Strategic Steps Brick and Mortar Retailers Must Follow to Avoid Risks of Bankruptcy
It doesn’t take a financial wizard to know that retailers throughout the United States have been facing significant challenges. We all have heard the news over the past year of popular retail chains that have closed their doors or announced major restructuring plans calling for a shrinkage in the number of store locations.
Competition from E-commerce Retailers – The fastest growth in retail is online. Amazon accounts for two-thirds of that growth. In 2016, online sales accounted for nearly 16% of retail purchases.
Complex Supply Chains – Increasingly, supply chains stretch around the globe.
Rising Labor Costs – The improving economy has resulted in competition for employee and increased wages.
Changing Consumer Spending Habits – Consumers are shifting spending habits from tangible personal products to services like travel, restaurants, and fitness.
Increased Pricing Pressure and Competition – Led by Amazon and Walmart and their economies of scale along with the transparencies offered by online price comparison, retailers are feeling an ever-increasing squeeze on their pricing margins.
“What are the solutions for brick and mortar stores,” you might ask? Taking a proactive stance is the best guard against financial distress. Stores must identify and implement operational improvements geared to improve liquidity and financial performance.
Four areas of attention are warranted:
- Inventory – Maintaining a lean inventory of only products that are selling is critical! Products that are not selling should be resigned to the secondary market using E&O (excess or obsolete) partners. Sophisticated forecasting tools, when combined with a well-thought-out supply chain, further enables retailers to maintain lower inventory levels and reduce working capital requirements.
- A Laser-Focused Analysis of Each Store’s EBITDA – Financially distressed store locations should be considered for closing quickly to stem the bleeding and improve cash flow.
- Analyze promotions and discounts – Instead of implementing broad, ubiquitous discounts among all store locations, analyze the local market to understand the effectiveness of discounts and promotions. Deploy them judiciously to bring much-needed dollars to the bottom line.
- Analyze the Corporate Overhead – Look closely at general and administrative overhead to identify and eliminate non-value added positions. Instead, delegate activities at the store-level where possible.
Brick and mortar retailers will continue to face formidable issues in 2017 and beyond. But following these proactive measures will help them stay out of bankruptcy and remain viable and flourish.
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