While the term ‘credit crunch’ has established itself in the vocabulary of the nation, it is cash which must remain the most critical focal point for any retail business in the current climate.
Department store Debenhams’ decision to cut its dividend signals that no one is immune to the downturn in this market. With the internet continuing to take an increasing share of cash from bricks and mortar stores, the dynamics are finely balanced; rising rents, utilities and staff costs are pushing more stores into the borderline viable category.
Tough market conditions suit the best prepared retailers, in particular those who fully understand the levers to pull in their operations to reduce complexity and unlock capital.
Retailers who can forecast performance accurately down to store level are those most likely to be able to weather the economic storm, as they have the knowledge to focus their time where it is needed. Having a clear view on the immediate and future cash position is essential, be it tied up in stock, store openings and refits, or running costs, as it is impossible to fix a leak if you can’t find the hole.
Relationships with suppliers are key; closer collaboration on product information ensures stock is only bought when needed and cash is not tied up. Additionally, managing labour, the largest controllable expense in any store profit and loss, can help focus efforts towards improving sales and store productivity.
As each quarter end approaches, the market awaits the next round of businesses that couldn’t beat their own cash crunch in order to keep trading.
Ged Keogh-Peters is head of the UK strategy team at management consultancy Kurt Salmon Associates