Guy Meisl is head of logistics at zavvi entertainment group, zavvi being the new name for Virgin Megastores following the 2007 management buyout. The supply chain challenge is to supply zavvi”s shops across the country not only with ”chart-topping” CDs and DVDs, but also with a deep range of specialist and backlist titles.
Meisl explains that when he joined the then Virgin over three years ago ”We were the only major specialist entertainment retailer working on a central distribution system: our nearest equivalent, HMV, for example, mostly ships direct from supplier to store. And our solution wasn”t working terribly well, only in part because it was based in an old aircraft hangar deep in rural Oxfordshire.
”We had hired a 3PL, but it was evident more fundamental change was needed. We were over budget, service levels were poor, the sheer complexity and pace of change of the entertainment business wasn”t being coped with. We face up to 600 new products each week, but some of those may only have a life of a fortnight; whilst we also have to source an almost bottomless depth of stock, for titles that were first issued decades ago”.
A first approach, Meisl says, to making what they had work, was around rationalisation of workflow, trying to reduce the peaks and troughs both in the warehouse and in the trading team. Working with the 3PL and the trading team, they managed to take around 18 per cert out of supply chain costs – ”which is quite respectable”, says Meisl, ”but not enough in view of where the entertainment market is going”.
It needs to be understood that the profit is not with the chart-toppers, especially when competitors like supermarkets are virtually giving the product away. For the likes of zavvi, the margins are in specialist fields, back catalogues. In most industries that long tail is an embarrassment: for zavvi it”s where the money is – if the logistics and distribution can be made to stack up.
The remarkable upshot of such thoughts was a deal with Entertainment UK, the entertainment logistics arm of Woolworths, who of course are a significant High Street competitor, at least on the more popular lines. Meisl says ”We moved to what I call “extreme outsourcing” – not just using a specialist for non-core activities, but depending on a specialist for activities at our very heart – in this case, buying and merchandising entertainment products”.
This outrageous strategy does have a logical base, Meisl claims. ”The upside is EUK”s ability to buy in bulk chart product where there is very little margin. Because they are buying for lots of others [Woolworths themselves, Asda, Morrisons, Sainsburys and W H Smith] they can get and share slightly better margins.
”There are advantages also in merchandising. EUK tells us how many units they are sending to stores, based on their own forecasts and what we tell them the stores will do. They make the decision but our information is a key element; for example that this is a store that needs lots of everything, that is a small store where chart-toppers are the main trade, and so on. Geography has an impact – there are products that sell well just in Scotland or, for that matter, just in the Manchester area”.
The first real test
The deal was agreed in January last year and went live in June. The first real test was this Christmas, and zavvi claims around 10 per cent improvement in like-for-like sales, which given the competitive nature of our market place is says Meisl ”Pretty damned good”.
But bliss hasn”t been instant. Meisl notes ”Because we are a specialist retailer it was educational for EUK, the rest of whose client base was largely supermarkets and generalists. They had a learning curve about the depth of our back catalogue and range of product. ”We haven”t had a full year”s trading under the new arrangement so far, but we are seeing a lot of positives so far”.
Does Meisl think this extreme outsourcing model could be applied elsewhere? He thinks so. ”Certainly, in areas where suppliers are relatively powerful. In white goods and electricals, for example, every retailer has to carry, say, Bosch but the competition isn”t really about what deal they can get from Bosch, it”s about how they perform in the High Street, what value they add. So a ”global buyer” between Bosch and the retailers would create efficiencies without reducing competition.
”Telephones would be another example. There could in theory be competition issues, but in our case, and the examples I”ve mentioned, this isn”t where the competition that matters is really taking place”.
After a varied early career in corporate entertainment, chemical sales, and managing a go-kart track, Guy Meisl entered logistics as operations manager on TNT”s Habitat Home Delivery contract.
In 2001, at Habitat”s request, Meisl moved to France as European logistics director, responsible for three European warehouse operations and exercising operational control over warehousing contractors, international transport, and home delivery.
In 2004 he assumed his present position as head of logistics at Virgin Retail, (now rebranded zavvi retail), to manage the contractor performance and strategic direction of logistics, challenged to reduce logistics spends by €2.5 million while increasing service and availability.