The first thing to say about Eason’s Strategic Plan is that it isn’t very encouraging (full text below). The plan is described by the company as, ‘wide ranging and combines significant investment over the next three years in IT platforms, store refurbishments and renovations, new category developments and an up-weighted digital and online offering.’ In fact, most of the release is dedicated to cost cutting rather than a vision for the future.
As the company has already made clear it doesn’t see widespread store closures and is likely to open new ones, the bulk of those cost savings will have to come from payroll cuts. While that could mean anything from pay-cuts to reductions in sick pay and overtime, the reality is redundancies are very likely both voluntary and compulsory.
Staff Costs
Looking at the company’s staff costs from their most recent accounts, you can see that achieving €8 million in payroll saving will mean reducing them by 25% from €32 million or so to €24 million, including Social Welfare contributions and pension costs. Even if we allow that a sizable chunk of the €8 million can be found elsewhere, say €3 million. Then €5 million in staff costs means a cut of 15.5% in total payroll cost.
achieving €8 million in payroll saving will mean reducing them by 25% from €32 million or so to €24million or so, including Social Welfare contributions and pension costs.
That will be tough for the management to achieve and will be a harsh blow for the staff to accept. Considering the already difficult relationship between staff and the board, it would seem likely that further industrial unrest lies ahead for the company.
Investment
As a headline figure the €20 million investment highlighted seems impressive at 10% of turnover. On examination it is actually a fairly small amount especially as it is over three years, meaning the per annum investment is only €6.66 million or just under 3.33% of turnover.
the per annum investment is only €6.66 million or just under 3.33% of turnover.
In the company’s defence it might be said that they need to avoid taking on a heavy debt burden in what are very uncertain times and having successfully pulled back their debt in 2009-2010, to recklessly spend on a strategy of investment in teeth of a recession like the one Ireland is experiencing would be foolhardy to say the least. However when you consider that the company will, in effect, finance the investment through their cost cutting program it becomes clear that the strategy is a conservative rather than a radical move.
Strategic Challenges
The truth is that Eason faces three major immediate problems and a fourth medium to long-term issue.
Firstly the consumer is spending less and less money, as IPN reported just this week, the Book Stationary and Magazine segment of the Retail Index is down to 80% of the 2005 value. That won’t change any time soon, if it stops dropping that will be a relief.
Secondly the company faces stiff competition from supermarkets moving into its space. MD Conor Whelan himself expressed his surprise at the almost exact match the Tesco Extra stores in Northern Ireland were to the existing Eason offering there. Likewise in the Republic, Tesco, but also Dunnes and other supermarkets, are taking market share for popular titles in books and magazines offering cut prices and limited selection.
in the Republic, Tesco, but also Dunnes and other supermarkets, is taking market share for popular titles in books and magazines offering cut prices and limited selection.
Thirdly the company faces cut-throat competition from online retailers like Amazon and The Book Depository who can beat its prices with ease. To a lesser extent it faces an online challenge from Kenny’s and other smaller scale Irish bookstores who can compete online where they might not in the physical world. Their strategy at least hints that we can expect major changes in this area.
The fourth concern is ebooks and how they plan to weather the shift to digital content. With their options limited, they don’t have much room for manoeuvre. After all competing with Amazon, Google and Apple is probably a step beyond what Eason are capable of, even with the best management.
the company faces cut-throat competition from online retailers like Amazon and The Book Depository who can beat its prices with ease
Conclusion
In short, Eason are in a considerable better position than many bricks and mortar book chains. The cost cutting measures will be painful and their investment strategy, while not radical, is probably about right given the economy in their major market. They remain however without a viable long-term solution to the digitization problem just over the horizon, in that, at least, they are not alone.
http://irishpublishingnews.com/wp-content/uploads/2011/03/EasonsPressRelease2011003029.pdf
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