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Despite the recent collapse of Focus DIY, the rescue of All Saints and the on-going fight for survival at HMV I’m still optimistic about the opportunities in the retail sector for interim managers this year. I spoke in an earlier blog about the opportunities for interims coming from Private Equity investment, turnaround specialists and the middle-ground retailers who haven’t yet changed their focus (no play on words intended).
Despite a slow start to the year and a slow-down over the Easter / Royal Wedding period, it’s been a good start for the retail interim manager and the signs are looking better for the back half of the year. A number of private equity businesses I have met with have funds burning holes in their pockets and are eager to spend and I’ve made placements across a number of disciplines in retailers who are performing well and are hungry for growth and investment. The focus has changed from ‘09/10 where interims were predominantly used for cash management or business reorganisation projects. I’ve met with a number of businesses this year and while all will say it’s challenging out there, those are still ‘battening down the hatches’ seem to be missing a trick.
These retailers are either in denial or have a head-in-the-sand approach. Having a ‘me too’ offering and hoping that a business is going to trade its way out of trouble just isn’t enough in the current climate. You might be able to get away with it when times are good and consumers have more money. Unfortunately for businesses in this predicament I see less innovation and more procrastination. Businesses claim that it’s costly to reinvent or reinvest, but surely they can’t not afford to do so? Whilst interim management can be an expensive resource, I work closely with senior level industry specialists who are committed to delivering a return on investment from day one. This surely is a better option than throwing money at consultancies to try and fix the problem when the horse has already bolted.
There will be a number of second tier operators looking at Focus and wondering if they might be next. Wouldn’t they be better looking at the retail success stories and trying in some capacity to emulate their success? This change will require experienced, sector specific knowledge and fast……..but what will it take for the penny to drop and for these retailers to do something now rather than reflecting on it when it is too late?
Jonathan Flynn is Head of Retail at Interim Partners.
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May 18th, 2011 at 10:02 am
Innovation is the key to success in any business but in particular the Retail sector. Offering value for money has been the prime mover in fashion for a few years but even that is not enough with the likes of New Look struggling.
One of the more successful fashion companies in the last year or so has been Superdry (although the SuperGroup shares were hit last week when growth slowed to 61% from 87%!). Superdry are neither a luxury brand or at the VFM end. However, they offer innovative products for a price that consumers are willing to pay whilst still offering good margins to the retailer.
As you rightly point out Jonathan, retailers need to stop focussing on cost cutting and ‘battening down the hatches’ and be adventurous with their products, giving the consumer the ‘wow factor’ to make them get out their credit cards.
May 18th, 2011 at 10:20 am
Couldn’t agree more. The real cause for concern is how disassociated senior mgt have become from their businesses. The lack of retailing and professional merchandising is worrying. I have a pub near to me that is still advertising Xmas.
There is a need for senior mgt to become more in tune with their product,customers,competitors & ultimately their fellow team members.
Business needs to become more action orientated whilst P.Equity needs to be a little less risk adverse. The opportunities in the retail industry are there and can be got at a good price however debt is difficult to come by with P.E looking at 2.5 times IRR.
We need to bring back a culture of action orientation.
May 18th, 2011 at 10:56 am
Wise words Jonathan ………and for many businesses at the moment, not just retailers.
I couldn’t agree more with your comment about businesses still ‘battening down the hatches’. With the publication yesterday of the inflation figures for April, we see yet more evidence of the extent of the gap between pay awards and inflation. There is much evidence to suggest that ‘pay stagnation’ will be with us for the next 2/3 years,and as such retailers must look to strategies to innovate over a longer term, in order to retain and develop their customer base over the next few years.
These strategies need not always be extremely complex or costly and could focus on, for example, innovation in service standards, purchasing, etc.
Things that, as you say,can be implemented relatively quickly and will make an immediate and positive impact from day one. Clearly there are success stories out there, the John Lewis Partnership are obviously taking prudent consumers with them on more than price alone.
May 18th, 2011 at 1:57 pm
I think there is no magic formula to retail success. The old maxim “99% perspiration, 1% inspiration” still holds true.
Working in the discount retail sector, it is all about presenting a great value offer to the consumer. Retailers need to get back to basics, and ensure they are doing the simple things well. Is the offer compelling and engaging, is the value clear, is the stock available, is the offer up to date and competitive – why should the customer come to you?
The only way to improve sales on a like for like basis is to have a BETTER offer than the previous year – there are no gifts, there needs to be a real plan.
Covering off all that you have done before and adding to it – that’s the 99% perspiration; and then once you are clear that’s all done – what else can you do, what extra initiatives or opportunities can you exploit or experiment with?
Unfortunately so many retailers just repeat their historical activity, and then wonder why it didn’t work as well as last time.
There needs to be no own goals – cover all the bases, and then add something new.
Then if you’re lucky, the customer will get it, and you will enjoy the experience!
May 18th, 2011 at 2:20 pm
The trick I suppose is having the individuals in place to generate the new ideas, drive them forward and the resources to support them. The companies that are failing lack these elements and, at a time when the funding is difficult to get hold of,it takes a brave shareholder to make the investment in new blood, be it interim or not, and product development to get out of the downward cycle.
There are signs that the PE sector is recognising the opportunity to invest at low valuations and it does require our focus to be more recovery and rebuilding orientated than restructuring and rescue orientated as in the last few years.
May 18th, 2011 at 2:29 pm
I agree, innovation and business development are essential to success in all businesses, especially retail. Investing in improvement during the down turn may well put you ahead of the pack when the recovery comes. Conversely if you have cut all development during the hard times you are likely to be overtaken by all your competitors who already have momentum when the economy gathers pace.
As true as this is, nothing is black and white, and the business must first run efficiently and husband cash and resources to be in a position to invest. Managers in PE owned businesses become much more adept at focusing on the twin imperatives of controlling the cash and growing the business than those in larger listed businesses who often operate in a vacuum where cash targets and payback are concerned.
These disciplines should be as familiar to retailers as optimising stock-turn, after all it amounts to no more than getting value for money from your investment.
Getting this balance right is the trick to being in a position to invest during tough times.
Of course if you’ve already run out of cash……………
May 18th, 2011 at 4:05 pm
The needs of shoppers are changing, the needs of suppliers are evolving, and thus the role of retail needs to marry the two in ways that are innovative, appealing, and cost effective for all parties.
The nature of retail is that it takes time for changes to deliver results (other than basic value promotions), and thus you are right to say that those placing their head in the sand are taking a huge risk.
Obviously different markets offer different opportunities. They could be about the extended range of product and services available, it could be the recognition of customer experience in terms of demonstrations in store, reserving online to pick up in store and so on.
What is clear is that retailers need to match their offering to customer needs and so have to become better at marrying research and actual data to drive insight and thus lead the relevant and prioritised strategic change required. It is almost pointless to simply operate more cost effectively, if your fundamental proposition is weak with a limited shelf life.
On one level it an exciting opportunity, but in terms of interims it raises a layer of possible confusion. As the scope of such change is necessarily wide reaching in that it touches all parts of a business it can possibly be best framed as part of an analysis and design phase of a consulting project. The workstreams that flow out of this phase can then certainly be assisted by interims who can add the expertise and resource to the existing management team. As raised by Jonathan, the already cash strapped retailer may well baulk at the first consulting part of the process even though they need to vision to understand the scale of the work needed.
As in all projects, clarity of client requirements is a must. If the client wishes an interim to help them scope their strategy then so be it, but as the interim it is imperative to understand the real appetite for change. As much as the interim will be happy for an engagement, that opening discussion about the scope of the role has to be open and potentially challenging one for the client.
May 18th, 2011 at 5:55 pm
What is beyond doubt is that the UK high street is really suffering. Any retailer who thinks this is a short term phenomenon is in denial. The global financial situation and the UK economy more particularly are encouraging consumers to be very conservative with their spending habits. The economic problems will take years to resolve and while consumers may tire of the recession and occasionally splurge, it will not be consistent enough to return sales to where they were before the Great Recession.
In such an environment (where 40% of all grocery sales are under some form of discounted offer) retailers need to offer a compelling reason for consumers to open their purses and wallets. Price, Innovation/Fashion and Marketing are key. However, why shouldn’t retailers take advantage of the situation and renegotiate rents, suppliers costs etc? Retailers need to look at long term trends for their products, online sales, marketing strategies, re-orient their proposition to the current market and remain price competitive. There will be no survival for book and DVD rental/retail. In the medium term, consumer electronics, mobile phone shops and bureaux de change will also have problems.
The market is bifurcating into Discount and Luxury segments. The middle is getting crushed and disappearing fast.
In the luxury segment, the wealthy are still spending but it is no longer acceptable for it to be conspicuous while everyone else is suffering. This will require changing the consumer offering so that brand names are less obvious and styles will probably become less flamboyant.
In the discount segment, the rise of Poundland cannot be ignored.
The high street has always turned over retail concepts very quickly. It is just speeding up in our age of austerity.
May 19th, 2011 at 9:44 am
Innovation and having that unique selling proposition or differentiation from competitors will become increasingly vital for success and survival. Internet shopping is not going to go away and will take an increasing share. “Bricks and mortar” retailers must polish up their on line offering,checking out what other retailers are doing with their websites to make life convenient for customers.
Meanwhile, boring old cost control, will of course continue to play an important part and, as other contributors have highlighted, property rentals will have to change. Surely the era of upwards only rent reviews, paid quarterly in advance is no longer acceptable. Landlords must share the pain or we’ll see even more empty properties on the high street.
May 19th, 2011 at 10:21 am
Reacting to adversity and change management is not industry specific and those that have been through it before should be in a better position to counter it now. As someone who has only been a supplier to the retail industry, I wonder if that isn’t part of the problem in that sector now.
My experience (which may not be typical) is that the retail sector tends to be more dynamic than other industries and consequently, has a higher turnover of management with a slightly younger profile.
As a result, whereas it may be true that some organisations have adopted a ‘victim’ mentality, blaming all their ills on ‘the market and economy’, might it not be the case that in many instances, they simply don’t know what to do?
Clearly, an understanding of the retail industry, the market you are in, your customers, trends etc. is vital to future success. However, effective change management usually requires a collaborative/ multi disciplinary approach. Therefore, could the desire to recruit either interim or permanent support only from people with retail experience and backgrounds be a contributing factor?
Many industries e.g. Manufacturing, Construction etc. entered the current recession much earlier than the Retail sector and it could be argued, suffered deeper downturns in the 90s and 80s. Consequently, there are a lot of people from these backgrounds with experience of recognising the symptoms of declining markets; diagnosing the current situation; determining the need for change and the organisation’s capability to do so; developing and implementing a change strategy and project; communication; winning hearts and minds; recognizing a successful transformation when it has occurred; and so on.
Therefore, perhaps a team of all talents might be a prudent first step!! With a sound framework in place, innovation, investment, creative marketing, motivation etc. can take place with clarity of vision.
May 20th, 2011 at 9:25 am
With high inflation and low consumer confidence, growth is not going to come from the same credit fuelled sources of last decade. Retailers, indeed all consumer focused businesses, have 2 key challenges over the next few years; stealing market share and growing their market . Employing the same approach and same skills that were honed during the good years will not work – hence why interims with good multiple industry and functional experince should be attractive. The challenge is to put the customer at the heart of the business and build a retailing model that reflects multi-channel consumer behaviour through the buying process.
May 20th, 2011 at 11:23 am
So many retailers and business managers generally, are only used to operating in the good times.The measure of good management is how they react and perform in the bad times.Even if they are not capable of change to match the circumstances at the time, they can still be good enough to recognise their shortcomings and bring in an interim with the right experience and skills to make things happen.The glory can then still be theirs.
May 20th, 2011 at 11:53 am
Thanks for all your comments so far, it’s great to hear your opinions and I really appreciate your involvement. The blog has received tremendous feedback so if you know anyone in your network who would like to get involved, please let them know.
Since I wrote this Mothercare has revealed it is to close a quarter of its high street stores. Their Chief Executive, Ben Gordon commented “We’ve seen some high streets deteriorate, yet at the same time rental rates have continued to go up. Where it will end I don’t know. It’s all about rent.” He also warned that Mothercare will not be the only retailer closing down high street stores in the face of rising rents and decreasing footfall. The store closures by Mothercare will cut costs by £18m per year and will add £4-5m to profits. Once again, cost cutting to protect profit.
This made me think of a retailer I’ve spoken to whose strategy is to strike up deals with landlords for short term leases, trade the business and if it proves to be successful then strike a deal or alternatively, walk away. Is this a good thing for the high street or is it a step up from market trading? The debate about rents will go on, but I’d like to get back to my original argument, why aren’t retailers looking at other options that don’t fall into the ‘cost cutting’ category?
May 20th, 2011 at 1:06 pm
No matter what the macro-economic backcloth is (be it a time of recession or growth)the fundamental principles of business remain the same.Other things being equal, free market dynamics allow the customer base to determine the shape (winners and losers)of the supply base over the long term.
Needless to say each supplier/retailer must have a management culture(and team) to drive continuous improvement throughout the organisation at all times in the economic cycle.Benchmarked against its competitors each organisation must ensure all of its systems continually strive,develop and adapt to deliver a more compelling product proposition to its customers.
For sure many organisations who do not display the requisite internal change systems would benefit from the catalytic effect of one or more good Interim change Managers.
May 20th, 2011 at 4:34 pm
I agree Jonathan; it is great to read everyone’s opinions on this subject matter. This is clearly a topic that is close to the heart of many retail specialists.
I believe that the key to success in retail lies in the ability to be both reactive to customers needs and also proactive in terms of innovation and market offering. A large majority of people that visit stores or go on-line tend to do so because they have a specific need. To get customers through the door or to visit their website; retailers need to be well tuned as to what are the current trends in their field. Is their product offering strong? Is their pricing strategy correct? Is the competitor analysis thorough and meaningful? The challenge is to get this spot on and at the same time use innovation around NPD, promotional activity and marketing to try and increase impulse buys and remain cutting edge in the market.
To achieve all of the above, surely what is needed behind the scenes is a strong leadership team who understand the market they operate in, that understand their proposition, who can take advantage of the economic situation. They need to be able to identify when a business is failing, who can think outside the box and react before it is too late. Kelvin, I also think that investing in fresh blood, whether that is permanent appointments, seasoned interim managers or turnaround specialists is essential. Now is the time to start looking to the future, to be more creative, to re-invest and get back that buzz of excitement about the retail industry.
May 25th, 2011 at 4:15 pm
The question around the failure of Focus is an interesting one , they had – “Good management”, in fact highly rated turn around specialists, clear view of their strengths/limitations and market segment, always trying to distance themselves from their competitors by operating in areas where they, and not their competitors, dominated. And lastly, a fairly rationalised product portfolio. So why the failure?
I suspect that the environment and change in consumer behaviour may have had more to do with the failure than perhaps things like the recession, and the lack of: product/service, innovation, differentiation (although Focus may argue that they had some of this), management capability, and lack of resources.
Mothercare is a good example. Here the one time darling of the city is finding things very tough and is closing more and more High Street stores. Have its customer disappeared or are they spending less??They may have merely migrated towards web based purchases and shopping arenas that fulfil the shopping experience and where the consumer feels in control. Even the likes of B&Q are finding it tough, just look at their results relative to the Kingfisher portfolio – sales down but profit up (as a result of improved costs? )Indeed go into one of their stores and try and get served and you will quickly realise where the savings have come from. The experience economy is here in full force and the recession has only accelerated customer demands to be in control of the purchasing process and to extract value, perceived or otherwise. This does not mean that brands are no longer important, on the contrary brands are becoming more important – just look at the grocery multiples. After a brief flirt with the value end customers have come back to the brands. That is on condition that the brands are in tune with their needs and demands. And in the grocery multiples case the management have reacted quickly to ensure their customers were not disappointed. And they did this by looking at what their customers wanted as opposed to always reacting to what the competition was doing.
Many failures have, in my opinion, primarily lacked the ability to engage with the customer on an individual basis (instead they remain stuck to a customer proposition formulated on a few ‘focus groups’), either because their business model prevented this or management felt there was no need. So in the case of Focus , a smaller DIY out of the way was never going to work – people travel today and do so in seconds, it’s called the web.