07/03/2012 - 11:00

Lessons in business building and survival

07/03/2012 - 11:00

Bookmark

Save articles for future reference.

The longevity of Lego provides a lesson in retail survival and adaptation.

The longevity of Lego provides a lesson in retail survival and adaptation.

IF Gerry Harvey, the man behind the Harvey Norman retail group, is serious about understanding what’s happening in the shopping world today he ought to buy himself a set of Lego.

That’s not to suggest Mr Harvey should build his next electrical goods and furniture store out of Lego. 

It’s a recommendation that he plays with one of the world’s longest surviving consumer products and wonder why it has continued to expand sales in the modern world when so many fads that he has been quick to market have faded.

What Mr Harvey will find is that Lego, which theoretically should have been wiped out by the rise of electronic games and internet wizardry, has analysed every change in its market, and adapted its products to satisfy customers.

Two events triggered this ‘Lego for Harvey’ suggestion:

• his latest lament about Australians not spending enough in his shops, warning that unless we spend more retail jobs will be lost; and

• news a few days later that Lego has just posted its eighth consecutive year of rising revenue in Britain, capped by a 17 per cent increase in sales last year.

What makes the success of Lego in the UK more impressive is that the economy in that country has been in recession for much of the past four years, unlike Mr Harvey’s backyard of Australia.

To be slightly fair, the recession might have helped Lego because it is a simple and cheap toy for children, which fits budgets more comfortably than expensive electronic games.

But there is also a marvellous lesson for everyone in business to learn from the way Lego has altered its range of products, its packaging and its marketing to fit in with what people want.

Even if you think you’re too old to take an interest in Lego it is worth visiting the Danish firm’s website to discover that Lego is far more than a set of interlocking plastic bricks. There are Lego computer games, board games and products that reflect the latest trends in society.

In effect, Lego has changed the way it does business (and changed its products) to fit in with a changing society – not bad for a business that can trace its roots back to 1934, six years before Gerry Harvey was born.

‘Adapt or die’ is a harsh motto for doing business in a fast-changing world, but it is something that 72 year old Mr Harvey has failed to do, which is why Harvey Norman has just reported a 17.69 per cent fall in pre-tax profit for the half-year to December 31.

Accompanying the profit downturn announcement was a fresh warning from Mr Harvey that the Australian retailing sector is collapsing: “You are now seeing more retailers go broke and out of business than I have ever seen in my life,” he said.

No-one is denying business is tough, but that doesn’t mean the system is broken; it simply means the system is changing – and survivors during a period of change are those who adapt.

Lego, which is a business that should have been hit hard by the advent of television, video games, internet games, mobile-phone games, and countless other inventions, has steamed through periods of change, and adapted its products to fit consumer demand.

Disconnect

UNCERTAINTY of different sorts can be found in all aspects of business today with two other recent examples being: the surprise reaction of oil and coal to changes in the world energy market; and the surprise reaction of gold and cash to changes in the world financial market.

What’s happening in the energy sector is that the oil price has been rising and the coal price has been falling.

The oil price rise is easy to explain; it’s all about fear of a fresh outbreak of conflict in the Middle East and the possible closure of the Straits of Hormuz at the eastern end of the Persian Gulf through which 20 per cent of the world’s oil flows.

Coal is harder to explain because it traditionally rises in sympathy with the oil price. Not this time. The two markets, despite their sole focus on fossil-fuel energy, have parted company, perhaps only for a while, but the gap is becoming quite interesting and could be a ‘buy coal’ signal, unless you believe peace is about to break-out in the Middle East.

Another, perhaps even more interesting, disconnection is the way the gold price crashed last week at almost the same time the European Central Bank was waving its magic wand over financial markets and mysteriously creating another half-trillion euros.

In total, the ECB has now manufactured one trillion euros, replicating in its own way the multi-trillion dollar paper money fabrication exercise of the US central bank.

In theory, more paper money in circulation without a corresponding increase in the production of goods and services equals higher inflation, and that in turn is theoretically good for the price of gold.

Not these days because the world seems to have developed an economic equivalent of reverse swing that fast bowlers exploit in cricket when a thoroughly scarred ball starts to do the opposite of what it does when new.

Zinc in the pink?

ZINC, arguably the world’s least interesting metal, is another example to moving one way today, but getting ready for a swing the other way soon.

Last week on the London Metal Exchange zinc was selling for around US96 cents a pound and struggling to break through $US1/lb.

This is despite increasing activity by zinc professionals such as the commodity-trading house, Glencore, which is buying more, and optimism from Canada’s Teck Resources that the market for the metal is turning positive.

“We now think that the (zinc supply) deficit is visible, it’s coming, Teck boss Don Lindsay said.

Perhaps Glencore and Teck both know something about zinc that we don’t?

Boom boom

I’LL finish this week with a touch of certainty in an uncertain world. Sales of weapons continue to soar with the world’s armaments manufacturers collectively lifting sales last year to a whopping $US400 billion, up 60 per cent on the figure of 10 years ago. 

***

“Military intelligence is a contradiction in terms.”

Groucho Marx


STANDING BY BUSINESS. TRUSTED BY BUSINESS.

Subscription Options