Stars, stores and strawberries
Officeless In this same way that e-commerce has formed a new channel through which to deliver retail, recent leaps in communications technologies have created new channels of delivering work. Almost all of us now work remotely from our office from time-to-time whether that is in coffee shops or on the train to work. Working from home occasionally is now normal; and for some people (~1.5m in the UK) working from home full-time is the norm. However, it seems that some entire businesses are choosing to deliver their operations without a single office. A report by the BBC last week focussed on Automattic, a company where all 930 employees work remotely. The software development business provides a stipend to its employees to cover incidentals such as office supplies, Wi-Fi rental, touch down space costs and coffees, in lieu of a desk. Every year they will fly their employees to conferences to meet up; all of this still providing a positive cost differential to permanent offices. And they’re not alone. Several businesses (mainly in the tech space) are choosing to go officeless. Whilst remote communication is already in the culture of these type of businesses, and a lack of regulation creates freedom of choice, these can both be overcome with more secure and enriching communications tech. With small office spaces popping up in former retail units, bars and public venues, could we be seeing the dawn of a new decentralised work model?
Star performance Last week saw the announcement of this year’s list of the World’s Top 100 restaurants. The UK was represented by The Clove Club and Lyle’s, both in London. In an age where experience matters, high-end restaurants are star performers. The quality of the food is of course important, but trips to top venues are driven more by the theatre, the service and the event. So how does this translate to commercial value? The commercial impact of being awarded a Michelin star has been considered in studies, both in Paris and New York, with similar conclusions. The theory is that the star creates an increased willingness to pay on behalf of the customer, which translates to a price premium for their products. The studies assess this premium at ~25-30%. Assuming operational costs are constant, this translates to an economic surplus of the same amount, which could be allocated either to operator profit or rent. More interestingly, one of the studies found that other restaurants in the vicinity of the awarded restaurant also benefitted from a premium of up to 13%. This spillover effect is more systemic and therefore more likely to translate to an improvement of the market rent in the locale rather than accruing to the operators. This is an example of where experience anchors can add value to large scale developments.
Left to live Much of the public rhetoric on the Housing Crisis revolves around ‘greedy developers’ setting prices too high for local people to afford. Those in the property industry know that it isn’t as simple as that. Most sites are sold prior to development. The purchaser is inevitably the highest bidder, and the price they pay dictates a need to create value from the end sales. So what can be done about this? Government intervention, either through land taxation, planning controls, or the release of their own land for less than market value is an option. Another is to bring down the costs and specification of the product to be able to sell at a lower price point whilst preserving margin. As operators such as Lidl have proved, bringing down costs, doesn’t need to mean bringing down quality. Rather you need to have a view on which costs add value to the consumer. IKEA are well practised at this in their furniture business and are now using similar techniques to do the same in their resi JV with Skanska, ‘BloKlok’. In their first UK outing BloKlok has secured consent for an apartment scheme in Worthing under which 30% of units will be affordable and 70% will be priced at a ‘left to live’ affordability model. This involves a calculation of what a typical resident can afford to offer based on typical mortgage pricing and living costs. They achieve this in part through a pre-fabricated design process, which brings down the unit costs and abbreviates the build to just a single day per apartment. In turn this allows them to target a wider demand segment, which takes some of the risk out of the sales.
Convenience and experience One of the appeals of the online store is its functional convenience. You can browse the store in seconds and effect your transaction in a similar amount of time. For a consumer this makes it a very efficient experience. However, with efficiency comes some trade-offs for the retailer. Firstly, purchases that are arrived at in this manner tend to be priced at a well-researched level. Secondly, a very directed search doesn’t leave a lot of space for serendipitous / unexpected purchases and upselling, which is often where the higher margins are earned. This is an area where a well laid out store still holds a competitive advantage. Unlike in cyber space people need to move around stores, bumping into products that might not match the algorithm. However, the online environment is evolving. This week fashion blog Man Repeller has launched its own e-commerce site using a gamified web interface. Rather than being an efficient sales journey, the site deliberately meanders through interactive / sensory experiences that allow customers to discover products rather than move straight to an intended purchase. Take a look here. As both the physical and digital worlds start to compete on experience, the bar is lifted for the consumer, and the difference between the two channels starts to fade. The opposite end of this telescope is the high street retailers using technology to improve the efficiency of the in-store experience. This includes navigation apps such as Target’s floorplan-based app that guides you towards sales items, and the now ubiquitous in store iPad which allows you to browse the full stock range.
Game, set and match Most of us know someone with an encyclopaedic knowledge of sports results. However, in the modern age of big data is this person becoming redundant? Historic sports results are now catalogued and openly available; and large data models are used to predict match results based on specific player attributes. For instance, tennis players are analysed on factors such as service consistency, ability to hold break points, and unforced errors on each surface type. That’s obviously helpful for bookies, but the same systems are now reportedly being used by the players to gain advantage. Analysis of past performance for instance allows this year’s Wimbledon contestants to know when to play to the backhand, when to hit a topspin return, and when to lob a serve-and-volley attempt, with a different strategy for each opponent. Meanwhile, not to be outdone, the All England Lawn Tennis Club has some enviable data of its own. In a typical year, spectators drink 303,277 glasses of Pimms, whereas players eat 2,195kg of bananas and 166,055 portions of strawberries and cream are sold, each costing £2.50. This price, which has not changed since 2010, compares with an increase in the prize fund over the same period of 148%, making them the best served treat this weekend.