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Philip Morris and Son independent retail shop
By Bira
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Early adopters

Philip Morris & Sons’ two shops in Hereford may look very traditional but the firm has been trading successfully online for almost 20 years. Managing partner John Jones tells what it was like to be in business at the start of the ecommerce boom.

SITTING IN THE shop from which Philip Morris & Sons has been trading for more than 160 years, John Jones recalls it was his father Maurice who was keen on putting the business online as far back in 2002: “Dad is obviously of the senior generation, but this family business has thrived over the decades by evolving and changing. He correctly predicted that ecommerce was going to be significant and we ought to be involved.

“In retrospect, we were lucky to get on to it so early because back then no one knew anything much about online. Like everyone else, we just had to learn as we went along. We had an off-the-shelf website to begin with, but we built our expertise internally. By 2005 we had put together our first bespoke site.”

The site – philipmorrisdirect.co.uk – had three major rebuilds after 2005, the most important being in 2015 when it was converted into a fully responsive site that could be accessed on a mobile phone as well as a tablet and computer. On 2 July this year, the site is due to be replaced by an entirely new alternative.

Talking to Bira Magazine five weeks before the big day, John and operations manager Kerrith Soden present a very relaxed air, possibly because the team has been working towards this for something like two years. They are well-prepared as the time has been spent finding out which services and programs would provide the best-in-class performance across a number of separate but integrated elements for their sophisticated omnichannel business.

“The big changes from July will be at the back of the site, which has been very clunky for a while,” John says. “Everything did its job, but nothing we used was the best at anything. Going forward, the APIs will all talk to each other across the business.”

(APIs or Application Programming Interfaces permit one application (such as an ecommerce platform) to link services (like order management, warehouse stock, pricing information, site content, customer profile data) to other applications to present a seamless integrated management system.

Most of the functions off the website were previously handled by business management software from Khaos Control. Involved in different aspects of the ecommerce activity will be programs from Linnworks, Vend, Inventory Planner, Big Commerce, Mailchimp and Smartcode.

The complexity of the reorganisation is a reminder that, despite what some uninformed retailers believe, ecommerce is neither “easy” nor “cheap” to get into. The capital expenditure on the new set of tools is about £30,000, but John points out that the original Khaos Control pack-age installed 12 years ago cost £50,000.

While some costs have eased as ecommerce has developed, the cost of Google ads and paid-for search, the algorithms that enable shoppers to find the Philip Morris direct site and vice versa, has increased inexorably.

With 10% of the website’s turnover – or about £400,000 a year – going on the Google spend, one might expect the team to resent such a financial drain, but Kerrith is pragmatic about the realities of contemporary online life: “It’s very easy to spend a lot of money on digital marketing, but I don’t care how much we spend with Google as long as everything is justified by the sales we get. Some businesses use an agency to monitor paid-for performance, but we believe that we can do it much better internally. We have the full details at SKU level.

“Retailers moan about working with Google but it’s quite simple really – you just have to provide to them the data they require in the format they require. Yes, of course they change what this is all the time, but you cannot have an online business without Google.”

The Philip Morris business comprises what’s known as “the original building” at 21-23 Wide-marsh Street in the centre of Hereford, which houses all the DIY and gardening lines that link to its ironmongery roots, plus homewares, toys and newer products like luggage. Immediately opposite at 18 Widemarsh Street is the clothing store, which was added in 2007 and stocks popular fashion brands like Joules and Barbour on the ground floor and a countrywear department upstairs. Here the country set also can buy guns and specialist kit for field sports.

In terms of sales, No 18 generates around £1.1m annually, with another £0.9m coming from No 21-23. The website produces £4m, twice the total of the bricks-and-mortar sites combined. An interesting question is whether Philip Morris could have a viable business with-out its shops. John, 42, who runs the business with his 38-year-old brother Bruce, thinks not.

“I believe we will always have a high-street presence, not least because most of the brands we sell do not deal with web-only businesses,” he says. “Our end-of-season Sale, for example, goes much better in the shops than online. The relationship between the two sides of the business is not as straightforward as people might imagine. We absolutely believe that the best form of advertising for the shops is the site. If we take a brand off the site for any reason, its sales are almost always hit in-store. It happens too much to be a coincidence. The implication is that a lot of people are looking online for a specific product, find it on our site and then come and buy it in the shop.”

Started in 1845, the business is named after its founder. Albert Jones acquired it in 1945 and when he died in 1974, his son Maurice took charge, with his wife Bunty also joining the business. In 2010 Bruce and John, who had entered the family firm in 2002 and 2005 respectively, took the reins from their parents, who remain active in the strategic direction of the business.
Philip Morris has had an EPOS system since 1995, so it’s no surprise that the current team is very hot on data analysis. The whole business has 48,000 SKUs but “only” 23,000 will be found on the new website. Small items like screws and cup hooks are not of interest to the online team. Everything is carefully measured to ensure it is getting a decent return – a 40% margin is the minimum required.

The shops and website have separate teams with the senior management controlling and directing the unified business. Website products typically meet some simple criteria – they should be branded and be products that are in high demand on online searches.

“When we started in 2002, we did very well with Brabantia bin bags,” John recalls with a laugh. “Gardening was big too when we started, but there is no margin in that now, so we scarcely do it. Just as we have massively reduced small electricals in the store because there’s no money in them anymore, we must keep on top of what is working for us online. We have a very good and expanding toy department at No 21, but we don’t sell Lego online because so many other sellers do it at a discount. To work best for us, a brand should be big enough to be known but small enough not to be absolutely everywhere. And it should be easy to pack and ship.”

To be bought for Philip Morris a brand must contribute a minimum of £20,000 in annual sales and “fit in with who we are”, says Kerrith. Two key elements on the product side are buy-ing and replenishment, which Kerrith stresses, are increasingly two distinct disciplines. John handles much of the clothing buying, while Kerrith is the senior buyer for the homewares store.

“Flair is needed for buying, but replenishment is totally different and is completely driven by data analysis,” Kerrith insists. “When we are out buying, we do have different approaches, asking ourselves is this store-only, or online-only or both. For example, we have 4,000 pairs of wellies in our warehouse – we would never sell that many in the store alone, of course.”

John and Bruce have the slightly strange task of running two separate but related businesses, each with its own profit and loss account and with its own demands on management. The retail team comprises seven staff in the home-wares shop and five in the countrywear and fashion side. Long service is the norm and each rare job ad – even for a Saturday casual – elicits in excess of 100 applications, which could be seen as an encouraging sign for the future of physical shops.

The online team, which is located in a separate building a few minutes’ walk from the shops, has seven in marketing, four on customer service and three in the warehouse. Almost all are in the 20s. Finding and retaining good staff, with up-to-the-minute skills is challenging in a provincial city like Hereford.

“We train our people well, which makes them attractive for others to poach,” Kerrith, who is 30 years old, admits resignedly.
Facts and figures are shared readily by the pair: average transaction in-store is £13. Average online is £60. The site has 80,000 active customers. For now, chasing overseas customers is not a priority. “There is a whole lot of people in the UK to go for,” says John.

The company has started to sell via Amazon as well. Kerrith is concerned that in 10 years’ time the platform will have an unhealthy, even dangerous, grasp on the UK market, forcing suppliers to sell directly through it.

John remains more sanguine, insisting that there is business to be had by embracing Amazon, not just opposing it. The current strategy of constant innovation and investment is paying dividends at Philip Morris, which is enjoying regular annual growth of 20%. But he counsels caution to any independent who is thinking of going online: “Most traditional retailers should not enter the online market now. It’s like starting an entirely different business. As I have said, we were just lucky to get in on it so early.”

PHILIP MORRIS & SON

18 Widemarsh Street (Clothing & country wear shop)
21-23 Widemarsh Street (Homewares shop)
Hereford HR4 9EE
Founded: 1845. Owned by current family since 1945
Bira member since: 1946

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