22 March 2006

Newbridge look for value in Myer minus Coles.

New Myer owner, Newbridge Capital must have recognised something in the ailing Myer chain that others didn’t.

With an extremely modest $A60M estimated EBIT for this financial year, the $1.4B Myer sale price seems pretty high. However, Newbridge [www.newbridgecapital.com] believe in “unlocking value; recognising that value is often hidden in companies”. An item of great value that has been overlooked by Coles Myer Limited is the Myer brand. But "overlook" is perhaps not quite the right word as it implies neglect and Coles Myer can be accused of so much more than negligence.

Single-handedly Coles Myer has re-positioned the Myer brand to a place that has no resonance with its customers or communities, no differentiation from its competitors and no personality [see blog 8/2/06 ‘What’s the real value of the Myer in Coles Myer?’]. In addition, its heritage both as an intrinsic part of the Australian retail landscape, the community significance of the Myer family itself [thankfully now part owner] and in NSW, the richness of the Grace Bros. brand has been ignored [see blog 14/10/2005 ‘No one will save Myer now’].

Myer’s brand is valuable and with some TLC can be resuscitated. New Myer boss Wavish’s starting point of hearing “...what both the staff and customers have to say about the brand before we finalise any of our plans” [Sydney Morning Herald 13/3/2006], is vital. But what DIFFUSION would like to know is how this information is going to be collected, managed and translated into a real, meaningful and living brand?

Newbridge and Wavish need to treat the Myer brand as if it has been through a crisis [which in some ways it has], developing a brand recovery strategy that takes into account the past, the present and the future. The looking back and then forward process should uncover meaning and value that will stand the company in good stead for the long term – an imperative of Newbridge who “focus on investing in companies that have a sustainable long-term advantage over their competitors”. From this, a brand strategy should then be developed as an integral part of the business planning process, to place Myer on target to achieve their real potential of $240M EBIT [The Age 17/3/2006].

As we note in our previous NAB blog, the process of brand valuation is not achieved by a mere whip around to see what everyone thinks but is complex, overarching the whole of business and needs to be properly managed if it is to provide a real and lasting return.

NAB's new brand of wishful thinking.

Last month Australia's largest lender, the National Australia Bank (NAB), unveiled its revamped corporate logo and a new take on what is a decidedly uninteresting but functional name, 'nab'. Like most rebrands, NAB’s is no different - a redesign can cost millions, most of which is spent on standard roll out of a new mark. Buildings, websites and a whole lot of collateral, are reshaped and shredded to suit the new look (don’t get us started on the fact that even their new brochures still apply the superior case!). Cheques, letterheads, pens and business cards are binned and replaced. However, what is disappointing about this latest corporate makeover is how much it seems more of an attempt at papering-over the cracks in the organisation, than a radical re-envisioning.

One of the reasons cited for the rebrand was the NAB’s 2004 foreign exchange desk scandal, which saw it lose $360 million and consequently it’s CEO and much of its senior management team.

Interestingly some sections of the market have taken a completely different view of the makeover. Analysts seem to have a view that these kinds of spackfilla jobs “win no leverage”.

"The brand name and image is something that is more important to its customers - particularly retail customers. It's not a fact that is likely to drive a price-earnings model", said a Citigroup analyst quoted in the Sydney Morning Herald.

DIFFUSION finds comments like this somewhat disingenuous. Most company valuations always take an account of brand equity and in the case of NAB, there was a significant loss of equity when the FOREX scandal hit.

Traditionally brand valuation consists of four main strands covering fundamental financial and balance sheet analysis, contextual market and consumer analysis, brand analysis examining brand as a determining factor in the future earnings and the value accorded the brand and mark as intellectual property. A number of factors can be added under these headings and weighted according to their importance or relevancy. Consumer analysis, for example, should include customer satisfaction, brand preference, quality perceptions, value for money and good service while market analysis should include share of market, share of voice and growth statistics. Any financial analysis would include profitability, sales and margins forecasts. All of these can be combined to give total brand value and as such a price-earnings model does take account of the impact of customer sentiment on overall earnings.

Secondly, while NAB CEO Ahmed Fahour acknowledged during the week of the relaunch, "I've got the number one business bank in this country I've got the wealth management business. I've got a smaller but turning-around retail business. And the fact is that I can have one consistent conversation with you and we are all singing from one hymn sheet," there is also the need for organisations such as NAB to use their brand to be one of the determinants of their dialogue and interaction with customers. It’s not good enough to just trot out what is rather poorly realised signifier alongside the diminutive name; in NAB’s cade, the follow up to their rebrand, the new brand promise needs to be sold through the organisation.

When DIFFUSION talked to one of the nice NAB counter staff after the re-brand, they acknowledged that they had no real involvement in the process and didn’t know what what the new brand promise “We believe in people with ideas and dreams. Helping you fulfil yours is at the heart of everything we do” really meant.

So will customers see a different organisation and feel any different? Can a bank, or for that matter any institution or organisation, really help you to realise your “dreams”?

20 March 2006

Coles without Myer, still short on strategy.

Coles is now without Myer. Most market speculation is that the group will continue as before but with the capital inflow benefit of the sale used for other acquisitions, a share buy back or special return to shareholders.

DIFFUSION thinks one of the main reasons why Coles continues to lag behind Woolworths has been Coles' CEO John Fletcher’s inability and unwillingness to develop a coherent brand strategy for the whole group. As far back as 2004 Fletcher was telling people, like the ABC’s Alan Kohler, that he thought the group’s “brand strategy is something the rest of the world have already been to”, except it is clearly something that he hasn’t been to. In May 2004 DIFFUSION, along with a major Sydney advertising group, developed a group brand strategy as part of mulitmillion dollar pitch but was roundly dismissed by Fletcher as not a requirement for the company “right now”.

Now the same question IS being asked of Fletcher with market analysts in recent days wondering what’s next for the group. Sure, at this stage we don’t anticipate any radical renaming and there's not even speculation about that – it will likely become Coles Group and they will just redo the logo and the stationery (a quick flick across to the corporate website and they still haven’t dealt with the issue, a week after the sale went through) but we think it needs far more than that. Coles has blamed the worse than anticipated slow growth on “customer service problems at some of its supermarkets” (what service we ask?), fuel price rises and increased competition and promotional activity by Woolworths”. These seem to be excuses and illustrate how clearly Coles’ and Fletcher’s problem is one of strategy.

Now more than ever Coles needs to decide who it is. What is the brand? What does it stand for? How will it be described now that Myer is no longer part of the group brand structure? How any halo or gloss from the name Myer and it’s department stores association will change both customer and other stakeholder’s perception of the group? Of its existing companies, which will be lead brand vehicle for group? [There’s not a lot of sexiness in supermarkets.] These are important issues that need to be dealt with and not passed over. People never understood what Coles Myer stood for apart from a federated group of companies, now there’s even more reason for Coles to start working it out. Growth for growth’s sake is not enough anymore, expected sales growth of 9 per cent versus Woolworth’s 22 per cent might pull the fiscal heartstrings but it doesn’t sing anymore in the hearts of the customers. And that’s been the case for some time.