Business Trends

Survival Steps for Retailers in Today’s Economic Environment

In Uncategorized on March 24, 2009 at 5:16 pm

In order to help retail companies manage through the downturn, retail advisory firm Karabus Management, a subsidiary of PricewaterhouseCoopers LLP (PwC) Canada, today announced critical next steps retailers should take in order to meet the demands of this challenging economic environment.  Recommended “next steps” for survival include:

Take costs even lower – Align costs with lower demand by establishing targets for reduction that total at least 10% – 15% of total cost infrastructure expenditure. Use approaches that ensure sustainability of a company’s ability once they emerge from this tough macro economic climate.

There are three approaches retailers should consider:

   

1.

 

Reduce costs with a bottom up view. Cost optimization can not be a reactive one-off initiative. Operational excellence demands a bottom-up analysis of every cost in every area with no exceptions or sacred cows. This is an ideal time to re-assess real estate strategies and store portfolio profitability and then develop a strategy for renegotiating leases.

         
   

2.

 

Eliminate all discretionary spend. In the key areas of marketing/advertising, travel, utilities, store wages and other areas, retailers should conduct a rigorous review of spend that is least tied to short term sales.

         
   

3.

 

Consider firm-wide pay reductions for staff at certain compensation levels. Significant savings can be realized without people losing their jobs. This is a good short term move without losing sustainability of operations.

Reduce inventory strategically and improve gross margin return on inventory investment simultaneously:

   

1.

 

Eliminate fringe businesses and merchandise items – Tough economic times require a definitive merchandising point of view. Retailers need to truly focus on their differentiation in a way that will drive traffic and sales. Further, they should explore and implement creative solutions with vendors to reduce their cost structure. Focusing on the most profitable areas of merchandise is probably more beneficial than wholesale cuts across the board.

         
   

2.

 

Manage Open-to-Buy (OTB) flexibly – Re-engineering the merchandise planning and OTB process to move a greater percentage of purchases closer to or even in season will help retailers manage risk. There are significant opportunities throughout the supply chain, which should afford retailers much greater flexibility in purchasing activities.

         
   

3.

Impose greater markdown disciplines – While capital is tight, this is the time to apply science to markdowns to better manage inventory and margin risk. Markdown optimization technology, supported by changes to processes, provides Merchants with more accurate, timely and granular information about consumer demand. Retailers that are using this technology – and are changing age-old merchandising practices, further defining roles and skills and creating accountabilities – are getting impressive results.

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