Key factors in retail industry insolvencies
During the last decade, the retail industry has been transformed enormously, and for good. The one-two punch of swift advancements in technology and rampant economic conditions post GFC has left many brick-and-mortar retailers up against the ropes. This has pushed well-established players to 'adapt or die', demanding that they invest in and adjust their business stance at a faster pace than most could have imagined. Unfortunately, thousands of players who have not adjusted fast enough have been floored.
In this article, we consider the key factors which, from our observations, has caused many retailers to throw in the towel.
Brand reputation and customer relevance
The number one factor causing retailers to close its doors is because their brand loses relevance and reputation in the eyes of consumers due to the following:
- Product and product mix becomes stale, impacting sales and margin performance.
- Business strategy of critical areas becomes dazed and execution is disorganised.
- Inadequate investment in technology to engage customers.
- Customer engagement falls due to poor product, instore and digital experience.
Lack of business model innovation and competition
Successful retailers build business models that integrate both the digital and physical retail world, which run a customer-centric business. Whilst the decrease of entry costs allowed niche players to drive change and increase competition, a recent trend of well-resourced companies (Telstra, Google) pushing into unexpected areas may, yet again, increase the pressure valve to transform.
Financial and operational management
- Capital structure and investment – Retail businesses must have the correct capital structure in place to 'quell the storm and ride the thunder' that occurs from time to time.
- Financial control and reporting – Quality and timely business-wide reporting is paramount to allow retailers to expedite decision-making in a rapid-moving world.
- Data analytics and customer insights – World class retailers are now running their business 'by the numbers'. Data analytics deliver fruitful customer behaviour insights which allow decisive decision-making.
- Inventory execution – Lack of skillsets to manage inventory which incorporates time-based pricing strategies will lead to erosions in trading performance.
Conclusion
In today's economic arena, the fight for survival in the retail industry is a world-wide phenomenon and will continue to be a battle in the near term. While each bruised and battered retailer has its own fight, the key takeaway is that dialogue needs to be started early and action must be commenced urgently. Acting early will help achieve a better outcome for all stakeholders.
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Important: This information is not advice. Readers should not act on the basis of the material included in this publication. We recommend that formal advice be obtained before acting in the area covered herein.