As we contemplate Apple’s first 40 years, we’ll take an early eighties dive into the company’s counter-intuitive retail development in France.
I’ve always loved retail, and retail has loved me back—in unusual ways, as we shall see.
Born, raised, and living in France for the first 41 years of my life, I witnessed the rise of large retail chains and how distribution became all powerful—oppressively so. I saw how Carrefour, the chain that coined the word hypermarché, treated a respected yogurt maker: We’ll tell you the flavors and quantities we want you to make, we’ll set the delivery schedule, dictate the marketing and branding arrangements, define the return privileges and, of course, we’ll let you know what we want to pay for your product—and when we want to pay it.
As a kid in boarding school, I couldn’t stomach the fact that artichokes on Paris shelves sold for ten times the price Breton farmers got from the distributor. (Decades later, French farmers’ complaints about the unfair power of large chains, now coupled with the effects of loosened importation standards, are louder and more violent than ever.)
In the early 1970s at HP, I was on the front line, experiencing the dominance of large-scale retail over the company’s sales of its ground-breaking pocket computers. I didn’t like the unchecked power of large distributors and formed thoughts that later found apt expression in the now-canonical aphorism: “Content Is King, But Distribution Is King Kong.”
With this power struggle in mind, I wanted to make sure Apple France didn’t let large retail chains jump into the driver’s seat when I started the company’s French subsidiary in 1981.
I wanted to see how retail channels were managed in the US, so I promptly flew to California and presented myself to my noble and worthy elders in the Cupertino Mothership. As recounted in an earlier Monday Note, I was taken aback: the Apple sales organization had delegated the task of retail management to a network of independent manufacturers’ representatives. Indeed, when I visited Apple dealers just minutes away, the shop keepers greeted me warmly, exclaiming that I was the first person from the company to drop by. I returned to the office and subjected an Apple Sales exec to a (possibly) too-French questioning of the reps’ technical competence and commitment to the product and brand. The exec insisted that the marriage was splendid—Mind your own business.
Back in France, that’s exactly what I did. Luckily, Cupertino was far away and didn’t pay too much attention. Even better, Apple’s VP for Europe, the deeply-missed Tom Lawrence (known as “Lawrence of Europe” for his flamboyant style), liked me and gave me broad, amused license.
My first thought was that we needed to provide direct service to the reseller network created by Sonotec, the previous Apple importer. By “direct service” I meant technically-competent Apple sales people and a logistics organization that would make resellers’ lives as easy and profitable as possible. All wonderful but a bit toothless, too general—it failed the “Can you disagree” test.
Pricing provided the teeth.
As we saw it at the time, the accepted practice of volume discounts was the first step on the Road To Perdition. Big retailers would order large quantities of computers at a reduced price and then rather than using their fat margins to hire and train competent sales and service organizations, they would cut the price tag of the product in order to drive out the competition. They would sell Apple products the way hypermarchés sold yogurts.
Smaller retailers would get killed, squeezed between discounting competitors and their higher product cost. And yet, those smaller retailers were the most enthusiastic, the most competent promoters of Apple machines, always willing to spend an extra hour to explain the product, to answer questions after the sale, to provide personalized service.
We resolved to go against standard practice and enforced uniform pricing: No quantity discount.
Our decision wasn’t well-received. One large chain told us they would simply procure Apples on the grey market…but product localization (documentation, keyboard layout), uniform pricing, and our control of supply made grey market sourcing a practical impossibility. Others called us various unflattering French names and sarcastically told us that they would order one machine a day until we tired of our charade.
Here, I need to introduce the three key players who made things work and carried me on their shoulders. (This isn’t cutesy, perfunctory credit; I am in their debt, as you’ll see at the end.)
First, Michel Delong, ex-HP France, our logistics wizard. Michel built an organization that could deliver any order overnight anywhere in France. Our warehouse, a well-lighted place joyfully managed by Jean-Pierre Tastet, an HP colleague Michel brought with him, became a must-visit showcase for would-be retailers and end-users alike.
Jean Calmon, our sales exec (ex-IBM; “refreshed,” his own word, by the ambiance at Apple), ran a group of technically competent sales people whose role wasn’t to entice dealers to simply order more, but to help them see how to sell more.
Our competitors had a simplistic strategy: “stuff” the channel, induce dealers to order as much product as possible in order to leave no room—no financial resources—to stock other brands. Calmon countered this strategy by advising Apple retailers to order stock for no more than one week of sales. We’d delivered small quantities as often as required, as often as sales of previously-ordered product provided cash for more product.
In another break from tradition, our sales people weren’t commissioned. We believed good, well-paid sales people don’t require a carrot to do a good job. We used other incentives, instead: Every morning, everyone got the same printout on their desk. It listed what everyone had sold for the week, month, and year-to-date. Salary raises and (rare) exit interviews ensued.
Last but not least, Gilles Mouchonnet, ex-Data General, our guardian of financial sanity. This was the man whose hand was on the credit spigot. Each reseller was given a credit limit based on their past performance and other factors such as credit score—and all resellers were given a 30 day term. The French scoffed at this très Americain vulgarity, and professed to ignore it as local custom. But we enforced it, and with a twist. Let’s say you have no outstanding invoices beyond the set 30 days; when you order more product, we might demand payment of some current bills—because the new order would put you above your credit limit.
I was lucky to have hired the triumvirate. Regrettably, two of my three friends, Michel and Gilles, passed away a few years ago.
The combination of service-oriented sales, high-speed logistics, and tight credit management by finance would prove to be powerfully effective. No one explicitly designed the system, it simply emerged through our mutual and alloyed desire to stay in control of the reseller network.
Of course, it helped immensely to have a desirable product. In words I learned later, we didn’t have to “push” the product, we experienced “pull.” Whatever marketing campaigns we waged bolstered that preexisting force. (If you have to push, a difficult life lies ahead—consider re-considering.)
Smaller retailers were a bit skeptical at first. Some openly wondered if uniform pricing was an artful misrepresentation: Did we offer large resellers some type of underhanded advantage such as year-end payments for performance, or some of the infamous “soft dollars” in the form of advertising support? But our actions spoke, and they found there was only limited competition on price. That left them with margins that they could use to compete on service, which helped the image and sales of Apple products.
After sitting out for awhile, one very large chain couldn’t help notice how well their competitors were doing with Apple products and finally decided to play. A large order is placed, shipped, and immediately “pulled” by customers. A second order comes in. Logistics apologizes: “Can’t ship; credit hold.” “What, our credit’s not good?’” The indignant caller is transferred to finance and is told that the chain’s reputation for cavalier treatment of payment terms has won them a low credit limit. Risk must be mitigated.
The call then comes to me. I know the caller from a previous incarnation and, using an analogy unprintable here, explain that we treat everyone the same: “We perform, you pay.” A check is promised, immediate shipment is demanded. We-of-little-faith offer a different approach: “We’ll dispatch one of Jean Calmon’s sales gents to collect the check and then we’ll roll the palettes out to the shipping dock.”
This was fun and profit rolled into one. At the time, Apple France became the company’s largest business outside the US and, against all cultural traditions, our resellers paid us faster than their US brethren.
In 1985, with the victory over big retail in my portfolio, I was offered the logical next step: running Apple engineering in Cupertino. Go figure.
This post originally appeared at Monday Note.