Friday, September 14, 2012

Horizons One Plan, Farmers Opportunity To Innovate

Retailers have been facing two major challenges in the past 15 years. The first is the big box retailing giants and the second is the rise of internet retailing.

The big box stores generally have a high volume, low margin business model. Due to their high volume they are able to receive the lowest possible wholesale price for their goods. The small retailers struggle to compete on price and try to compete on service and the personal touch.

Box stores with a nationwide footprint need surety of supply from their suppliers. They can only buy from large suppliers who can meet the level of volume that is required. This tends to mean that all the stores sell the same sort of stuff. They go to the same trade fairs where they are approached by the same vendors. Even if a single retailer does pick up a unique product, it’s very easy for their competition to stock the item or a similar item. This is where the independent retailer has a chance to shine, but sadly many have not seen this opportunity.

When I went hunting for a tricycle for my son, I found that most nationwide retailers all sold the same model trike. When I popped into a few independent toy stores and bike shops, I was frustrated to find that they too sold the same Triang tricycle, which happens to be the same model that all three of my sons friends have too. 

A small retailer can’t stay in business by selling the same stuff as their box store competition.

Spotlight, the craft and sewing box store opened in Invercargill in about 2006. Within a year, one of the three sewing shops my wife frequented closed, stating they could not compete. The second tried to sell up, but after three years it still had not sold. The third shop which is run by nice old ladies is still there. Having spent countless mind numbing hours minding children, while my wife shops in spotlight and these small sewing shops, I feel I know the craft/sewing business.
They all stock the same patterns by the same big brands, the same materials, the same wools, all the “safe” items that are sure to sell. After an hour of trying to stop two kids pulling every display down or fondling every bolt of material or ball of wool, my bride announces “Let’s go, they don’t have any material like on my blogs”. Which gives me mixed feelings. I’m overjoyed to be leaving but somewhat frustrated that the last hour appears to be a complete waste of time.

The point is, to compete against the large retailers; small independent stores need to be unique, stocking totally different items. My wife instead turns to the internet to get the truly unique items she wants.

Which brings me to the next major threat to traditional retailing, Internet shopping. Now days anyone can buy from anywhere and can get the best price. But price is not why people turn to internet shopping. Its selection, the internet gives people the chance to buy the unique things they can’t get locally.
On the surface, this is a threat. But it is actually the greatest opportunity for small retailers, as it gives them the chance to source and stock truly different stock.

The craft/sewing store owners should be following the thousands of craft and sewing blogs, which are filled with bright new designs and ideas. These blogs are run by housewives, budding fashion designers, small cottage businesses and just true enthusiasts. They sell many of their designs and products on Etsy is Trade Me or ebay for the craft and sewing world.
If I was running a sewing shop, I would be wading through sifting through the 80% which is rubbish and finding the truly outstanding products that are made by small producers or hobbyists. These producers can't supply big retailers as they don't have the volume. But they can quite easily produce enough for my little shop. When your retail store is filled with products that the public don't see everyday, you then become a destination store. Further more discounting is out of the question, as no one has stock like I do.

If I was in the toy or bicycle business, I’d ban the Triang tricycle from my selves and instead stock a tricycle inspired by or Both these tricycles are custom built, but I'm sure a local business would love to build you something similar without the expensive custom components. 

The internet gives small business the opportunity to find and stock truly unique products, in doing so they can become the tiny powerhouse retailer of their district. But most don’t as they prefer to just order stock from the sales rep that pops in every month and continue to sell the same old safe stuff that everybody else does. In Australia retailers are lobbying the government to put GST on imported internet purchases under $1,000, as if this will stop consumers from buying online.

What has happened is the business conditions that retailers operate in have changed. The internet and the large corporate retailers have dictated that business needs to be done differently in order to survive. The prospect is far from doom and gloom for small retailers, it’s simply a matter of these business owners operating differently and gaining the new skills required to be successful in the new environment.

I read on Friday, that the environment court had ruled on the Horizons Regional Council One Plan. I promptly read the reaction from Federated Farmers

One aspect of the One Plan is to make farming in certain areas a “controlled activity”. This will put a limit on the amount of nutrient losses that can take place under a farming system. I assume farmers will have to apply for consent to farm in these areas and put forward proposals as to how they will achieve the nutrient limits.
These proposals are similar to those put forward by the Southland District Council and Environment Canterbury. These proposals have not gone down well with farmers, as you can imagine. Currently for farmers to continue to farm as they are on these areas can only be achieved by reducing the effective stocking rate, which equates to less money.

It’s no wonder farmers are worried. When/if these measures are put in place, it will equate to a loss in farm profitability, which will flow onto land price reductions as well.

These changes will put some farmers out of business.

But farmers are just like any business, they need to adapt to the changing business environment that they operate in. Just as the retailers have needed to change in order to combat the threats they have faced, so to do farmers. Farmers aren’t the only ones who have invested in their business and stand to lose money. Business owners all over NZ invest money in their businesses, only to find a major competitor opens up next door or the government changes some law or regulation. I had to make a major change to my equipment rental business in 2005 when the credit contracts & consumer finance act was rewritten. We continue to change our practises as it becomes clearer how the revised law is interpreted.

When Roger Douglas removed the subsidies paid to farmers in the 1980s. Some farmers lost their farms, which is regrettable and sad. The rural sector was forced to become efficient very quickly or go broke. I was a child when that happened so I accept I may not understand how painful that period was for farmers. But now 20 years on, the prime minister of New Zealand is telling the world how we have no subsidies and we are the most efficient producers in the world.

New Zealand agriculture has already adapted to a massive change in the past and is better off for it. No farmer would have volunteered to remove subsidies, it had to be done for them.

The rural sector can adapt to the change in environmental practises, it just needs to be committed to doing it. Many people are critical of Roger that he made the changes so quickly and did not phase the changes in over time. The signals are being sent loud and clear to the agricultural sector that change is coming. The sector says that they are “committed” to environmentally sound practices. I get the feeling that the meaning of the word “committed” will change somewhat when the district counsels announce an effective start date for nutrient limits. Farmers shouldn't leave it too late or they will find themselves scrambling to become efficient again, this time it will be environmental efficiency that has to improve.

I respect Federated Farmers and I particularly like Bruce Wills, their advocacy has no doubt brought balance to the debate. But I will have to respectfully disagree with their stance. Fighting this issue is like retailers trying to fight the internet. 

This is not a time of doom and gloom for farmers, its a time to think radically and innovate. Its a time to become better farmers and business people.

1 comment:

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