It’s not new news, the retail industry is doing it tough. The list is a long one, from overheads outpacing sales growth, shortening product life cycles, intense local competition, international raiders, rapidly changing consumer behaviour, cross sector cannibalisation and natural disasters. Then we have the most recent major challenge, the C-word (doing my bit to mitigate irrational fear and panic).
As tough as things are right now it’s worth reflecting on some recent history. In 2008, just 12 years ago the world was experiencing a major crisis with the global financial system falling apart. The major economies went into recession and their stock markets shed 50% of their value. In comparison at the time of writing, driven by the C-word global markets are down approximately 20%-25% from recent highs.
During the Global Financial Crisis (GFC) the retail industry was hit hard. Across North America and Europe sales across most sectors dropped 25%-30%, the worst sales performance in a generation. In a rush to secure much needed sales, retailers slashed their retail prices and their margins to stay alive. Unfortunately many did not survive and resulted in decimated high streets and shopping centres, with 1 in 5 shops vacated and left empty.
It was dire, and yet in Australia we were somewhat cushioned to all this retail carnage. With our economy growing strongly, debt free and with a budget surplus we were the envy of the G20. Today however our economy faces a very different challenge as the C-word spreads it’s menace. We may not be so lucky this time around, we need to be prepared as an industry to fight back.
So how does the industry fight back? I believe its prudent to examine how winning retailers weathered the storm during the GFC for some practical insights.
A disciplined and insight driven approach to cost reduction – During tough times it’s vital to reduce costs, but not the good costs with the bad ones. Good costs assist in producing what your customers value. This may be a unique service or experience, or perhaps a competitive range advantage. Bad costs on the other hand add nothing to what your customers are willing to pay for. Operational complexity, inefficient systems and excess inventory of slower selling products are all examples of bad cost. During the GFC, retailers that won did not shy away from investment, they simply had a razor sharp focus on spending their precious investment dollars, pounds and euro’s into customer value enhancing activities, everything else was ruthlessly assessed and where necessary cut.
Know your customer intimately – To stay ahead of their competition, retailers that won during the GFC possessed an unrivalled passion for insights into their customers. Why they behave in the way that they do and how the retailer could influence this behaviour? This customer insight could be used to shape the retailers offer and gain a clear competitive advantage. During the GFC Tesco, the UK based supermarket chain consistently delivered record profits. Operating in 14 countries with 4300 stores it remarkably grew its profits by 10% to GBP 3.4 billion in 2008/2009. At the heart of Tesco’s success was its focus on customers. Its mantra was simple “look after them, and everything else will look after itself”. It sounds simple, but few companies are as focused.
Invest in your people, but make sure they are the right ones – Cutting headcount is an unpleasant but effective lever to quickly reduce overheads. In the lead up to the GFC, winning retailers had already created headcount efficiencies in both corporate offices and in stores. They were ready to weather the storm with a higher performing and more productive workforce than their competitors. When the storm hit they not only already had the right people in place, but they were also better positioned to invest in expanding their front line and corporate talent pool as quality people flooded the market.
Audit your initiative to do list and funnel activity into driving market share growth – During tough times the instinct is to get busy and make things happen. This should be encouraged but it should also be carefully orchestrated. If everyone gets busy without a clear focus then you will have numerous initiatives underway with very little positive commercial impact. During the GFC, many winning retailers audited all initiatives, benchmarked against profitably maintaining or growing market share. If the initiative was not clearly supporting profitable share stability or growth it was off the to do list.
Ensure excellent execution in stores at all times – Between 2008-2009 thousands of retailers including many household names closed their shop doors forever. In the UK alone retailers accounting for GBP 7.4 billion in sales shut up shop. Common to these retailers were out of stocks, untidy stores, confusing promotions and inconsistent levels of customer service. Borders Bookstores were one of the global retail casualties at the time and their Australian stores gave the game away as they attempted to be everything to everybody, with books, toys, stationery, baby items, gifts and other assorted merchandise thrown into their mix. In the end it was hard to find the books amongst a jumble of plush toys and other assorted and unrelated product. During the GFC, winning retailers had a clear offer that consistently provided their customers with the right product, at the right time, in the right quantities at the right location and very importantly with the right levels of customer service.
It’s not an exhaustive list, but it does provide practical insight into how the retail industry can fight back and win™in tough times.
- Identify and reduce bad costs
- Look after your customers and everything else will look after itself
- Invest in creating a productive team
- Create a narrow initiative list targeting profitable market share
- Ensure the customer store experience is consistently outstanding
Good luck with your trading during these challenging times and if you need more insight on this topic, my contact details are noted below.
David Ginsberg is the founder and Managing Director at Retail Growth Concepts, founder and Partner at The Fixrr and an Associate at Melbourne Business School. David’s passion is inspiring the Australian retail industry to fight back and win™. His unique and value adding Retail Growth – Fight Back and Win, retail industry member based coaching and advisory program launches in July 2020, limited foundation memberships are still available.