financial services

Compelling logic has led the super-chains into financial services. Marks & Spencer seized a logical opportunity in investment products just as J Sainsbury jumped rationally into banking - both with vast success. The logic lies in the myriad customers who trust the brand.

In modern marketing, you build the brand and exploit its power to sell the carefully segmented customer base an ever-increasing range of goods and services. The logic is perfect, save for one awkward question. Where does the process stop? The super-store might become all things - or their purveyor - to all men, women and children.

If petrol, why not cars? If furniture, why not houses? If medicines, why not health care? If banking or pensions, why not all money products and services - a financial supermarket? That would truly capitalise on the trust and the customer base. Before the lure of more financial diversification proves irresistible, though, managements should ponder the Sears Roebuck story.

The world's then largest retailer created the first and most formidable financial supermarket. Sears, biggest in real estate broking, was a giant in insurance, shopping centres, credit cards and stockbroking. Financial gold poured forth, generating some huge leaps in group profits - and nearly destroying the great company.

Financial services not only consumed more and more capital: they diverted both cash and attention from the retail operations, which had begun to suffer badly. And 'if you didn't have customers coming into your store, happy with their relationship with the store, they weren't necessarily going to be interested in anything else you had to offer.'

The wise speaker is Arthur Martinez, the hero who took Sears from $3 billion losses to $1.25 billion of profit. He assassinated the world-famous mail order catalogue, closed loss-making stores, and radically reformed operations until margins had nearly quadrupled. All this was only possible, however, because the financial supermarket had been dismantled.

Everything went, leaving Martinez free to work his retailing magic. So that's the ultimate lesson. If British diversifiers ever forget that the core business and its customers come first, even their best diversifications won't save them.