In a sign of unabated consumer demand at the luxury end of the market $29 million was paid yesterday at auction for a 1982 painting entitled 'Untitled' (that must have taken some deep thinking) by Jean-Michel Basquiat (who he?). The estimated price before the auction was $25 million. You can see the painting here . I must say that it reminded me of much of the recent oeuvre of Millie, my 3 year old granddaughter, in what the family have come to describe as her Nursery Period. I don't claim to know much about art, but I can think of better ways to spend $29m.
On the same theme I was intrigued to read that Harrods, the flagship London department store, is continuing a successful policy of pushing up the price boundaries of its stock. Transaction value per customer is 85% higher than it was 5 years ago, and the proportion and price of the luxury goods stocked continued to increase, whilst their range of mid-market goods decreases . Harrods revenues and profit line improved in 2012 and is expected to do so again in 2013.
Stuart Snow, Head of Procurement at Harrods, defines the role of his team as 'to identify & procure goods & services at the best value for the business, maintaining the quality of products & ensuring that alternative sources of supply are available.' That is not so easy to do. There are no alternative sources of supply for Louis Vuitton, or Rolex, or Gucci. So he has to find the balance between getting the best price, and keeping the supplier on board. If he demands a few dollars more discount, and doesn't succeed, and famous brands pull out, Harrods becomes a less interesting store and its customers will go elsewhere.
On the average High Street or strip mall however, in the supermarkets and clothing stores, there is a price war waging which shows no sign of abating. We have blogged elsewhere about how UK mass market retailers are squeezing their suppliers, using techniques which are very aggressive - to the point where the negative publicity they are getting is forcing regulatory authorities to take action.
In Australia the Competition and Consumer Commission is investigating the two biggest supermarket groups following claims by a large number of their suppliers that the supermarkets misuse their market dominance. There is speculation that the negative publicity surrounding this investigation has led the regulatory authorities to shine their spotlight on other matters, for example a current spat about whether par-baked bread which is finished in the supermarket's in-store ovens can be described as 'freshly baked in store'.
To avoid the problem of empty shelves if the big-brand suppliers pull out rather than further succumb to retailer pressure, and to increase their leverage, supermarkets give over more and more of their shelf space to own-label products. Retailers defend their tactics claiming that they are in the interest of the consumer and reflect the public's insatiable demand for lower prices, all the more important in times of economic struggle.
We get the point, but it is noticeable that large-supermarket profit margins continue to increase, suggesting that much of the benefit that comes from the pressure on suppliers is not passed on. And with fewer brands on show shopping in these stores becomes a less interesting experience for the consumer.
So balancing effective buying, consumer value and availability of supply is increasingly difficult. Our mission at Scotwork is to help managers to do it better. Can we help you?
Stephen White
