HAMISH MCRAE: Retailers like Sainsbury's Tesco and M&S must keep it simple

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The KISS principle – keep it simple, stupid – was the acronym of the US military in the 1960s. 

You need to design things so that they can be fixed in battle conditions. You need simple maintenance procedures. And you need kit that is appropriate for the job that has to be done.

Now apply this to retailing. There are a few famous catchphrases, such as James Gulliver's 'retail is detail', and Jack Cohen's 'pile it high, sell it cheap'.

The latter defined Tesco and was the title of 'Slasher' Jack's biography. 

Tesco stumbled around, buying things it did not know how to run, starting businesses in the US it had to close, and so on

John Sainsbury, Lord Sainsbury of Preston Candover, was also relentless in his attention to detail, and it was his intuitive genius that took Sainsbury's sales from £150million to £9billion over the 23 years he ran the company.

But then neither Tesco, nor Sainsbury's, nor indeed Marks & Spencer, remembered the need to keep things simple.

Tesco stumbled around, buying things it did not know how to run, starting businesses in the US it had to close, and so on.

Sainsbury's has just produced some decent enough results but has all sorts of problems with its online business.

M&S is simplifying its business, getting rid of things it is not great at. But while its food is wonderful, as always, it has not cracked its core business of women's clothes. Now contrast this with Alibaba and Amazon. 

Alibaba is the world's largest retailer, with a current market value of £279billion. Amazon is number two at £193billion. 

And Tesco? Well, it is worth £14billion; Sainsbury's and M&S both around £5billion. We think of our great retailers as giants. They are tiny by world standards.

What Jack Ma and Jeff Bezos have is focus. Jack Ma, who I have met, has that ability to mesmerise an audience by talking very simply about helping people live their dreams.

I have not met Jeff Bezos but it is easy to catch the simplicity of his pitch. He says he has three principles that have guided him over the past 18 years: 'Put the customer first. Invent. And be patient.'

A tidal wave of change is washing over retailing. I can understand that is it easier to create an entirely new retailing model, as have Alibaba and Amazon, than to modify and adapt an old one.

Ten years ago Tesco was the world's third-largest retailer, behind Wal-Mart of the US and France's Carrefour.

Carrefour is now worth about £15billion, more or less the same as Tesco, but Wal-Mart is worth £176billion. So Wal-Mart has fought back and kept growing. Our retailers haven't.

They haven't kept it simple, have they?

The shovel solution

Remember the stories about the 1849 California Gold Rush? Very few of the prospectors struck it rich, even if a handful did make their fortunes. 

The ones who reliably made the money were those who sold services to the gold panners.

The moral was that you made money selling shovels, not finding gold.

Now let's look at another shovel story. In 1989 NatWest started a little electronic payments business called Streamline. 

It sold part of its payments business to a US company called Ceridian, but kept part back.

Eventually NatWest was taken over by Royal Bank of Scotland.

RBS Worldpay, as it had then become, was built into an international business, buying other similar payment companies in Europe and the US.

Then RBS bit the dust. As part of the terms under which the Government was allowed to rescue it, the EU required RBS to sell ancillary businesses.

Worldpay was one of those, and it was bought by Bain and Advent for £2billion – though RBS did initially retain a 20 per cent stake.

The business went public in 2015, and last night, thanks to the possibility of a bid from JP Morgan Chase Bank or the US credit card company Vantiv, it was worth £8bn.

Now that the company is, to use the unpleasant jargon of the markets, 'in play', other potential bidders will be shaken out.

Two lessons. One is that the requirements imposed by Europe on the RBS bail-out disadvantaged British taxpayers even more than was thought at the time, because RBS was forced to sell a sound business at a knock-down price.

The other is that the boring stuff of sorting out electronic payments – the shovels – is a much better business to be in than banking, or at least banking done the RBS way.