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Monday, 15 September 2014

Ocado next, surely?

I have spent a decade in bemusement at the ongoing catastrophe of Ocado. Its borrowings increase, its business model was always daft; but there have constantly been backers.

The model of selling somebody else's product, using a technology that the principals will more slowly and sensitively adopt within their business, can have no long-term happy ending for the outsider. Partially recognising this, Ocado entered into a secondary deal with Morrison's: just as Morrison's nosedived in the face of newly intensive competition.

Now Phones-4-U has been closed down, with a massive loss of jobs - estimated at 10,000 - and they didn't even build their business as agents for a single supplier whose commodities they retailed: they had two suppliers, as Ocado decided to do before the Morrison's debacle.

With yet another new generation of 'phones coming out, competition has intensified and the big primary retailers - represented by Vodafone and EE - have decided that they need all of the slender margin that the patent-holding brandowners allow to them in an increasingly competitive market; so they have had to pull the plug on their secondary channel of distribution. The wipeout of Phones-4-U is a portent, not the end of the process. APPLE have developed their retail showrooms very successfully. CURRIES have merged with a phone distributor to optimise sales per foot of shop floor space. Most people will for the foreseeable future want to hold, feel and see a £400-plus purchase before they buy any selected model: so they will want to see a range of options. Those who are hooked on Apple technology will want only to look at the Apple range, and will easily be enticed to an Apple store. Most other people will want to see a range - maybe including i-products - and so will want a variety retailer.

Retail markets in 'technology' will continue to be built on compromises between the holders of the intellectual property that is the main component in the price of the product and the retailers who enable the public to compare and contrast the devices for themselves; but the paramountcy of the brandowners will in the end always be decisive.

This is NOT the business model that is encapsulated in formal Economic theory.

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