Who does Royal Mail Group think it's fooling?

[TrueBlueTerrier]

http://moneyweek.com/should-you-buy-roy ... hares-rmg/" onclick="window.open(this.href);return false;

I almost fell off my chair when I read that Royal Mail (LSE:RMG) is blaming its recent poor trading on Amazon,

I mean, flipping heck, RMG has got bucketloads of business from Amazon and the booming parcels delivery market! Turning around now and blaming their client really is the pits.

But this is one of the very things I warned about when commenting on the Royal Mail flotation just over a year ago.

I said that this heavily-unionised business would find it difficult to keep up. Big pseudo-governmental institutions aren’t able to adapt. The contracts, the unions and the stultifying nature of the beast are to blame.

Sure, I said. Go for the stock. After all, it’s going cheap. Especially when you consider the property assets the company’s sitting on. But beware of the serious fundamental problems.

Problems that we’ve all had to contend with. Let me give you an example.

The delivery I’ll never forget

If you’re anything like me, as your gadget collection has grown, your office space has begun to resemble a telephone exchange – wires everywhere!

A few weeks back it got to the point where I had to do something – so I went to the web-o-sphere. Amazon had everything I needed to tie, coil and tidy all of my nuisance wires at the click of a mouse. And I threw in a lovely surge-protected, ten-gang socket tower too.

Next day – as is nearly always the case, I find – I took delivery of said items. Well, all except for the vital piece of the jigsaw. Turns out that my socket tower was coming courtesy of RMG.

“OMG”, more like. Of course, the thing came a day late. But little could prepare me for what that ‘thing’ actually was.

I won’t beat about the bush here. Royal Mail delivered an empty box!

“I guess I’d better take that straight back” said my old postie, staring at it… “looks like somebody’s made off with whatever it was in your box.”

This disaster took me right back. My personal business used to offer a mail order service to retail clients. But a couple of years back I decided to shut down that side of things.

One of the big reasons I did so was the mounting cost of dealing with the various problems caused by RMG.

RMG should have done better than this

The truth of it is that RMG has been given every opportunity to partake in a massively growing market.

Indeed, when the business floated they were talking about growing the parcels business at a rate of 6%. A pretty poor target given that overall, parcel deliveries are growing at nearer 20%.

But hey – 6% is still useful. Well, it was until this week, when RMG reported that in reality, they’re now reassessing that figure (courtesy of Amazon, don’t you know). Now we’re looking at growth of nearer 1-2%.

“Ooh, those flighty Amazon boys”, RMG protests. “And all those pesky private contractors!”

But the fact that private contractors are willing to deliver every day of the week, on time, and seemingly without that penchant for dipping their hands into the basket, is testament to what free markets and hardworking individuals can achieve.

Taking on the bloated RMG – with all its massive infrastructure and monarchically-given head start – has been no mean feat.

But should you buy RMG stock?

As far as the stock itself goes, I’m not a long-term buyer.

Sure, the company has assets. It’s already flogged off its Paddington site for £111m. And rumours abound that the Mount Pleasant site is going to go for around two-thirds of a billion.

But let’s not forget, this is the sort of business that can always find ways of frittering away its opportunities and windfalls.

I mean, really. Take a market growing at 20%, and then set your target to 1% to 2% growth! Come on.

The unfortunate thing is, I bet they actually end up overseeing a shrinking parcels business, just like the letters side of things. Thank heavens that RMG managed to hive off the pensions to Her Majesty’s government, or they really would be in trouble!

The best thing investors can hope for is that management realises it’s running a property business – not a delivery business. Sell the assets gradually, wind down the business and return funds to shareholders.

Allow private contractors to come in and do a proper job of deliveries. If the universal delivery service doesn’t make sense – then dump it!

Alas, I strongly suspect this is the last thing RMG has on its collective mind. It’s going to take the monies from asset sales, keep investing it in updating systems, and fight the losing battle. And yes – it has a vast army of soldiers to keep in employ.

That’s the nature of a pseudo-governmental beast.

Still, I guess things could have been worse, it could have still have been a fully-governmental beast. Then things really would be bad!

[deltaforce]

Efficiency = 50p per parcel
Efficiency= safe place over the garden fence.
Efficiency = transport cost and fuel...take it out of the 50p
Efficiency = redeliverys.... See above
Efficiency = pensions... Find your own
Efficiency = office and storage cost... That's your garage
Efficiency sick pay... Your sacked.

[The_Wax_Man]

Efficiency = 50p per parcel
Efficiency= safe place over the garden fence.
Efficiency = transport cost and fuel...take it out of the 50p
Efficiency = redeliverys.... See above
Efficiency = pensions... Find your own
Efficiency = office and storage cost... That's your garage
Efficiency sick pay... Your sacked.

^^
That's about the jist of it. Race chase to the bottom.

The average buyer ( Inc this journalist ) do not give a flying fig about who delivers the item they have so carefully clicked for.

All they are concerned about is 'Paid for it, deliver it to me NOW "...Snap fingers, snap fingers.

I am sure all of the said items were available from the local hardware/gadget store. - Lemme guess. People are just too busy to pop out to the shop and do what we all used to do.. Not too busy to sit on the laptop and explain away the inefficiency of the delivery companies/courier when something does not quite go to plan though.

[aposter]

Efficiency = 50p per parcel
Efficiency= safe place over the garden fence.
Efficiency = transport cost and fuel...take it out of the 50p
Efficiency = redeliverys.... See above
Efficiency = pensions... Find your own
Efficiency = office and storage cost... That's your garage
Efficiency sick pay... Your sacked.

^^
That's about the jist of it. Race chase to the bottom.

The average buyer ( Inc this journalist ) do not give a flying fig about who delivers the item they have so carefully clicked for.

All they are concerned about is 'FREE DELIVERY AVAILABLE ON THIS ITEM "...Snap fingers, snap fingers.

I am sure all of the said items were available from the local hardware/gadget store. - Lemme guess. People are just too busy to pop out to the shop and do what we all used to do.. Not too busy to sit on the laptop and explain away the inefficiency of the delivery companies/courier when something does not quite go to plan though.

FTFY