Episode 49 Show Me the Money

sometimes organic food? Exactly. I remember lying on my back as a kid

and kicking my legs and hands in the air because my mum had booked

me into McDonald's for my birthday party so I remember the attraction

and excitement and entertainment value of fast food and you grow up

and realise it makes you fall asleep and wake-up fat. You try and

come up with an alternative. second guest is Peter Jelkeby,

senior vice-president of Clas Ohlson, the Swedish chain store.

Branches in quite a few countries. In four countries today, three in

the Nordics, Finland, Sweden, Norway and the UK. An international

store, selling? Everything from homeware to hardware. Homeware

which is everything for the kitchen, toasters, coffee makers, utensils

and so forth, electricals meaning wiring, lamps, light bulbs, the

hardware side, drills and power tools. Multimedia, and also cabling

for your stereos. Finally we have leisure. And you haven't been hit

by a retail Armageddon yet? We are doing fine. Of course there is

uncertainty but generally we are fine. Also joining us is Helena

Morrissey, chief executive of the investment management fund, Newton

Investment Management. I want to kick-off and get us talking about

the eurozone because it is the topic of the week. We have to.

Anything we say it may be out of date by the time we finish a

sentence. Just looking back at the 10 year, decade long experience of

the eurozone from the point of view of the investor, what has gone

wrong? How would you characterise the fundamental problems? You have

got monetary union without other sorts of union. You haven't got a

political union, fiscal union. You have channelled everybody down one

path in one area, but it is a freefall in other things so you

have ended up with this disparate sense of policies, and it doesn't

all hang together. You need to reinstate trust. If you take the

consumer side, the consumers need to look forward and confident and

that is needed. Sweden is outside the eurozone, still in the European

Union, also affected. Is Sweden glad to be out of the

euro? Right now, yes. I would say You were certainly pondering on

going in, probably more seriously than the UK. What is frustrating is

that the move into the euro as Helena was saying, it defied GCSE

level thinking. There are 16-year- olds, as we were going into the

euro, who were learning that if you have got wages, your exchange rate

and interest rate, two of those have to be flexed and this was in

GCSE economics. Meanwhile our leaders were taking us into a

situation that defied that. That is what we have got to understand. We

have got leaders who don't understand economics, and it is the

political leaders that created this mess. If you had the discipline of

a single currency countries would learn to live with in that

discipline. When was the last time anybody sat in front of somebody

and said we need to make wages flexible, guess what, you will have

a 20 per cent, 30 per cent, 40 per cent pay decrease. Wages are not

flexible. When you take Greece, they thought they pretended Greece

had met certain criteria which it hadn't, there was a political will

to do that. What is frightening now is instead of saying we had a

political agenda, that has screwed us, they are saying what is needed

is more powers to the politicians so we can harmonise everything

within Europe. Forget defence, we can harmonise taxation, everything.

Instead of holding their hands up and saying we actually created

something that went too far, they are saying it didn't go far enough.

We haven't got enough control in Brussels. Let's have more control.

That is the debate. That is the irony. The fact is it is hard

having built it is to get out of it. Unwinding contracts written in

euros, cross-border contracts, banking systems that would have

runs on them if you tried to suggest the country was going to

exit. It is the sticking-plaster approach, ultimately, and I don't

think people have a choice. Businesses and politicians should

work together, that is the other thing. I am not sure I agree with

John it is all down to politicians. We should show more leadership, be

bold and engage business. When was the last time you met a politician

who understood economics? The last politician I met was David Cameron

so now I am in a bind. I didn't challenge him about economics. We

have got to get a solution and saying people did understand is

getting us nowhere. Let's not talk about eurozone too

much because it is upsetting and fast moving and a developing story.

If you think the euro was a product that looked good from the outside,

but was hastily constructed by people who failed to read the

instructions properly and ended up rather fragile, this is a terrible

link into a quick chat about Ikea. The flat-pack furniture giant.

Peter, you spend most of your career at Ikea, 25 years. I find it

surprising it has maintained its dominance at that value segment of

the market for so long. What do you put it down to? A lot of things.

This whole chain of how it brings an idea to the market. This

integration, it is one thing to design something that looks nice,

it is another thing to make it be practical, functional, transported

to a store, get it on the shelves, so it fits in the store, etc. It is

a very strong pipeline. An ability to motivate and take the core from

a product, the product developer to the shop floor. They understand

this. The culture seems like it must be very important. It is

imposing a sort of design philosophy, this design philosophy,

thinking about how it transport, get on the shelf, the functionality.

Part of the culture is there to be different, take risks. You are

allowed to make mistakes. It is very outspoken we should try

different things. Ikea has been trying a lot of different things.

Also the way they are sourcing. A very forward-thinking company.

you got Billy shelves? They make a Billy shelf every four seconds.

there a female version? It strikes me that sometimes Ikea is quite

controlling. There are a product designers that can say I have got

this vision for this product, but is that driven by focus groups? Or

is it driven by a maniacal visionary designer? Ikea invest a

lot in lifestyles, how people are living. I am actually out visiting

the markets, go to your house, want to see how you live. By doing that

I go back and develop something I think fit to a purpose. Do they

stand there while you make it? Because that would be useful!

course we take feedback. The majority of the products you can

assemble. If you have thrown away the instructions you might be in

trouble. You do have to read the instructions. You have hit on

something. One theory for the success of Ikea which ideas can

complete his it lets the primeval hunter-gatherer instinct in men.

Gives them the pleasure of manufacturing and craft all there

it is already done. There is a cake mix in the supermarket, and it did

not sell. And then what they did his they did a cake mix, in America,

and said crack an egg in it. Suddenly all of the housewives felt

they were making something and the Ikea on the male side, not being

sexist, is a similar thing, absolutely. Look what I made for

you darling. It is not particularly adapted from country to country. It

is this is our vision and we will impose it. It is one of the things

I worry about the globalisation trend, stamping out individual

individuality. I think difference and challenge is valuable. It is a

fair point. But at the end of the day it is a free choice. Yes, there

might be a global offer, but you need to be local relevant. I could

decide if I go to Germany may be darker furniture is more in fashion,

but I can gear up my range in a certain way so I become more local

relevant. The strength is there is a strong concept. But at the end of

the day there is also a local relevance. Why hasn't it been more

challenged? In each local market there are companies that try to

sell in that segment but there is no global competitor. I can only

guess that there are some scale advantages in Ikea, the fight to

control factories, supply chain, advertising, the more stores you

have the more you can dominate advertising. I would have thought

there is a real state advantage. Let me drop in a question. Let's

talk about the Swedish factor. Sweden has produced quite a lot of

global companies, Ericsson, Electrolux, H&M, ABB, it is only 10

million people, not even that. A phenomenally successful economy. Is

there something about the way Sweden does things? It is a

pragmatic approach to general things. Swedes are very pragmatic,

when it comes to running a business as well be start with a lot of

common sense. With us being a small country we need to reach out beyond

Sweden to get the volume and the timing was that there has been gaps

in the market where the value proposition, if you look into the

retailers, we always have a big journey on value propositions.

has had its down moments. A terrible financial crisis in the

early '90s. My impression is Sweden has a strong culture and that I

think strikes me when I look at it and talk to people in the financial

services that they have been quite resolute and strong. If you are a

Swedish brand it helps to be Swedish. Is the Swedish brand

helping? It is. It will not take us all the way but it takes us a

little bit of the way. The gate If you want to know more on the

topics of this programme, or our part of the Open University, visits

the website. We will talk about product proliferation in a moment.

But before that, in last week's programme, we had a spirited

discussion about the value of financial services. We had three

financial players, not bankers. We discussed whether their industry

created wealth or not. We had more e-mails and response to that

discussion than ever before. Most expressing annoyance at the

perceived failure of the guests to understand why the public got so

cross with what happened in the financial sector. I won't reprieve

the whole thing but, Helena, you would have been a perfect guest

last week to contribute. I did think it was a shame the guests did

not stand up and be counted for the part we have all played. I am not

saying everyone is equally culpable but we are in a mess today because

of a series of events and actions by lots of people in different

places and financial services... All sorts, fund managers, the

benign end of the scale. But we have responsibilities, investing

and engaging with companies and to accept we played a part in not

challenging the boards, not calling time on profits and saying you need

to be more responsible and sustainable about your lending

policies. For example. I was a bit depressed by listening to the

conversation because I think everyone was blaming each other and

we will not solve anything. response should be instead of

saying, "what did the other person do wrong?" is, "let me think, what

did I do wrong over the last 10 years?". Exactly. Governments,

regulators, banks and people who borrowed too much. You asked that

question last week. Everybody was culpable to a degree. I do not

suppose that is the last word on that topic but now proliferation, a

term we might associate with cell biology but I am interested in

product proliferation. The range of services that companies put on

offer. Sometimes it is genuine choice, sometimes confusing. I want

to get at what drives it. Leon is a good example for us start with. I

do not know how much... How big a range you have but there's a lot of

thought go into the maximum size? I'll my goodness. -- my goodness.

It is a constant conversation we have. In a process driven fast food

operation, the rule is to make it as simple as possible without

turning customers off. Albeit good fast food. To get product out at

speed, to store product, to have to negotiate on products, you want it

as simple as possible. The starting point is, could I sell one thing?

No, I might have to sell another thing. What we also find is,

sometimes the less choice you have, the more customers think there is

choice. Sometimes I walk into my book shop and all these unread

books, where will I start? If I have two books, somehow emotionally

the choice becomes more manageable. We did analysis to say it when you

shrunk the range, people thought there was more choice. So there is

an argument for restricting choice. I agree. In the way we work with a

range and it is about good, better and best. Make it simple. I need

something basic, I need this type of drilling. Do not make it too

complicated. Do not turn up with ten different models. With the same

price range or stomp The challenge is to communicate this convincingly

in a store environment. You'll need a co-worker reading the labels on

the shelf. They all look the same. Suddenly, a five pound difference,

what can I do? Then, you have gone too far. It is a balance. To have

enough so I am confident as a customer that yes, I want to buy

the middle priced one but in order to do that I feel comfortable no

win there is a more expensive one that I can pay a little bit more,

or be cheaper one, but I end up buying the middle one. I trust them.

I ended by the middle one. right number is three. In this

simple case, yes. It is expensive to carry, it is fairly basic. The

80, 20 wall is fairly basic. 20% of range stands for 80% of your total

overall profit. I think that is a very valid raw as a generalisation.

But is it cannibalising? Or adding incremental people? If we talk

about a vegetarian product, we have noticed that will deliver a hard

core of 10% of our customers who would not be substitute it for the

chicken. The question is, will this at more people? Financial-services

is interesting because there have been a proliferation. If you want a

loan or a savings account. Or a mortgage for storm it is

overwhelming, yes. It is bewildering. There is too much. The

example of 2,500 funds, the difference between how one of UK

equity funds is run and another is not evident to any body and it is

very off-putting for people. We found that what people want now,

particularly that things are so uncertain, is to give over their

money to be managed. They only want a couple of choices. An absolute

return or a relative return. That is fascinating what you are saying.

As consumers, we like you as companies to do some shortlisting

for us rather than giving us a long list. The top list is in the

bookstores. People love the top 10. How do you shop? The question

remains why, when you buy a mobile phone or airline ticket or airline

ticket or energy package from an energy company, a range of markets.

They should edit them more. When you get in these businesses, there

is no gatekeeper. There is no what he says, let me put myself in the

shoes of the customer, and let me edit these different tariffs that

my different marketing teams want to create. One of the accusations

is that one reason why companies may not adopt the philosophy you

have all espoused of shortlisting is that you can bewilder and

bamboozle people if you offer them a choice. It makes energy prices

difficult to compare your different utilities because you have

similarly choices. Maybe it paralyses consumers so they think,

I would just stick with the one I had got. There is a kind of way of

looking at things. A logical way but also illogical. There are

emotions involved. We know in some cases, it is not about good, better,

best. We need brands as well. It happens to be an emotional part of,

"why do I choose this?". The blue or the Red? Customers today,

especially in this crisis, they are more keen on value, not only value

being cheap but value that they will not spend money on excessive

stuff. For example. They will be more careful where they spend their

money. Hence there will be more challenging if there is a surplus

of different models and you need to help them to choose. If you a bed

with the internet and social medias... It is much more of a

dialogue. We have to become relevant. One of the other products

of the current economic woes is we will get a shrinkage of choice

because a lot of the weaker players in any field will go bust. You walk

down the High Street and there are boarded-up shops and that's partly

because people go to the internet but there will be less... A cull.

Not a business editing its own range but it will be interesting to

see if we have a better choice when we have a smaller choice because

there is a myth about it. In some restaurants, not the poshest, they

have extraordinary long menus. Page after page. How could you keep all

this food? Those restaurants have a big freezer. I like this, someone

said to me: Do not go to restaurant who has more menu items than chairs.

I know somebody who literally counts them! I am afraid we need to

draw a close. Thank you to my I will be back with more guests

topics discussed, and about our partner, the Open University, visit