Belly up

BusinessmanEarlier this week, two more retailers became insolvent which takes the total to five over the past week. Sales figures for December and January vary depending on where you look but suffice it to say that sales were flat. It is not unusual for retailers to hang in for the Christmas trading period and then go belly up in January or February.

So why are so many retailers in strife? Well, the answer to this would consume several volumes. But arguably the single most important reason is cash flow or lack thereof. When retailers hit a brick wall and run out of options, one which they consider is to sell the business – not a bad option.  However it takes time. On occasion we are asked to find buyers for retail businesses and the question we ask up front is how long do we have. The answer varies but can be anywhere from 1 week to 6 weeks!

This illustrates how short sighted and naive many retailers are. Of course we don’t even consider these cases. If the time parameters are 6 months or more, we may pursue the matter.

There is another question that is most odd. Why is cash flow so hard? It is something that a junior school student could be taught in about 60 seconds. There are free tutorials and templates on the internet. But this is clearly not the issue. Cash flow problems arise from badly controlled debtors, overly demanding creditors and owners taking too much cash out of the business leaving it high and dry. And then there is the urge to grow and spend money on fit outs, inventory and other items. If the retailer imports goods, this is an added burden. Quite simply, there isn’t enough cash to keep the business liquid.

So the moral of the story is simple. Plan ahead in a responsible manner and if you think you may have a problem, act early and get professional advice. It really isn’t that hard.

Stuart Bennie is a retail consultant at Impact Retailing www.impactretailing.com.au and can be contacted at stuart@impactretailing.com.au or 0414 631 702

Comments

5 comments

  1. TJ posted on February 10, 2017

    Your comment is amazing from someone who is meant to be a retail professional. These are the toughest retail conditions in a decade, decisions have to be made with a crystal ball. I don't see you out in the marketplace fighting the odds, perhaps you should get out there and show us how its done!

  2. Dave posted on February 10, 2017

    Never discounting poor advice from professional advisor and consultant?

  3. E&N posted on February 10, 2017

    Mr Bennie so you seem to think you could do a better job than the Directors of Marcs and Herringbone these are both long standing businesses that have had massive success in their time. I highly doubt you could have done any better. The cause of these failures are the new fast fashion international retailers who obtain good deals from their landlords and it does not take a genius to work out how the landlord goes about to get their money back.

  4. Ben posted on February 22, 2017

    None of what I've read of yours has been helpful to retailers, Stuart. You seem most concerned about telling retailers they're doing a terrible job, and that the industry that they've built their business on is about to die. But where's the helpful advice? All I see is an old man pointing fingers and complaining. Aren't you supposed to be a 'consultant'? Perhaps you could start putting all your energy into writing something a little more constructive...or, at the very least, slightly more helpful than waving a shitty stick at everyone whilst crying afoul.

  5. Mike Leask posted on February 22, 2017

    Cash Flow is like the blood flowing through the body. When it stops, it is likely to be terminal! What causes a cash flow crisis is similar to ignoring poor blood pressure in your body. There are symptoms of poor cash flow and there are remedies based on the root cause of the problem. But if you ignore it, the problem leads to failure. In retail, the symptoms of cash flow issues are more apparent than for other businesses as they generally don't have debtors (ie don't sell on credit). This means that cash flow problems in the business are caused by 1) stock issues (too much stock or wrong stock), 2) margin issues (not generating enough turnover or profit to cover costs), or 3) cost issues (where variable costs like wages, power or marketing are excessive; or fixed costs like rent are excessive). The solutions available are to address the causes directly and to negotiate interim extensions on finance to fund the corrective restructure and maintain adequate working capital. However, too many retailers ignore the foundations of their businesses in the start-up phase, and find that structural problems emerge later in the business when the cash dries up. For instance spending too much on fit-outs which do not permit a satisfactory return on investment and not maintain adequate working capital. Managing the cash flow of the business is the best way to manage the health of the business and like many mature people with poor blood pressure later in life, mature companies can also fall fowl from not adapting to the changing competitive environment which they operate in and mismanaging their cash-flow.

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