It’s later than you think
Head of Industries
Retail has never faced an event like COVID-19 before. Its combined speed, severity and scale has impacted every aspect of the global economy and could have dire consequences for retail – and other service sectors – in particular.
The current response has meant that economy activity has been consciously restricted in favour of a combination of Government-issued restrictions and checks, social distancing measures and restrictions on corporate activity are now having a significant impact.
The world is likely heading towards an unprecedented global recession and retailers need to rapidly increase their business resilience and continuity planning and adopt a “Recover – Regroup – Renew” approach. This means ensuring that they have a pipeline of revenue-protecting solutions (Recover), focusing efforts on increasing revenue and profitability (Regroup), and preparing and organising for ‘the next normal’ (Renew).
We have defined these stages of crisis management for our internal use and feel they offer a useful blueprint for anyone dealing with the uncertainty, activity and stress of the pandemic.
Financing the Recover Phase
Options to consider include:
- Property portfolio optimisation, including lease premiums
Retailers should seek to maximise factors such as expected return and minimise those such as assets, liabilities, earnings and plan for selective divestment.
- Address the unprofitable tail
Performance must lie at the heart of everything – ruthlessly focus on the key value items which are the top sellers, traffic generators and highly searched for SKUs to protect your bottom line.
- Controllable costs and SG&A
Focus across all SG&A (selling, general and administration) functions and business units, and not just functions like HR and finance, because making cost decisions ad-hoc or in isolation may not have sufficient impact.
- Indirect cost/GNFRs and non-core monetisation
This often doesn’t receive the attention it deserves –this oversight can drastically reduce a company’s bottom line by cutting into profit margins. Cut your spending and protect your profit.
- Supply chain efficiency
Two focuses here – the operational and the financial. The crisis has demonstrated how vulnerable our global supply chains are to any sort of disruption. Retailers of all sizes and complexity need to fully understand the inherent risks and consider how to respond decisively and proportionately.
- Working capital and Capex
Extracting all you can from your cash position will reduce your reliance on third-party debt and the servicing of this. That cash can also be re-invested into funding short to long-term stimulation initiatives as well as cost-cutting, rightsizing or operational improvement initiatives.
Funding the Regroup Phase
- Trading Margin
Analyse the gross profit margin of each of your products and services, model your gross margins over different business divisions, product categories, suppliers or customer categories according to your business and react accordingly.
- Pricing, promotion and mark-down management
Seek to maximise sales and customer service with the lowest stock investment possible through accurately anticipating demand and aligning stock positions to forecasts. This will significantly improve revenue, markdowns, and margins.
- Digital capabilities, automation and online upgrades
Demand for online has accelerated, presenting huge opportunities for all retailers. Develop an investment plan so that you can accelerate automation, increase digital fulfilment capabilities and improve the horizontal scalability of platforms, including core ERP.
- Product and buying strategy
Review buying strategy and relocate supply or production as needed. In the fashion and luxury sectors for example, there will be a need to actively review seasonal collections based on possible production and logistical issue, both for raw materials availability and third-party manufacturing capacity.
- Continuous cost improvement and productivity gains
If low demand continues into the Regroup phase, you will need to continually review the balance sheet and also ensure sufficient resilience across online and offline operations should another shock occur.
Fuelling the Renew Phase
- Store upgrade, rightsizing and refit
Essentially, refit for a new purpose. Redesign stores based on the activities you undertake in Recover and Regroup, ensuring that the purpose, format and design are relevant yet resilient, building in additional digital and cross-channel revenue streams which complement the core offer.
- Data. Data
Review customer and market data to highlight areas where market share has been gained or lost during the crisis. The review should also cover how your highest-value customers weathered the storm and identify high-priority actions to nurture those relationships.
- Mergers and Acquisitions
This will become critical for retailers so that they can pivot their portfolio toward growth and improve market structure. The strongest companies will develop the skills of serial acquirers, becoming adept at acquiring both small and large assets and at using M&A to achieve strategic goals—redefining categories, building platforms and ecosystems, getting to scale quickly, and accessing technology and data through partnerships.
How can BJSS help?
We’re here to assist our clients not only in navigating the immediate challenges of the crisis but also in creating responsive, adaptable and intelligent technology-enabled solutions that will build resilience for the future.