The need to transform to keep pace with consumer demands and habits is a never-ending narrative in UK retail.
If you’re not striving to move your business forward then, at best, you’re standing still. That has never been good enough and it certainly won’t be enough to drag companies through the challenges thrown up by the coronavirus crisis.
But amid the countless obstacles placed in retail’s way by the pandemic, it has also presented an opportunity, particularly for listed companies. The albatross around the neck of executives running such businesses has disappeared, almost overnight.
“Conceding that like-for-likes will probably fall, profits are unlikely to grow and debt could rise is a seismic mindset shift at the very top of UK Plc”
Boardrooms are no longer slaves to financial forecasts to anywhere near the same extent that they were when we entered 2020.
Unhealthy obsessions with delivering like-for-like sales gains have evaporated while stores have been closed; profit forecasts have become an endangered species as uncertainties over consumer confidence and the longevity of the coronavirus pandemic persist; and there is an acceptance that indebtedness may increase in the short term as businesses borrow more –both from existing lenders and the government.
Window of opportunity
In the past, the need to deliver on such metrics has inhibited listed retailers’ abilities to move as quickly as the world around them. Those demands will return in the future, no doubt, once society has settled into its new post-pandemic realities. But in the present, there is a window of opportunity.
Conceding that like-for-likes will probably fall, profits are unlikely to grow and debt could rise is a seismic mindset shift at the very top of UK Plc and among many institutional investors, the sort of which doesn’t come around often. It is a shift that retailers have to capitalise on if they genuinely want to transform their models and cost bases. Some are already doing so.
Earlier this week, Halfords said it could close up to 60 stores despite a surge in cycling sales, accelerating a portfolio rationalisation it had planned to make prior to the pandemic.
“These are extremely difficult decisions for any business… but they are decisions that have to be made if companies are to withstand the gale forces that are battering them during this crisis and stay standing”
On Wednesday, Burberry revealed plans to shed up to 500 jobs globally – 150 of which are in its UK offices – as part of a restructure designed to save the business £45m a year. Some of that cash will instead fund “consumer-facing activities” such as pop-up stores, events and marketing.
Halfords and Burberry won’t be the last listed business – and certainly weren’t the first – to launch drives to radically reshape their cost bases in the heat of the coronavirus battle.
In March, just as Covid-19 was starting to take hold in the UK, Dixons Carphone lifted the lid on plans to shut its 530 standalone Carphone Warehouse stores with the loss of 2,900 jobs.
This week, the electricals giant laid bare the extent of the troubles in its mobile phones business, which posted a statutory loss of £282m in the year to May 2.
Wickes, Toolstation and Tile Giant owner Travis Perkins is axing 2,500 jobs and closing 165 stores across its various brands to shore up its balance sheet, while fashion and accessories brand Mulberry is culling a quarter of its 1,400 workforce.
Years of change
These are extremely difficult decisions for any business, the effects of which will hit families hard as they seek to weather the storm that a deep recession will bring. But they are decisions that have to be made if companies are to withstand the gale forces that are battering them during this crisis and stay standing.
Investors are offering retailers a degree of breathing space that many may never have been afforded before, to undertake such necessary restructuring.
As many retailers have highlighted, years of behavioural change have been condensed into a matter of weeks as far as consumers are concerned. But what has to follow is an equally fundamental change within retailers’ business models to allow them to emerge fitter from this pandemic, with leaner physical portfolios, greater digital capabilities and a proposition fit for what the post-Covid customer will demand.
The pressure to hit like-for-like targets or meet profit expectations can no longer be used as an excuse for not executing that strategic change quickly enough.
In that respect, coronavirus has presented retailers with a golden opportunity that they have to seize – now or never.
1 Reader's comment