As retailers prepare for any Brexit storm, we look at what can be learned from the success stories of the recent recession.

Retailers are preparing for potentially tough times ahead if the fallout from the Brexit vote threatens to derail growth.

John Lewis at Home was launched during the recession

John Lewis at Home

John Lewis at Home was launched during the recession, and reported positive returns in the years that followed.

However, if turbulence hits, they can be better prepared than when disruption last struck.

Many retailers now carry with them experience forged in the fire of the recession and that can be deployed if Brexit prompts another economic shock – it is experience that was in much shorter supply when the credit crunch struck.

“Battening down the hatches and slashing costs was not the route that some of retail’s most successful companies took during the downturn”

So what were the strategies successful during the downturn which could be applicable again?

Furniture retailers experienced turbulence during that time as the property market slumped and shoppers became cautious about making big ticket purchases.

MFI, Land of Leather, Habitat, Dreams, Dwell and Lombok were among the furniture specialists that fell into administration during the recession.

However, DFS founder Lord Kirkham steered his business to profit growth in 2008 and 2009 before selling it for £500m to private equity firm Advent in 2010.

Kirkham says when the recession hit, the business “hit back”. “The ‘winner’ culture of the business was to work harder and sell our way out of difficult times at the cost of the competition. We all bought into the clichéd concept of ‘when the going gets tough…,’” he recalls.

Sainsbury's expanded own-brand Basics range

Sainsbury’s store

Sainsbury’s expanded its own-brand Basics range and exploited the trend for people to save money and cook at home by providing cheap recipes.

A solid business model is more vital than ever in tough times, Kirkham points out. “Many businesses have an optimistic model structured on good times and do not take into account the inevitable volatility and downturns that occur over the long-term,” he says.

“Read any book on corporate history. Low margins, borrowings inflexibility and a top-heavy management structure did not feature in the simple DFS business model tempered by reality.”

“Customers want quality at a fair price and understand this often means paying more”

Richard Hyman, RAH Advisory

Hold your nerve and invest wisely

Battening down the hatches and slashing costs was not the route that some of retail’s most successful companies took during the downturn.

“The only way to receive a return in my experience is to invest. Not spend – rather considered, focused investment,” says Kirkham. “Caution alone is for bomb disposal engineers, parish priests, professionally trained managers and theoreticians and cuts for hairdressers. Entrepreneurs need to exercise a bit of backbone and grit.”

John Lewis thrived during the downturn by keeping calm and investing wisely. Operating profit rose from £145.9m in 2008/09 at the beginning of the recession to £226.1m at its official end in 2013/14.

Simon Russell, director of retail operations development says: “We had a very clear idea of where we were going. It was a case of holding our nerve and proceeding.”

One investment John Lewis made was to introduce a value own-brand in order, as Russell puts it, to “anchor its price points”.

Anita Balchandani, partner at strategy consultant OC&C, says such measures ensured competitiveness. “The businesses that thrived made sure their proposition was fit-for-purpose in a recession,” she says.

“Reduced consumer spending power does not close all growth avenues. Retailers that continued to grow during the last recession identified opportunities to extend their reach”

John Lewis’s sister company Waitrose also prospered during the downturn by sharpening its value credentials.

The grocer launched its 1,400 product strong Essentials value range in 2009 to reassure recession-hit shoppers tempted by Aldi and Lidl, offering value for money.

The initiative worked and by the end of 2009 Essentials accounted for 16% of Waitrose’s total sales, and the majority came from either new shoppers or as add-on buys rather than trading down by existing customers.

Harvey Nichols Beauty Bazaa Liverpool One

Harvey Nichols Beauty Bazaar in the Liverpool One Shopping Mall, Liverpool, UK.

Harvey Nichols launched Beauty Bazaar, a three-floor emporium at Liverpool One shopping centre, which is devoted to beauty products – one of the most resilient categories in a recession.

Sainsbury’s, another recession winner, implemented a similar tactic. The grocer expanded its own-brand Basics range and exploited the trend for people to save money and cook at home by providing cheap recipes through its “Feed your family for a fiver” campaign.

Richard Hyman, director of RAH Advisory, observes that great value does not always have to mean discounting. “Customers want quality at a fair price and understand this often means paying more,” he says.

Hyman highlights that the biggest product range extension by the food discounters has been in aspirational items, and Primark has also focused on widening its better’ and ‘best’ offer as opposed to its value proposition.

“Truly understanding what your customers want and range editing accordingly is critical,” he says.

Craig Skelton, partner at PwC, says unique product can tempt hard-pressed shoppers to spend. He cites H&M’s regular designer collaborations with names such as Matthew Williamson, Versace and Isabel Marant, and Topshop’s iconic Kate Moss tie-up as good examples of retailers attracting shoppers to stores with new, exciting product.

Identifying growth opportunities

Reduced consumer spending power does not close all growth avenues. Retailers that continued to grow during the last recession identified opportunities to extend their reach.

“The winners invested selectively in new channels and formats that they identified as growing trends,” says Balchandani.

Ted Baker gunned for growth overseas. The fashion retailer expanded from five overseas outlets in 2007/08 to 181 in 2014, with stores from Azerbaijan to Australia.

Many others followed a similar strategy and Debenhams, Boots, New Look and Mothercare were among those that globe-trotted for growth.

“They followed where the money was and tested whether there was demand,” says Skelton.

John Lewis invested in its multichannel business. The retailer is now a leader in cross-channel retail and boss Andy Street has admitted that focus was a reaction to the recession.

“Keep calm, hold your nerve and obsess about your customer”

Simon Russell, director of retail operations

Through its investment John Lewis pioneered initiatives such as click-and-collect. It even opened a 650,000 sq ft distribution centre in Magna Park, Milton Keynes in 2009 to facilitate online growth.

Russell, who was head of multichannel during that period, says: “We were seeing online sales starting to grow. It was important for us to drive footfall into shops as well as fuel online growth. Click-and-collect seemed like the obvious solution.”

John Lewis’ investments clearly paid off. Ecommerce now accounts for a third of the department store business’ sales and more than half of online orders are picked up using click-and-collect.

Some retailers decided to invest in new formats. Harvey Nichols launched its Beauty Bazaar, a three-floor emporium at Liverpool One shopping centre, devoted to beauty products – one of the most resilient categories in a recession.

On the other hand John Lewis launched its homewares-only store John Lewis At Home in Poole back in 2009.

The property market slump that the recession triggered meant premises were cheaper for retailers seeking to expand. “There were opportunities with developers. The recession gave us a real focus and made us look at ideas we hadn’t considered. It was an opportunity to be more creative,” says Russell.

John Lewis At Home, which is a third of the size of the retailer’s full-line department stores and located out-of-town, was a resounding success and now accounts for more than a third of its store portfolio.

Sainsbury’s similarly took advantage of the weak property market to expand its convenience business.

The grocer had 319 c-stores in 2008 and 611 in 2014 when the recession ended. Convenience was a growth engine of a depressed grocery market during that time and Sainsbury’s convenience sales continue to soar, up 9.3% in its year to March 12, 2016.

Cost control and customer focus

While winners invested there is of course also a need for prudence during a downturn, says Balchandani.

Many retailers, including Mothercare and Gap, decided to close stores to reduce their cost base during the downturn. Next boss Lord Wolfson “ruthlessly pruned” his store portfolio to ensure they all remained profitable.

“It’s important to think about return on investment. It’s easy to apply a blunt instrument to cost-cutting. However, retailers need to think about the return before they cut stores and colleagues,” says Balchandani.

John Lewis tightened its belt but Russell says it only made cuts that did not impact the customer, such as international travel. The retailer actually boosted front-line staff numbers during the last recession to ensure the great service it is famous for did not slip.

Russell believes if retailers focus on their customers and ensure they are satisfying their needs, they will come through any Brexit-related slump.

“Keep calm, hold your nerve and obsess about your customer,” he advises.

Kirkham urges those trying to weather any Brexit-realted storm to learn how to swim. “Get some heavy-weather gear, check the lifeboats and train the crew to launch them. And do not panic or over react – every heavy tide is not a tsunami and every gale not a full blown twister.”

All in retail hope fears of a Brexit-related recession will prove misplaced, but the best will be prepared for any headwinds that might blow.