Articles

Forget The Crisis, The Recovery Could Kill You!

Retail sales growth has slowed and this has hit some categories of retail harder than others as customers have redirected their spending. Many retail operators – used to relying on substantial growth to cover up the inadequacies of their business model – are struggling to meet either their shareholder’s or their banker’s expectations. Others are powering ahead, increasing market share and profits.

But some are just “dead cat bouncing”. A little bit of upside; a little bit of downside; but basically going nowhere. Fear for these operators has them bleating for a recovery.

Be careful what you wish for.

A robust business model operated with diligence and discipline wins in all points of the cycle – albeit with changed expectations and key performance indicator (KPI) measures of success to fit the context. But a dog is always a dog. History has shown us that more businesses go broke as the cycle turns to increased growth than in the downward or flat part of the cycle.

Survival mode in retail masks as many things as extended boom markets.

Let’s face it, anyone can plant a healthy rose bush at the beginning of spring and watch it bloom. But it takes a lot of work to prune it, fertilise it and tend to it to ensure that it becomes stronger through the winter and bursts into life again the next spring.

Putting things off until tomorrow really doesn’t fit in retail vocabulary. If the business model is flawed and is in survival mode through the flat part of the cycle, growth can overwhelm it from a range of angles as the cycle turns. Bankers who were forced to support you because they didn’t want to add to their woes no longer show tolerance. Suppliers will gain confidence and change terms. All costs in all areas – long held artificially low by the crucible lid of lack of confidence – will climb.

We are not the U.S.A. We are not the U.K. or Europe. If we were, the retail landscape would look much bleaker. So if you are struggling now, an undifferentiated dog of a retail business model will not provide the opportunity for sustainable profit growth in the longer term. Fooling yourself that just surviving will cut it, is not supported by the historical evidence. Competitors are making changes while you are floundering. Customers are altering behaviour. The paradigm is changing with long reaching affects.

“Doing the same thing again and again, expecting a different result each time” is Einstein’s theory of insanity. What got you into this position needs to be addressed and survival and change are not mutually exclusive. One of the reasons the Chapter 11 provisions were developed in the U.S.A. was not for mere survival but to allow a business to change it’s model to emerge in better health.

You need to survive. But to survive and mutate into a more robust business that can fully capitalise on the opportunities that will present themselves to you. To emerge as a business that will prosper in recovery. Not be killed by it.