Retail is a Tumultuous Industry
In Q4 of 2019, Retail Dive predicted 28 retailers who could go bankrupt in 2020, including legacy retailers like J. Crew, Neiman Marcus, and Rite Aid. Even though the Retail Apocalypse is not as apocalyptic as is usually reported (despite all the store closures, physical retail continues to grow for stores like Best Buy or Target) many retailers are closing down thousands of stores trying to stave off bankruptcy. The last prediction was that 8600 stores would close in 2019—laying off thousands of workers and liquidating billions of dollars in terms of assets. The reasons for a retailer to file bankruptcy are aplenty: extreme excess of stores, taking on too much debt, investing in digital too late and/or with inefficient execution, a failure to pivot store experience to meet new consumer expectations, a lack of attention to profit margins and the list goes on…
While some retailers will go the fate of Payless and Charlotte Russe, some of these bankruptcies will allow retailers to restructure and reenter the game. Brands like Toys R Us and Sears, have been able to rise from the ashes of bankruptcy to start anew, the question is: How? We’re here to tell you that you can go through bankruptcy and come out better for it. Read on for some things to consider when restarting the business.
Most Importantly: Have Relentless EBITDA Focus
Retail is a for-profit business. And you’ll never feel that more than after your company is acquired by a private equity firm. The new owners will be watching the bottom line like a hawk. Yes, you need YOY growth and to win return shoppers consistently, but success is also determined by meeting margin goals and staying financially sustainable in the long term. While sales indicate growth, a healthy bottom line is a sign of a business with longevity.
Zero-In on Your Customer with User Generated Content
For many of the businesses declaring bankruptcy, the problems stem more from having problems with business models and operational efficiency, not lack of brand equity. For beloved brands, there are opportunities to tap into that brand and make it come alive again. Read stories about these brands, and you’ll see many of them concede to losing their way when it came to understanding their customer amid changing times.
Take Toys ‘R’ Us, for example. It may have performed well when competing against other big-box retailers as a haven for children, but when Amazon siphoned off such a significant part of the market, Toys ‘R’ Us suddenly had to compete on price and convenience. This past year, they partnered with b8ta and plan to bring back the stores in a smaller, more immersive and engaging way for children and parents: According to Philip Raub of b3ta: “As the retail landscape changes, so do consumer shopping habits. But what hasn’t changed is that kids want to touch everything and simply play.”
Customer data has never been more available to retailers—From Yelp to Product Reviews, customers are highly motivated to share their experiences online with other shoppers, and with retailers. Having your finger on the pulse on the Voice of the Customer requires vigilant collection and analysis of user-generated content and customer service interaction. Well-defined return reason codes can also be used to this end. When picking a tool for assistance with this, consider tools that can classify, categorize, and interpret using Natural Language Processing (NLP) technology.
Tighten Up Inventory with Returns Data
Misjudged inventory decisions, such as overbuying and buying the wrong products, are a significant expense for retailers: Markdowns cost retailers $300 billion in 2018, a number that will surely grow. Predictive analytics that uses data from sales, but also what customers keep, is critical to making strategic inventory decisions to reduce dead stock and the extreme expenses that come from returns.
Not only should this data be analyzed at a customer level, but the supplier level as well. Understanding supplier performance when it comes to returns leads to better buys and savings from consolidating suppliers. However, according to a recent survey we conducted of retailers with RVCF, less than 50% of respondents review product return metrics with trading partners and only 30% alert trading partners to return issues. An added bonus? Reducing returns can also drive millions to your bottom line.
Bottom-line focus, voice of the customer analysis, and inventory optimization are three critical areas that need to be considered as you restart your retail business. With a positive, strategic plan, retailers and brands can rise from the ashes of bankruptcy and resume the path to growth. Just ask Coldwater Creek.