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Happy New Year and welcome to Interim Partner’s Retail blog.
The Retail Sector is in trouble. The worst Christmas BRC trading figures since records began, more household name retailers failing by the week and according to some industry experts the downturn in the sector has only just begun. Obviously there were economic factors outside of these businesses’ control but is the economy solely to blame for these failures? Stuart Rose recently commented that because of Marks and Spencer’s coverage of the UK market that the business was a barometer for the state of the retail sector. After they announced the worst Christmas trading figures in 10 years, Mr. Rose commented he could see the current retail slump lasting well into 2011. Others have commented that this is optimistic.
Shoppers may have flocked to the sales, but are heavily discounted goods really going to help the balance sheet? Will it prevent the inevitable? Even with recent interest rate cuts it appears the consumer is paying off debt rather that splashing out on non-essential items. Shoppers are now more than ever looking for cheaper alternatives – the value retailers are trading well and a recent article commented on the amount of premium branded cars parked outside Lidl and Aldi Stores. The consumer is not responding well to Government encouragement to spend our way out of a recession. We are more savvy than ever and sceptical about paying RRP – this is dangerous territory for retail businesses particularly if they are in the middle ground in the sector. The value retailers will thrive and the luxury retailers will always be there – it’s businesses in the middle who need now to be asking themselves;
“How good is my stock inventory?”
“How lean are my processes?”
“Do I have the right people?”
“Am I poised for growth or just survival?”
Unfortunately I predict the majority of activity in the sector to be in turnaround and restructuring. Although 2009 will be a challenging year these times must become times of opportunity. Interim Managers will have an important part to play in the recovery of the sector, both in turnaround and building for the future.
I would be very interested to hear your thoughts, views and opinions on the above or any other issues you would like to address in this dynamic but turbulent sector.
January 26th, 2009 at 11:32 am
I attended a restructuring dinner in April 2008 hosted by one of the VC’s. On the evening a straw poll was taken as to when the economy might start to emerge from the ominous climate then materialising- 79% predicted not before 2011 at best!
The scale of the downturn has really only been understood early by the volume retailers who have seen the “levers” moving out of synch within the supply chain. Those that really understood these tell-tale signs moved quickly to offset their future stocks and decrease their forex exposure. However the scale of the lack of confidence within consumerism and the accelerated move to value purchases made many retail propositions completely untenable. This combined with over-exposure in their supply chain and disastrous exposure of forex in their margins left many with no where to go, trading quietly towards obvious default on quarterday’s rental and administration.
The very scale of defaults, moving through and from the banks to the over-committed latter highly leveraged purchases in all sectors has fueled the consumer awareness to real survival in 2009 and beyond.
Scale and models will have to change to adjust to a very different landscape moving forward, and restructuring and survival will be the stock trade of 2009/10.
I don’t believe that we will really see the full scale of the climb required to move out of this recession until March/April this year, and my instincts suggest a much higher unemployment number significantly beyond 3 million!
There will of course be opportunities, but cash will be king in any business for the forseeable future, and that means trading very differently from past and many current practices.
In past downturns the luxury sector have been more or less unharmed- this time they will also feel the pain!