening markets by making transactional sites multilingual.

All Saints
Superb product, a total understanding of their customer.

John Lewis
Again, product and service.

Liberty
Exceeded expectations and challenged sceptics with a successful web business launched only last year. A big lesson here is how they have built a web presence which really engages with their customers.

Successful businesses will be those that integrate their IT systems and use them to communicate with their customers not just sell to them - look at Anna Lou of London's "Challenge of the Month", regular photos and use of humour as another great demonstration of this.

Returning to the example of Browns, it is clear from Erin Mullaney's interview with Drapers that success follows from agility, in this case listening to customers, seeing the success of an area of the business and then planning rapid, adaptive growth - quickly adapting to benefit from providing products and services that are desired in a way that will engage existing and new clients.

VAT - the cost of change on Monday

Following the change in VAT rates that will come into effect next Monday, I looked around to see how business opinions were being reflected, some press coverage emerged and the IoD issued a press release. Whilst I generally agree with the sentiments expressed in the press release from Mr Templeman, it has failed to make issue of the significant time costs and financial cost, particularly to small businesses, of this VAT rate change. The government estimates the administrative cost to be around £300 million.

Several large companies have already commented on the logistics nightmare of this change, but for small businesses the implications are often massive. According to the standard letter issued on 24th by HMRC to VAT registered companies, “most software packages should have the in-built ability to deal with the changes in the rate”, however in my experience over the last few days, this vastly underestimates the real difficulties, particularly with businesses that may have little in house bookkeeping resource. Accounting software companies and  EPOS providers have been inundated with support requests on how to make code changes, resulting in one major provider closing down completely to “regroup” on Monday of this week. Moreover, small businesses with less standardised or bespoke systems have been suffering terribly, with at least two of our clients having to have major rewrites to databases to cope with these changes at exceptionally short notice.

Small companies involved with e-commerce are in a number of cases having costly changes made to websites, whether or not they wish to pass on the rate changes to customers. Those involved with affiliate schemes or that have overseas sales with automatic “tax free” VAT crediting are experiencing significant expense and problems in rapidly modifying websites.

Businesses, including mine, that receive regular contract payments by Standing Order have to choose between reissuing mandates to all clients and suffering the cashflow consequences of errors and delays in processing these, or having to deal with manual refunds of overpayments for the next thirteen months.

Whilst many small businesses are choosing not to re-ticket merchandise or reprint literature and catalogues, a number have no choice, such as those operating concessions in larger retail outlets, again this carries significant cost.

A further cost to business has arisen with the fact that VAT reductions on vehicle fuel have been replaced with duty, which in fact means an increase in cost to VAT registered businesses, since while VAT is reclaimable, duties are not.

With it being generally accepted that the VAT rate will have little effect on consumer spending, it is my opinion that businesses selling to consumers will have significant cost and little benefit from the rate change, whilst those selling “business to business” will have only costs. At least businesses now have thirteen months notice of the next change.