Restructuring: buying time, not a winning ticket
While rising costs and property prices are undoubtedly pressing issues, the reality is they are symptoms of a more fundamental issue that goes to the very heart of retail today. Retail is simply not good enough at retailing aka selling. After generations of demand growth in a physically immature industry, we now have saturation. Too many players with too much capacity. And this is increasingly exposing deficiencies in so many retail business models.
This is why restructuring, whether it's a CVA, admin, pre-pack etc usually misses the point. Most of the issues facing our retailers today have merely been accelerated and magnified by the pandemic – they were already on the way. Until the word restructuring begins to be applied to the revenue line (aka business model) these processes largely buy time.
The issues I have alluded to above are mainly the result of a growth at any price strategies. More stores, bigger footprints, accommodating more SKUs aimed a wider audience invariably produces flabby, unfocused retailers that have lost sight of what they are good at and who is their target customer. In any business there are always some sales you do not want – some customers you should not address. This is because doing so dilutes your engagement with your core customer, a potentially life-threatening situation in which so many players today find themselves. Lowering costs does not address any of these fundamentals at all.
Right now, the alarm bells are ringing. Many in the industry think strategy is a luxury and it is all about putting the fires out. This may well be true but until and unless the strategic issues are recognised and addressed, putting out the fire will give only temporary respite.
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