THE ERT INTERVIEW: Leo McKee
‘We’re in the business of fulfilling dreams’
Those who criticise UK rent-to-own electrical and furniture chainBrightHouse for ripping people off are often ill-informed, chief executive Leo McKee tells Sean Hannam
“One of the things about the UK high street is that when you look at the shop windows – at one end you’ve got price, price, price and at the other, you’ve got lifestyle,” says Leo McKee, chief executive of the rent-to-own electrical and furniture retail chain BrightHouse, which has 306 stores.
As he is saying this, he is stood outside one of his company’s shops in Watford High Street.
“If you look in the window of New Look, you’ll see products up against the front door and you’ll see prices. If you look at Peacocks, you’ll see ladies’ dresses for £8. The way you communicate price and value in the UK high street is that you show that you’ve got massive availability of product or you shout price through your point-of-sale. On the other hand, if you’re doing aspirational [retailing], then look at the Debenhams shop window. You’ll see two mannequins, smartly dressed, posed.”
To demonstrate his point, he strikes a pose like a mannequin, holding his polka-dot corporate BrightHouse tie out to one side.
“If you want to know the price of any of those products, it [the price ticket] is small and on the floor. Why? Because they’re selling a dream.
“We’re at the dream end – we’re in the business of fulfilling dreams. You and I have got the car and the house and we might go o
n foreign holidays. For my customers, the most important purchase in their life is very often a sofa and, therefore, my customers are looking for sofas that are contemporary or classic and are high quality and on good terms.
“My product offering is aspirational – if you look at our shop window, you can see the products, but there isn’t an abundance of point-of-sale – what we try to do is present the products so that they welcome you.
“Similarly, you’re able to walk round the store – even if you’ve got a pushchair – and imagine the stuff in your home. It’s easy to see the technology products like televisions and domestic appliances.”
A few minutes later, Mr McKee – who is dressed in a branded BrightHouse shirt – and myself are sat on some of those welcoming sofas in the store’s showroom.
“You sit there, so you can tower over me and question me,” he says, in his Scottish burr.
Q: What’s the split of BrightHouse’s business in terms of electricals and furniture?
Leo McKee: Eighty-twenty, in favour of electricals.
Q: The last time ERT spoke to you, in July of this year, BrightHouse had reported a strong year’s growth, boosted by the successful trial of your satellite store concept and your ‘clicks and mortar’ service. How’s business at the moment?
LM: We’ve just completed our half-year, which ended on September 30. It would be fair to say that we’re broadly trading in line with expectations. As far as our satellite stores are concerned, we opened our first one in Saltcoats, North Ayrshire [in Scotland].
We’ve identified 150 locations in the UK that we believe will take a satellite store. What is such a location? It’s likely to be a small market town or a suburb in a larger town that’s got a distinctly separate identity. It will have its own post office and a parade of shops and schools. It will be a secondary shopping location that’s within reasonable travelling distance of a destination location. The parent store of our Saltcoats satellite store is Irvine, which is eight miles away. Typically, the customer would shop in Saltcoats during the week and would go to Irvine at the weekend.
Where the satellite store differs from our main chain stores is that the main ones – like this one – will be roughly 2,000 square feet of retail and will display the full product categories of furniture, technology [mobile phones, laptops and tablets], domestic appliances and televisions.
I go to our stores all the time and I wear the uniform because, if I walk into a store and my staff are all tied up with customers, but there’s a lady standing there, what am I going to do? I’m going to go and talk to the customer
The satellite store is more likely to be 750 to 1,000 square feet. In our normal chain stores, we would display 16 televisions – a satellite store will display nine. It will also show a range of technology and 50 per cent of the domestic appliances. We’ve cut the furniture display – it’s space-consuming, so we sell it through our intranet. The customer can look at it on an interactive screen in-store.
If people want to see the furniture ‘live’, they can do that in our parent stores. We’ve found that the satellite stores have really taken off – they’ve surpassed our expectations.
Q: Earlier this year, you said you had 20 new BrightHouse stores planned for 2015/2016. What’s the latest on that?
LM: So far, just having completed our half-year, we’ve opened nine stores – a third of those are satellite stores. We said that we plan to open 20, but we’ll only do that if they’re the right premises and in the right locations. We’ll certainly open another 15 or 16 – it wouldn’t be less than that.
In the Greater London area, we have 26 stores – we believe that within that perimeter, it has the capability for 82.
All of our stores are on the British mainland – we would expect to open some on some of the outlying islands, like the Isle of Wight and the Isle of Man and Stornoway [Lewis], Orkney and The Shetlands.
The other thing we’re continuing to do is significantly strengthen our supply chain. We have a national logistics and engineering centre in Trafford Park, Manchester. All new products that come into BrightHouse come through that distribution centre. If you buy a TV, it comes from Manchester, it’s delivered to your local distribution centre and they deliver it to you. The store never sees it. If a product has to be repaired, it goes back to Manchester – if we can’t fix it in the customer’s home. We have opened two new local distribution centres – one in West Drayton and one in Huntingdon. We’ve also doubled the capacity of our local distribution centre in Birmingham. At the same time, we’re continuing to improve our systems infrastructure in order to improve the quality of our in-store and delivery services.
Q: What about your ‘clicks-and-mortar’ service?
LM: Customers want 24/7 access to your product offers. We’ve gone on the internet. We really kicked off our online activity in 2012. A customer can look at the full product range on the Net, they can establish a credit rating for themselves and they can make an appointment with a store. They come into the store, where they are welcomed by the team and we can deliver to their home.
Q: Do you see yourselves as competitors to other electrical chains like Dixons Carphone, or because of your different business model, do you see yourselves as out on your own on the high street?
LM: I think you have to be very aware of them because our consumers watch the same television, read the same magazines and look at the same shop windows. What is available on the high street and in out-of-town shapes their expectations.
Q: How did the improvement in the economy after the recession affect your business?
LM: To some extent, things are starting to calm down because we’ve had the UK General Election and the Scottish Referendum, but you’ve also had the latest news about the UK steel industry… I think that consumer confidence has certainly been dented and therefore consumers are more cautious about buying big-ticket items and engaging in credit. If you go back eight or 10 years, customers were buying kitchen appliances on a fashion basis. We were selling lime green fridges. Domestic appliances are now being purchased essentially on a need to replace basis. We’ve also had the advent of more precise regulation of markets, so the consumer always has an eye for a bargain. The electrical retailing market in the UK over the past 12 months has been slow and footfall on the high street has been down. Consumer confidence has been fragile – there are signs of it recovering, but slowly.
Q: Who is BrightHouse’s typical customer?
LM: The typical BrightHouse customer would be female, 25 to 45 and with dependent children.
Q: Do your customers want the latest brands and models?
LM: Yes, they do. The sofa, the television and the smartphone are aspirational, whereas the washing machine or the fridge are fit for purpose. What they look for, in terms of the washing machine [or fridge] is the security of the brand name. I think our customers are brand-savvy – they’re home makers. We serve the alternative credit market – lower income families. I think it’s a mistake to assume that because someone’s income is lower, they are somehow irresponsible or feckless. They’re not – they’ve very aware of value. We invest a huge amount in customer research. Our own mystery shopping and independent research confirms that the quality of service in BrightHouse stores is very high indeed.
I go to our stores all the time and I wear the uniform [he points to his BrightHouse shirt and tie]because if I walk into a store, and my staff are all tied up with customers, but there’s a lady standing there, what am I going to do? I’m going to go and talk to the customer.
Q: What do you look for in your staff?
LM: We look for people who want to make a difference and for people who enjoy working with others. One of the things about BrightHouse is that it’s a team game. Our customers are family-centric and a lot of them are female. We want to make sure that they’re treated with respect.
Q: BrightHouse has been criticised in the past. In February this year, a report by an all-party group of MPs looking into debt and personal finance attacked stores, including BrightHouse, for charging “inflated prices to some of the poorest people in the country”. What’s your response to this?
LM: If you look at the performance of the company, last year we were identified by The Sunday Times as one of Britain’s best employers. Our independent customer research shows very high performance ratings and our engagement with the community is very high – and our financial results are very strong. The fact of the matter is that some 40 per cent of our new customers are recommended by existing customers – we’re in the community. I’m now in my tenth year with this company and it’s shown consistent growth since year one.
We write a five-year business plan and we have four areas of strategic intent – the first is to be an employer of choice – a great place to work. The second is to have sustained excellence in customer service. The third is to be proactive in the community and the fourth is to deliver a solid financial performance.
We invest a lot in corporate governance and I think that much of the criticism is ill-informed. However, we proactively welcome criticism. When I came into this business, there was a whole swathe of criticism from every source and I have to say that it was deserved – it was ripping customers off and treating its staff with contempt. We’ve absolutely transformed the business and where people do criticise, we meet it head-on.
Heavyweight people who look at our business can see that we operate a clean ship. If people have something to say, we’ll always listen and we’ll seek to learn.