When ISA Retail began supplying OEM inkjet cartridges to the Post Office a few years ago, it had no idea that one day it would partner up with the chain to provide all the product sourcing, category management and logistics for a core range of Post Office-branded office supplies to be launched in every Post Office outlet in the UK.
The "retail transformation", as it has been tagged by the chain, will transform all 14,600 Post Office outlets nationwide into contemporary shopping environments stocking 170 different core products including CDs, DVDs, books, electrical equipment and seasonal items like back-to-school merchandise. The 500 directly-owned stores will be completed by the end of 2006. And of these, the 240 that already have a separate retail area will be ready in time for this year’s Christmas season. A home and local Post Office delivery programme is expected to follow, with a minimum of three catalogues planned per year.
"We are very excited," CEO of ISA Retail Bruce Robinson told OPI. "Although it is too early to predict sales, ISA hopes to significantly increase turnover and profitability as a result of the deal." General manager of Post Office retail Jonathan Hewitt added: "This is a very significant opportunity for us to grow our retail business. For years we have underplayed our presence in OP retail. We chose ISA because it presented us with the most compelling vision of future retail and had the most creative ideas."
The Post Office and ISA aim to win a chunk of private label business that the UK supermarkets are currently enjoying. Hewitt is confident that the trust of their customers will win them a sizeable piece of the pie. And on paper, the Post Office seems a fool-proof medium to tap into private label riches. Outlets occupy some of the best retail space in the UK’s high streets and shopping centres. And traffic is enviable, with 88 per cent of the UK adult population visiting a Post Office branch each month. Stores receive an average of 28 million customer visits per week.
In addition, a trial of the new range, which was rolled out over six stores (of varying sizes in areas of varying demographics) over a nine-month period including Christmas 2004, was a huge success. In most cases, store sales doubled and, in some cases, trebled when compared year-on-year.
But there are clear obstacles. The first is the limited space the Post Office is able to allocate for retail, which will make long-term growth challenging. The average size of a directly-managed store is 500-600 sq ft. And only 240 of the 500 directly-owned stores have a separate retail area with a standalone retail counter. In the independently-owned stores, there is very little space for retail available.
Senior retail analyst Nick Gladding at Verdict Research claims that this could pose a big problem for the Post Office. "I am sceptical how well the Post Office can sell retail goods," he told OPI. "There is not the space to sell the merchandise, so the ranges cannot even be comparable to that of the supermarkets. In addition, the outlets do not offer the customer an inspirational environment and the staff are not geared up to sell products. And in a fiercely-competitive market at a tough time for retail in general, these elements are crucial."
Hewitt claims it is the utilisation of space that counts. "It is our challenge to trade our products in a compelling way. We need to brighten up the space with improved lighting, improve our layouts and make it easy as possible for our customer."
Gladding is also sceptical about the Post Office being ready for the Christmas season, which is one of the few chances the Post Office has of broadening its customer base. Hewitt is confident that 240 outlets will be ready by early October. The work pace does seem impressive. With what the Post Office describe as a "dedicated team" behind them, it is currently refurbishing two stores per day.
Both Robinson and Hewitt agree that the Post Office has a lot to learn about retail, which was the reason behind the extensive trial. "The trial gave us a really comprehensive insight into Post Office customers, the prices they are happy to pay, what their limitations are and how we can keep their interest in a product. Everything needs to be understood," says Robinson.
Hewitt labels "improvement of marketing and in the fabric of the stores" as priority. He also claims the Post Office would like to man more desks in order to reduce queuing. "We are entering an extremely competitive market. But we believe we have a unique competitive advantage and a partner to help us realise this," he maintains. "It is the start of an interesting and exciting journey. We are committed to growing the business, testing and learning as we go."