Articles

The End of The Rainbow?

If you believed the general mood of the media at the moment you could be forgiven for investing in a packet of Gillette’s best blades. However, the noise and the truth are – as always – some distance apart.

While there are no doubt some dark clouds on the horizon, retail has always been a volatile game where the best deal with a constantly changing competitive context everyday and prosper. After more than 10 years of compound annual growth above 5% and inflation below 3%, the rainbow had to turn south at some point.

But retail in Australia – as distinct from the vast majority of other mature, western markets – is still in growth. Our growth has simply slowed at a time when inflation (due mostly to fuel & food prices) has broken out of the Reserve Banks magic 2 – 3% range. This means costs are likely to grow faster than market growth.

At the 2008 World Retail Congress in Barcelona Jack Shewmaker (former COO of Wal-Mart, current director of Wal-Mart & advisor to Woolworths Group Australia) spoke about the performance of Wal-Mart at such times. His experience was that in the 4 times that he has seen Wal-Mart go through the part of the economic cycle where growth has declined, the business has dramatically increased market share. This fact leads to a rather stark conclusion.

The end of the rainbow can mean dark clouds or a pot of gold.

According to Jack Shewmaker the 6 founding principles on which Wal-Mart was founded are at the core of success in trying times. Those six founding principles are:-
1. Stimulate employee involvement & participation
2. Maintain a 360 degree view of the retail world
3. Instill a culture of constant change
4. Use capital efficiently
5. Embrace technology
6. Develop a disciplined internal communication strategy

If you have these principles already in play your business will be well positioned to prosper as growth is constrained and cost pressures rise. If you don’t you’ll need to move quickly to put them in place or fail to keep pace with changing market conditions and competitor moves.

The rainbow has indeed peaked and turned South for this part of the cycle.

Whether you find a pot of gold or more dark clouds at the end of the rainbow is really up to your own performance.

As Warren Buffet once said “It is only when the tide goes out, that you can see who is swimming naked.”

Fundamentals became fundamentals for a reason. They work in good times and tougher times. Re-discover them and prosper by them.