Debenhams are to close 50 of its stores, Homebase has been sold for a pound, Marks and Spencer is closing more stores – what should retail do to survive?

The Modern CFO in the Digital Age
17th September 2018
What’s keeping business owners awake at night?
11th January 2019

Debenhams are to close 50 of its stores, Homebase has been sold for a pound, Marks and Spencer is closing more stores – what should retail do to survive?

The landscape of our high streets is changing beyond recognition and will never be the same again, however the change in the retail sector is actually nothing new.  Since the first department stores in the early 1900’s, retail has had to adapt and change.  It is hardly a surprise that the high street is under pressure now as the internet has hoovered up about a fifth of all retail spending, with non-food sales online rising by 7.5% in the past year. Now smartphones are ubiquitous, it is possible to buy a table whilst sat on the bus, a designer handbag whilst stood in a queue for the cinema or a new kitchen while lay in bed. So the future is omnichannel shopping with AI and UX – yes – you need to get used to the jargon!

Retail executives have plenty of excuses up their sleeves – ranging from the weather to declining footfall and the rise of the internet – for falling sales but no one admits to lacking skills and vision. The world wide web is nothing new, it has been around for more than 25 years so retail bosses have had plenty of time to get used to the idea and adapt their businesses. For example, nearly 50% of Next’s £4bn sales are rung up online, but Marks & Spencer admitted that despite spending the best part of £400m on its website operation, it is still too clunky and needs more money thrown at it – hence their current problems.

There are clear instances of management being slow to change, which puts more pressure on the high street. Take Homebase, which was sold for just £1 after its new Australian owners made terrible decisions that turned a profitable business into a massive loss-maker;  and Mothercare – an iconic chain which can no longer persuade new parents to shop there despite around 1,900 babies being born every day.

So what should be done to survive?

The Retail Transformation Journey

Regardless of segment or circumstance, retailers should not be afraid to consider an end-to-end transformation to help them stay relevant; develop new offerings, categories, formats, and channels; or expand into new markets and territories. These retail transformations are not a once-and-done endeavour—the winning retailers stay nimble enough to constantly transform their stores and evaluate their offerings on a continual basis to adapt to evolve to customer needs and with the fast-changing landscape of buying patterns.

A successful transformation journey consists of five important stages:

  • Analyse your customers. Who are they, what do they do, like, shop? What are their buying patterns? What are they looking for in UX (User eXperience for those that don’t know). Know your customers NOW, not back 20 years ago.  Deliver the UX they want and answer their pains.
  • Fund the Journey. Retailers need a quick start and early wins from near-term actions, such as cost reductions or revenue boosts, to establish credibility for the leadership team and generate momentum for the larger effort. These steps also raise cash to fund longer-term investments or initiatives without requiring shareholders to adjust their earnings expectations. Most important, these measures demonstrate to employees and investors that management has a plan for success.
  • Win in the Medium Term. Medium-term measures create deeper change in a company and establish (or reinforce) a differentiated value proposition for customers. These initiatives can include expanding into new segments of the supply chain; lean operations; and levers to improve the product, category, pricing, and promotions performance. They put the company on a stronger trajectory to grow sales, expand margin, and execute against its strategy.
  • Build the Right Team, Organisation, and Culture. This stage is crucial for building a sustainable operating model over the long term. The CEO must be fully engaged in the transformation by communicating the overall vision, modelling the right behaviours, and holding himself or herself accountable for its success. Most companies also need to build up new capabilities and skills in their management ranks. Frequent, consistent, two-way communication is crucial to apprise employees of the current status of the effort and celebrate wins along the way.
  • Evaluate, re-evaluate and evolve. Never stop changing and adapting. Check new technology and be in-front of the curve. Don’t be afraid to change – the easiest thing to do is do nothing. Don’t make that mistake because investment into the future will secure your future.

The key points here should be re-enforced by the management team in each individual company but also you should work very closely with your finance director at every stage.  A good FD will get you through tough times with careful planning. If you are a small retail business and don’t have an FD – get one – even if that person is on a part time basis.

Want to talk some more? Contact Stuart Smith, Specialist Finance Director for SMEs on 07785 556 450.