Opinion: Ten years on, credit crunch lessons still apply

Those were the words later used by former Northern Rock chief executive Adam Applegarth to describe the significance of the freezing of three BNP Paribas funds which heralded the beginning of the credit crunch.

September brought the panicked queues outside Northern Rock, the first run on a British bank in more than a century, and the mayhem really got under way.

By the end of 2008 some of the most famous names on the high street, such as Woolworths and MFI, were history as they disappeared in a bonfire of businesses burned by the financial crisis.

The retail terrain, along with the wider political and economic landscape, changed forever and some of the effects remain today.

After years of austerity, many people remain comparatively poor as wage growth fails to match inflation.

Consumer confidence is still fragile. Disaffection with elites and ‘experts’ made itself felt in the Brexit vote, which put pressure on retailers’ finances by prompting a fall in the value of sterling.

But although retailers continue to confront uncertainty, the testing years of recession and its aftermath meant that, because it really had to show its mettle, the industry emerged stronger.

Preparing for storms ahead

And amid present uncertainty, reflected in July’s BRC-KPMG Sales Monitor which showed non-food sales “relapsed into negative territory”, the best retailers are mending the roof in preparation for any storm that may come.

“Retailers are extending their offers, and in particular pushing into higher margin services”

That’s reflected in the spate of deals designed to open new sales channels or build category strength, whether it be Morrisons’ leveraging of its vertically integrated business model to develop a bigger wholesale business or DFS’ acquisition of Sofology.

Similarly, retailers are extending their offers, and in particular pushing into higher margin services.

That’s key to Dixons Carphone’s strategy. And Pets at Home’s quarterly update this week showed the power of such appeal – merchandise sales growth was dwarfed by that of services, which at present form much smaller part of the business.

Retailers are investing too, in order to create foundations for future growth. This week online star Asos unveiled a $40m initial investment in a new US fulfilment centre.

As well as putting the business on the front foot in a country where it delivered 39% sales growth in the first six months of its financial year, it strengthens its international scale beyond markets – including the UK – which may be affected by the eventual Brexit.

Business as usual?

Retailers are also, where they can, taking the opportunity to improve their financing arrangements.

Alongside last week’s acquisition, DFS disclosed that it has refinanced, “retaining its total facility size and covenants but converting the current facilities to a new lower-cost” structure.

The deal means that debt financing costs will be £1m lower per year. DFS also has in place an additional arrangement to cover any “currently unforeseen future financing needs”.

The sad aspect of retailers’ efforts to get themselves match-fit is that increasingly jobs are being slashed. Sainsbury’s is expected to reveal about 1,000 job cuts next month, and it’s not alone in pushing through similar initiatives.

However, the lesson from the credit crunch, the recession and the austerity that followed is that no one can afford to assume that business as normal is assured.

Whether times are good or bad, to remain successful retailers must constantly reinvent themselves and ensure their business models are fit for purpose.