transition to choices on line summary oct 2010

Transition to ChoicesOn Line Summary

Oct 2010

Introduction• This summary is a highly abridged and resorted

version of what was presented to the members at the regional meetings held in September and October 2010.

• Many elements including video footage, photos and some highly confidential aspects have been removed.

Backgound

Your Feedback Last Year• On the issue of brand confusion, 40% of members

said there is “total or lots of confusion.” A further 46% said there is some confusion.

• Only 14% said there is “not much or no confusion.”• To correct this problem, 60% of Members said keep

the Carpet Choice name, but make the marketing “more distinctive.”

• Only 12% said change to some form of a new name.

So why are we putting forward a proposition to evolve the name?

The process so far• After the membership survey last year identified that

members were concerned about brand confusion we sought feedback from six advertising agencies on how they believed we should address the issue.

• Their position was clear. The confusion will never effectively be overcome unless we have a more distinctive name, not just distinctive marketing.

• We appointed Steve Kulmar of Retail Oasis, one of Australia’s foremost marketing strategists to help develop a new approach.

• A teaser of this was presented at the National Members Meeting in Melbourne early this year, and a more detailed presentation at regional meetings in mid 2010.

The process so far• The feedback we got at that stage was that members

were mostly supportive, thus we devoted more resources to it.

• A taskforce of members was appointed to help resolve key issues.

• The latest presentations, in September and October 2010 were detailed and allowed members to formally vote on proceeding with a transition.

• The resultant vote was strongly in favour. 91.5% of members supported the decision (although 34% of these had local matters that needed to be addressed) with all but one of the balance agreeing to support the decision.

Repositioning our Group to meet the demands of a changing competitive

landscape

The opportunity to be more relevant

• “Re-positioning” is about the opportunity to broaden the brand – to stand for more than just carpet.

• It is about ensuring the consumer considers us for all floor surfaces.

• It is not about reducing sales in existing categories. Our objective is to increase sales in all categories.

• Carpet is now only 50% of the market, whereas 20 years ago it was 75%. As a group, we have not fully moved with this change, thus we a forfeiting profitable sales opportunities and limiting our appeal.

The Competitive Landscape• Current Australian Scene

– Over the last 20 years, hard surface areas have grown, in turn generating more rug sales.

– The shift to longer wear warranties and nylon may result in longer life cycles, but this may be more than offset by the desire to remain fashionable.

• International Trends– Increasing diversity in all categories.– Acknowledging the green and health issues.– Home-centres and the internet are taking share.

Percent Distribution of U.S. Retail Floor Coverings Sales

1997 2009 (Estimated)2002

The Competitive Landscape

Carpet Choice Australian Market


• Future Australian Scene– Carpet will most likely stabilise at around 50% market

share, but what if it fell to 40%, or even 30%?– Hard surfaces will become more diverse, and more

fashionable (LVT).– Retailers will seek a point of difference with

innovative product and ways to sell.– Flooring will be offered more by Homemaker and

Hardware stores (HN, Bunnings and Lowes) who recognise the value of cash and carry and repeat sales, and setting new customer service benchmarks.


Customers are no longer just customers


• Society has changed and become more complex. Customers fall into many categories. We cannot meet the expectations of all of them.

• In the slide that follows, we have identified the broad categories we must aim at. They are Visible Achievement, Something Better, Traditional and Conventional Family Life and Socially Aware. They make up 70% of the population and most of the buying power.

Customer / Clusters Opportunity

22%%

55%%

20%20% 12%12% 8 %8 % 15%15%

6%6%

17%17%

11%11%

3%3%


• Given that women are the main driver and buyer of floor coverings, we then translated this data into three main buying groups and called them Chloe, Claudia and Christine. They are at different stages of their life, have different needs in floor coverings and therefore different expectations on service.

• In your local area, your mix of these three groups can vary significantly. We believe your store, and particularly your product mix needs to reflect this.

Three Key Consumer Groups1. Chloe

First timers/young families, practical & price conscious.

2. Claudia

Mid life females with families, still practical but seeking quality and design cues, but also value conscious.

3. Christine

Mature, experienced females seeking to finally get the ‘dream’.

Customer / Clusters OpportunityMeet segment one – Chloe – approx 11%

Conventional Family LifeDemographics

– Female, 30s– C, D socio economic; mortgage belt– Married with young children– Average hh income ($68k)

Needs– Best price – Support and advice– Practicality is key

Wants– Aspires to brands– Aspires to home dream

Behaviour– Traditional family values– Activities focused around the children– Nester – responsible for family– Anxiety

Lives– Suburban outskirts eg Colac, Illawarra;

regional Australia

Customer / Clusters OpportunityInsight on consumer segment one

‘Home and family is what matters most to me and I love doing things to improve our ‘nest’. But with young kids I have to be practical. I love

the idea of buying a new home where you get to choose all the finishes, like floor coverings, but failing that we’ll just make small changes. There’s not much point in laying new floors

while the kids are so young”

Customer / Clusters OpportunityMeet segment two - Claudia – approx 30%

Something Better/ Visible AchieverDemographics

– Female, 40s– AB, C socio economic, secondary ed– Married with school aged kids– Above-average hh income ($80K+)

Needs– Advice & understanding– Quality over price but still seeks value– Practicality is still on her mind

Wants– Seeks out brands– Service seeker - DIFM mindset– The home dream is firmly on the radar

Behaviour– Busy progressing all areas of life

Lives– Suburban growth corridors eg The Hills District, The

‘Shire’

Customer / Clusters OpportunityInsight on consumer segment two

“Now the kids are a little bit older, and I’m back to work, we can start to think

about improving our home. We thought about moving, but we decided

we would be better off to renovate and add some real value to our home”

Customer / Clusters OpportunityMeet segment three - Christine– approx 30%

Socially AwareDemographics– Female, 50 ‘something’– AB, C socio economic, Tertiary educated– Married with children, paying off home– Above-average hh income ($120K+)Needs– Quality over price– Knowledge and adviceWants– Design and innovation (newness)– Seeks out brands– Pristine home sanctuary – finally its about what she

wants, not what the family needsBehaviour– Service seeker - DIFM mindset– Home is sanctuary and centre of entertainment– Home improver/ renovator– Confident and in controlLives– Affluent, long established, inner suburban and

regional areas eg Balgowlah, Neutral Bay, Richmond, Fortitude Valley, Byron Bay

Customer / Clusters Opportunity

Insight on consumer segment three

‘‘My home is my sanctuary, but while the kids were growing up, I had to be practical about the improvements we made. Now they’re grown I can finally

bring to life my nest’’

The Store Cluster Groups

Cluster 1 – 62 stores

A representative sample from all consumer segments – Chloe, Claudia and Christine

A comprehensive market offer for all segmentsChloe 25%Claudia 46%Christine 29%


Over representation of Chloe & under-representation of ChristineClaudia nationally representative

A mid market offer with Christine & Chloe in mindChloe 37%Claudia 45%Christine 18%


Over representation of Christine & under-representation of ChloeClaudia nationally representative

A high value market offer; Christine firmly in mindChloe 17%Claudia 36%Christine 51%


Dominated by ClaudiaChristine under-representedChloe average

An offer dedicated to the aspiring consumerChloe 25%Claudia 72%Christine 4%

The cluster groups identified relate only to the current Carpet Choice store network and are not representative of the total national opportunity for Choices

The Store Cluster Groups

• The four slides show the cluster profile for typical stores that fall in these four demographic mixes.

• The bars show the proportion that each of the three female categories represent in that market (left scale).

• The line shows the relative under or over representation of each of the three bars in that market.

• For example in the first slide, Claudia represents 57% of this local market, which is 27% above the national norm for this type of market (“comprehensive offer”).

• This analysis was done for all member stores and their local markets and shared with members at the regional meetings.

Smithville Carpet ChoiceSegment 1 – Comprehensive Offer

Source: Roy Morgan Single Source, Mar 10

Smithville Carpet Choice- Local target market catchment 21,000- 5km radius

Smithville Carpet Choice- Local target market catchment 21,000- 5km radius


Anytown Carpet Choice- Local target market catchment 34,000- 5km radius

Anytown Carpet Choice- Local target market catchment 34,000- 5km radius

Anytown Carpet ChoiceSegment 2 – Mid Market Offer

Newtown Carpet ChoiceSegment 3 – High Value Offer


Newtown Carpet Choice- Local target market catchment 41,000- 5km radius

Newtown Carpet Choice- Local target market catchment 41,000- 5km radius

Jonesville Carpet ChoiceSegment 4 – Aspirant Offer


Jonesville Carpet Choice- Local target market catchment 10,000- 10km radius

Jonesville Carpet Choice- Local target market catchment 10,000- 10km radius

Summary• The market is changing, whether we like it or not.• We need to broaden the offer if we want to be known for

floor coverings, not just carpet, and have a sustainable business in the future.

• We have noted that we can cater for the bulk of customers. We can align the stores to the customers. It is not about going up/down market. Customers focused on price will gravitate to price based retailers.

• If we don’t broaden our offer, then we risk becoming a niche player, restricting our potential.

How can we best respond to customers?

How can we best respond to customers?

There are three ways that we will do this:• Re work Brand Awareness to increase traffic. This will entail a

transition to the CHOICES name and supporting it with great marketing. This will overcome brand confusion.

• Re work Service and Selling skills to match the consumer segment and as a consequence, close more sales more often . Some reworking in the Store Design area will enhance the customers experience as well.

• Re work the Product Mix to match the consumer segment each store is in and offer a more complete flooring range with the introduction of new a Product Offering (Rugs & Tiles).

1. Re – Working Brand Awareness

Our brand and standing apart from our competitors

• Unlike others, we have the opportunity to carefully evolve….not change

• We can own a position in the market… not a niche (carpet)

• We can create a personality… for consumer attraction

• We have an opportunity to build a Brand…to create real equity

Apple – evolving to greatness?The Newton Crest: 1976-1976

The first Apple logo was designed in 1976 by Ronald Wayne and depicts Isaac Newton sitting under a tree, an apple dangling precipitously above his head.

The Rainbow Logo: 1976-1998

The “bite” in the Apple logo was originally implemented so that people would know that it represented an apple, and not a tomato. It also lent itself a play on words (bite/byte). The rainbow stripes was a means to “humanize” the company. The multi-colored Apple logo was in use for 22 years.

Apple – evolving to greatness?The Monochrome Logo: 1998 - Present

The return of Jobs and a renewed identity.

The company was bleeding money, and Jobs realized that the Apple logo could be leveraged, but the rainbow logo limited use.

So the logo was refined into a modern monochromatic look that has taken on a variety of sizes and colors.

The shape of the logo remains unchanged from its original inception 33 years ago. The monochrome logo allows Apple greater flexibility in branding products and stores

Closer to homeThe Snooze brand launched with a bright

and friendly identity, presenting ‘Captain’ as the protagonist. A night cap topped of the logo in a cartoon-like identity. Presented in strong colours of white, red and black.

In 2006 CAPT’N Snooze hung up his snooze hat for good. This change was designed to position Snooze as a lifestyle store, not just a bedding retailer. Designed to express quality sleep, the emotional connection you have with your bedroom and offering solutions that deliver on both these things.” Used as the platform to introduce the Kingsdown Body Mapping Mattress with four different levels to suit different pressure points.

How does our evolution continue?

Drop carpet…undifferentiated

About one product categoryDoes not represent total category

Undifferentiated/ single category

About the offerExpresses the benefit

Our differentiator

Make More of Choice…Choices

1. Choices articulates the freedom and discovery our female consumer is seeking

2. It is friendly, and allows for further business innovation

Create a Memorable Unique Device

1. Inspiration: Colour tiles– Pixels in TV screens– Pantone colour books– Paint selectors– Feature tiles– The iPhone

2. Colour tiles bring design and inspiration to our neutral backgrounds

Create Ownership…Strapline

1. For our consumer, finding the right floor is a journey of discovery. She searched through magazines, over the internet and in store

2. We want to harness that sense of discovery and position ourselves as the ones that have the answer

But it’s more than just evolving a brand name…it’s about owning a position in a

consumers’ mind!

Our Positioning

Broader position All floor surfaces

White space Specialist

Brand essence Real choice

Customer VP Choices gave me real ideas, options and value and they helped me transform my

space

1. Members at the meeting saw an “animatic” which gave a good approximation of the style of TV commercial that we intend producing. The theme celebrates the sense of joy that one feels upon new floor coverings being installed in the home, through a clever dance routine that shows all types of floor coverings, backed by very catchy music. A very clever approach to the use of the logo is featured.

2. It will be distinctive, differentiated, memorable, and focused on the female decision maker.

3. Promotional product/price TVC’s will be brand reinforcing, clever, value adding, have a call to action and not be constantly “price off.”

4. Printed advertising material uses clever interpretations of the logo featuring different flooring types within the “tiles.’

Advertising Strategy

• The following three slides show the three options that members can select from. They are;

• CHOICES – with no reference to flooring, suburbs or family names. The windows feature reference to product types. This is the boldest, strongest version.

• CHOICES flooring – an alternative where members feel compelled to include the category.

• CHOICES by subrand – this allows members to hold on to family names if desired. We do not think is necessary on the building.

What will the new brand look like on your store?

• The Windows will continue to use the window graphics that many stores now have. We will include the “tiles” depicting difference flooring types to reinforce the business we are in.

• If strongly desired a member may have “CHOICES flooring by sub-brand” but we would discourage this, as the impact of CHOICES may be diminished.

• Both landscape (horizontal) and portrait (vertical) versions will be available. We will put forward the best format for your store. The handouts given to all members at the meetings will mostly likely require further tweaking.

What will the new brand look like on your store?

• There will be three versions available; a good, better and best.

• The three versions will meet budget, medium and premium budgets, with the premium version being the most dynamic approach and a strong presence on the road.

• There will be specific solutions for non-white vehicles.• There will specific solutions for vehicles that have the

current graphic style (see next slide) and yellow diagonal style that many members have.

What will the new brand look like on your vehicles?

2. Re – Working Skills and Design

• We believe the single biggest opportunity to grow our group lies in Members increasing their sales conversion rate. Two out of every three sales opportunities in our stores are lost.

• As a consequence, the group will be putting into place more resources in this area, developing a strong cohesive development program of face to face and on-line training concepts.

• The concepts will cover all facets of retail skills, including sales, product knowledge, staff selection and development, business management and financial skills.

You can never have enough skill

At the new Woolworths/Lowe’s joint venture stores that will compete directly with Bunnings, each new store will invest in roughly 100 hours of training per employee – before it opens its doors.

They claim…

“We’re focussed on our customer rather than the competition, and that’s actually an edict” “Its going to be a

compelling point of differentiation…”

You can never have enough skill

• We will not be making any significant changes to the present Destination Choice store format in the medium term.

• We will be developing some new innovative display concepts to allow tiles and rugs to be included in a store with minimal impact and more productive use of floorspace.

Delight with your store presentation

3. Re – Working Product Mix & Offering

Our existing ranges• Our current core and non core carpet profile will be

restructured and tailored to the specific market demographics covered above, to enhance your opportunities to better meet the needs of your local market.

• A similar approach will be adopted with floating floors and vinyl flooring.

• We believe an opportunity exists to introduce rugs and tiles into our stores, in a limited but effective way, offering you additional sales and profit, without reducing sales in existing categories. In fact, properly done, they can incares sales of existing categories.

Rugs – The Facts• Market Value approximately $200 million in retail sales.• Potential to grow due to increased hard flooring surface

areas throughout the home.

“Carpet One US research suggested that when consumers buy a hardwood floor they looked for an area rug within 72 hours”

• It’s a floor traffic generator – they buy the rug today, but may be back soon to do other areas.

The Rug Category• Easiest flooring category to get into providing:

– You invest in the right product assortment suitable for your customer segment.

– Dedicate the appropriate amount of space for display stands (less than 20m2).

– Stand – One off investment (approx. $1,500)Area size for 50 rug stand = 3 metre length x 2

metre width.

– Have access to the right supplier that will update your profile as trends change, and rotate slow selling ranges.

Ranging Rugs in the Store• Feedback from several members and key distributors

suggests:– A range between 50 to 100 rugs (ideally 100) across

varying styles and designs should cover a majority of your consumers enquiries.

– They only need to be 1.6m x 2.3m in size with scope to order in larger or smaller sizes.

– Depending on your core customer segment; Chloe, Claudia or Christine, the investment for 50 – 100 rugs will vary from $7,000 to $25,000.

Great Profit Opportunities• Healthy Margins – 100% + mark up. (Up to 250%)• Cash and Carry

– No installation issues!• Floor Traffic Generator• Increased Marketing promotional opportunities• Lots of promotional opportunities. For example, offer a

“Half Price Rug” rather than a discount – protecting margins and profits

• At the regional meetings we showed in detail two typical ranges.

Ceramic & Stone – The Facts

• Market Value approximately $500 million in retail sales.• Only 13 members support this category, forcing consumers to

purchase tiles from alternative stores.- Potential loss of add on sale.

• Tiles are usually the first floor surface in a new home so we get to the customer early in their buying cycle, therefore another traffic generator.

• Able to package a house providing an “all inclusive” quote further protecting margins.

• Our focus will only be on floor tiles for living areas. We will not project ourselves as offering solutions for wet areas or walls.

• A good offer may require as little as 20m2 up to 60m2 of floor space.• We have appointed one of Australia's best Tile Buyer’s to consult to

us to develop all the necessary skill in this area.

Summary

• Rugs – the market will grow with further increases in the hard flooring market.

• Ceramic & Stone – significant opportunities for growth• Perfect categories for an “add on” sale and floor traffic

generation.• Capture many customers - no need to try and capture all

customers.• Small investment for solid return.• Cash and Carry – No hassles.• Small display area in store.

RE - LAUNCHING

How will we fund this opportunity?

• Funding can come from two sources only – Suppliers and Members. Suppliers currently contribute over 60% of the Group’s funding.

• Supplier rebates were negotiated from a zero base by Central Office – they cannot be taken for granted.

• Of the funds that members contribute, we give an amount equal to 2/3 back in the form of discounts and rebates. Compared to franchise systems, we have an under-funded model.

• Launching CHOICES without the necessary funds will result in less opportunity for success. The launch of CHOICES requires additional marketing funds to ensure we create awareness of it in the market.

• Currently our marketing budget is approximately $7.7 million. This is inadequate to meet our needs as a national retailer. Based on 4% of retail sales, we should be spending in excess of $11 million, almost 50% more than we currently do. Ideally, our spend should be 5% of retail sales.

• Increasing our budget will still result in insufficient funds for Melbourne and especially Sydney. The only real solution in these markets is to double the number of stores.

• At present there are really only two ways to generate additional marketing funds


Option 1 – Levy on Statement• Levy to Members Statement based on central billings.

It is transparent – Members can see direct cost to them. This is the same as the 1% GSL.

It allows the Group to become less reliant on suppliers.

x Could reduce central billings by causing defections to non preferred suppliers.

x Possible member angst at what is seen as another cost of membership increase after the recent introduction of the 1% GSL and new rebate/discount terms in April 2010.

x Less likely to be passed on to prices, thus reducing store net profit.

Option 2 – Build It In• Build the additional revenue in by raising product prices

and supplier rebates.x Not transparent as it is “hidden” within product prices.x Increases reliance on supplier rebates, thus we feel

more captive to them.Less likely to result in defections from preferred

suppliers, thus preserving central billings.We may be able to negotiate increased rebate without

an increase in product costs.Less likely to cause member angst.More likely to protect margins – prices go up to reflect

product costs.

• To make the transition to CHOICES, the marketing strategy will require that we repaint and re-sign the stores, rebrand everything in the stores and then launch it with a strong effective marketing campaign.

• It was proposed:– Members are to pay for the cost of repainting their own stores,

external free standing signs, new stationery and updating uniforms.

– The Group and members will split the cost 50/50 on store signage and updating vehicle signage. We will give members interest free terms to pay this portion.

– All internal POS concepts will be paid for by the group. – Creating the new TV commercials etc will be paid for by the

group.– The marketing budget, for on-going TV etc is to be increased

significantly by additional supplier rebates (Option 2)


Impact of an additional rebate• Introducing an additional supplier marketing rebate of

2.5% will generate approximately $2.7 million (excluding commercial and special accounts).

• The total marketing budget would then be $10.5 million. We would consider rebating it back to some regions where the budget exceeds the needs of those regions or we would pay for all their marketing components.

• Some regions will still need more than 2.5%. We need to ascertain their willingness to add more to their regional pool or consider other options.

• Will suppliers pay this rebate without putting prices up?

Typical Impact Of 2.5%Prices on the following key products would be impacted as follows if suppliers passed on the cost of the additional rebate:

Product Current Cost

New Cost (inc 2.5%)

Variance by $

Old RRP New RRP inc adjusted $ margin

Birralee $78.40 $80.36 $1.96 $140 $143

Corrigan $58.40 $59.86 $1.46 $115 $118

Coventry $29.90 $30.65 $0.75 $75 $77

Nightscape $55.40 $56.79 $1.39 $112 $115

Bridlewood $88.00 $90.20 $2.20 $151 $155

Spotted Gum 2 $61.60 mtr² $63.14 mtr² $1.54 mtr² $97 mtr² $99 mtr²

Loc Flor $12.60 mtr² $12.92 mtr² $0.32 mtr² $27 mtr² $28 mtr²

Homeline $14.50 mtr² $14.86 mtr² $0.36 mtr² $38 mtr² $39 mtr²

Next Steps• The Member Taskforce agreed to raise supplier

marketing rebate by 2.5%. They were confident that if need be, the store could absorb and recover the cost if suppliers raised prices.

• The Board approved this approach subject to Member approval of CHOICES.

• We will make presentations to our suppliers and seek their agreement to absorb the increase in the marketing rebate, rather than pass it on to us. We cannot guarantee this will be the outcome.

• We intend commencing the building of the fund from January 1, 2011.

• All stores to be painted and sign written by June 2011 and the new campaigns launched shortly thereafter.

RE - NEWING

The Opportunity to Re-New

The fact is, no chain or group in this industry has been able to take a

dominant position in the market. We are the best of them, but the position remains confused and too alike for

anyone to ever achieve real success.

Are we prepared to take the lead?

StoresCorporate

Branding

Experience

Product Mix

Funding

Network

Marketing

Resources

Recruitment

CAS

Choices

Group Strategy

Where Are We Now?• The process so far• Objective of the day

– Controlling our own destiny– Purpose of the Central Office– The needs of the Group and the Member– Ensuring your success, and ours, with a more

sustainable business– We can propose a new strategy, but you are the

shareholders, so it is your decision– Today is about allowing you to make an informed,

considered decision• Overview of the day

Attraction / Appeal / Competitive• We need to be the first choice by customers,

the first choice by suppliers and

the first choice by future staff.• The attraction and appeal of our group will only become

apparent only if we are truly differentiated.• Should that happen, we will grow and be more appealing

as a group to others in the industry, thus supporting recruitment.

• The goal of 170+ stores becomes realistic and our position becomes more competitive and profitable.

Objectives• Business renewal.

– 1 year – Rebrand, Transition, Ranging, Skills– 2 years – Generate growth, Build network.– 3 years – Network size, Sydney and Melbourne,

Store performance enhanced by skills and presentation.

• Sustainability.• Goodwill.• Control over supply chain.

Presentation Summary• Category Opportunity.• New Brand Opportunity.• Positioning Opportunity.• Supporting Strategies.• What it can mean for you – the metrics for success.

It’s Now Your Decision1. I am completely satisfied with the explanations that I have had in respect to

CHOICES. I fully support the program and would willingly undertake the process of transition.

2. I am mostly satisfied with the explanations I have had in respect to CHOICES and will support it, but need the following issues resolved:

3. I am mostly opposed to the change to CHOICES, but if the majority of members support it, I will support it. My opposition is on the grounds of:

4. I am completely opposed to the change to CHOICES, because:4a. However, I will accept the change if the majority accept it and will adopt it. 4b. I cannot adopt the change, and as a consequence, wish to discuss what other options I have.

transition to choices on line summary oct 2010

Documents

backgound slide

taskforce of members

national members meeting

issue of brand confusion

rug sales

distinctive marketing

retail floor coverings

regional meetings