Partner Article

Mark Firmin’s 2012 Retail Outlook

Mark Firmin

KPMG’s Northern Head of Restructuring

KPMG’s Restructuring practice implements solutions in situations of stress and distress, delivering restructuring that can provide improvements to cash flow, profit & loss and the corporate balance sheet.

Q - How will the retail sector fare in the approach to Christmas?

A -The coming weeks and months are going to a tough time for the region’s retailers and their supply chain businesses, despite Christmas representing their peak sales period.

As some consumers worry about employment uncertainty and others respond to job losses, both groups are belt tightening, while all face a squeeze on their disposable income, as prices have risen faster than earnings. These factors will all impact on consumer spending over Christmas, hitting retailers where it hurts – at the till.

And, in many ways retailers are facing the similar problems – inflation, especially in fuel and energy, is increasing their cost base but increasing consumer prices is very difficult, so they too are being squeezed and in turn are pressurising the margins of their supply chain.

Q- Do you expect to see poor Christmas trading result in any retail insolvencies?

A – I would be surprised if there weren’t some casualties in the early part of 2012, as some stakeholders will be unable or unwilling to continue to support ailing businesses without an end in sight.

Certainly, a sizable proportion of our restructuring work, with stressed businesses in the North, is coming from the retail sector. By seeking advice they are putting themselves in the strongest possible position of course, but survival is not guaranteed. The earlier they speak to us the more options they usually have.

Of course, some parts of the sector are performing quite differently to others. Food retailers are performing well, relative to the rest of the sector, whereas those selling white goods or other capital purchases are struggling more. And as ever, strong and distinctive market proposition will continue to thrive whilst more generic brands struggle to make headway.

Q- Is a change in strategy called for?

A – There are several areas that KPMG’s Retail Survival Guide encourages retailers to address. Revisiting strategy is at the heart of our advice. Some retailers need to ensure their offering remains relevant in this more austere environment. This may involve reconsidering price points, investing in multi channel offerings and understanding sales drivers.

Q- Most retailers have been focused on cost management for a long time now, what can be done if there’s no fat left to trim?

A- It’s easy to forget that cash management can be buried deep within operations. So the cash and working capital situation can be improved by making very tactical changes to stock patterns for example, such as retiring products to free up cash – especially those at similar price points.

Q - Are there other operational tricks your clients are using?

A – Yes, we are working with a number of retailers that are benefitting from the very simple but underused tactic of grouping complementary items together, in order to drive additional sales. This can work from grouping the ingredients for a curry to kit and equipment for a sport.

During a competitive Christmas trading period, when achieving footfall is critical, some retailers are enjoying improvement through introducing specific promotional stock, to create interest without eroding the value of core products.

And others have seen a bottom line boost from altering their layout, putting key products further back and boosting sales of less popular products simply by ensuring customers see them.

Staff training can also be extremely worthwhile – after all the investment in rent, heat, light and products, you don’t want failure to convert footfall into sales to let the numbers down.

Q - What is the outlook for 2012?

A – I think it will be flat at best and only the fittest will thrive.

Clear strategies, robustly executed by management with excellent visibility and control, smart operations and a recognition that financial management is a concern in every area of the business, will be essential to retail success.

This was posted in Bdaily's Members' News section by Ruth Mitchell .