The combination of rising rent, energy and input costs, together with falling sales, mean a focus on cash flow is essential. For those that find themselves short of cash, the options post-credit crunch are increasingly limited, as demonstrated by the number of furniture retailers that have gone into administration over the past few weeks.
So, in this environment, cash really is king. Retailers must take advantage of all the self-help actions they can to survive a potentially protracted downturn.
Given the significant percentage of cost that buying represents, retailers should start by examining purchasing expenses. Payments should be made on the contracted terms – not a day in advance – and, where possible, extended terms should be negotiated.
If suppliers demand higher prices for longer terms, consider consolidating suppliers and volumes in order to mitigate this. Examine the balance of your supply base – how many suppliers do you use and where are they? Buying from Eastern Europe rather than Asia may have slightly higher input costs in the near term, but can mean less cash tied up in the supply chain. There is a trade-off to be made between margin and cash.
Excess stock is one of the most common triggers to tip retailers into trouble. So it is crucial that stock is managed tightly and it is worth looking at the ranges that you carry – cut out low-volume and unprofitable ranges and actively manage your open-to-buy position. Marketing costs should be focused on call-to-action marketing, rather than on brand- and image-building.
And managing staffing hours doesn’t mean a compulsory redundancy programme – rather, use the resource you have in the best possible way.
Use natural attrition and look at removing any temporary or contract roles. Review customer footfall and match staff hours to customer flow, so that peaks and troughs in customer demand are staffed properly. It’s also worth comparing your opening hours to customer footfall – shorten hours where possible.
Retailers should also take a hard look at any excess assets – for example, buildings, equipment or trucks that could be sold. While selling assets might seem drastic, in a protracted downturn, it is better to be light and nimble.
As previous recessions have shown, many retailers can weather very tough conditions and, for some, it can present a growth opportunity. Whatever the scale of your business, act now to reduce costs and plan your cash-flow strategy to survive and thrive in the downturn.
Pippa Wicks, managing partner, AlixPartners
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