*10 minute read*
The global pandemic has certainly required adjustments in just about every aspect of our lives. Changes for survival are required rather than due to inconvenience. For businesses it’s unprecedented, and it necessitates a different business growth strategy .
The big guys are feeling the pain
Business models have blown up and revenues have dried up. Here’s a partial list of major corporations that have declared bankruptcies this year (as of August 2020), partially due to COVID-19 (year founded in parentheses):
- True Religion (2002)
- Roots USA (1977)
- J. Crew (1947)
- Neiman Marcus (1907)
- JC Penney (1902)
- Lucky Brand (1990)
- G-Star Raw (1989)
- Brooks Brothers (1818)
- Sur La Table (1972)
- MUJI USA (2007)
- RTW RetailWinds/New York & Co. (1918)
- The Paper Store (1964)
- Ascena (1962)
- Lord and Taylor (1826)
- Tailored Brands (1973)
The history of these failed retail businesses are varied, but some date back to the Monroe administration. And yet we are not even ¾ of the way through the year. Other brick-and-mortar retailers like Pier 1 and Modell’s Sporting Goods, and catalog retailer Bluestem Brands were teetering just before the pandemic and weren’t able to continue.
Past business growth strategies don’t necessarily work right now
The older companies on the list survived in other eras, under hard conditions (think Civil War, 1918 flu pandemic, the Great Depression, two World Wars, the dot-com blow-up, the Great Recession). What was it that allowed them to last this long? Why did they fail now? Much had to do with delays in changing their business growth strategy.
For Brooks Brothers, military clothing contracts kept them going in lean times. It took recent on-line competition and “casual” trends to teeter the 202-year-old company. The coronavirus pushed it over the edge. One hundred ninety-four-year old Lord & Taylor survived early economic realities by securing loans, selling assets, moving from a wholesale business and innovating suburban retail expansion. High debt from its parent company, Le Tote, and sagging sales put L&T in a bad spot and COVID-19 pushed them into bankruptcy. JC Penney failed to address the in-store experience and changing demographics before the pandemic hit.
Even newer companies get the blues
Newer retailers weren’t immune from their collapse either. Lucky Brand Dungarees (a personal favorite) ran into some of the same problems of other brick-and-mortar retailers. They were cash-starved, which limited their ability to get inventory. At the same time their stores were temporarily shut down, hampering their ability to raise revenue through in-store sales. And after being bought and sold numerous times, Lucky Brand’s winning streak seems to have run out.
One could argue that some of these companies ran too “lean” to compensate for market changes. It may have been too much for just-in-time inventory methods, software that allows for microscopic analytics and adjustments to their businesses to compensate for the huge market fluctuation. And really, who would have expected something as far-reaching and disruptive as the current market conditions?
The new business reality
Some of these companies will be changed into a leaner version of their former selves. Others will be relegated to the retail graveyard, and to Harvard Business Case studies at grad school. Or course, those retailers that DO come back won’t be the same company. They will likely employ a different business model to address changing trends and adjustments of a “new normal”. It will likely be heavily-focused on an on-line presence using, in some instances, a hybrid brick-and-mortar strategy. This may elicit spur-of-the-moment sales but more likely to encourage purchase via the website.
Until there is a coronavirus vaccine, the brick-and-mortar-only model is out of the question. And there likely will be further bankruptcies for those companies that are over-extended. Even with a vaccine, it is probably safe to say that we are experiencing fundamental business environment changes.
A new day, a new business growth strategy
Accordingly, here are 5 ways that your business can survive and thrive in these harsh business conditions:
Move to on-line sales as a higher percentage of your business.
No surprise, for retailers, less foot traffic and respective revenue in stores and restaurants means they have to make up for it elsewhere. As of July, 2020, there are 7.8 billion people on the planet (U.N. Dept of Economic and Social Affairs) and 4.83 billion internet users (Nielsen, ITU, GfK, et., al.). The 10-year (2010-2020) growth was 1,239%. North America grew by 208% and now boasts a global-leading 90.3% market penetration, just ahead of Europe (87.2%).
This means, for North America and Europe, the road is paved for on-line business opportunities. Meanwhile, market penetration for the two most populous regions (Africa and Asia) is less than 60%, much having to do with infrastructure and economic conditions. As these conditions improve, so will internet transaction opportunities. Companies should adapt their business growth strategies to ready themselves for this change.
For product sales, the changing dynamics means marketing and fulfillment in a new way. The default mode is to look at companies like Amazon, Ali Baba and the like as a means to inventory and ship your product. But there are fees and control issues and there are other options. The latter may require more operational planning and resources. And bear in mind that just about anything sold on-line will be cheaper (or will command a cheaper price) than bought in-store. So be prepared to make adjustments.
Delivery and pick-up services for local restaurants must be in the mix, and having an on-line presence has to be part of that business growth strategy. That means learning about how people will be able to find you on-line.
Be realistic as to expectations for profitability.
The short-term business climate and required changes are going to impact the bottom line – either top-line revenue or gross profits are going to be impacted. And as mentioned above, on-line sales means a wider audience, but more than likely less revenue on a per-unit or per-service offering. Also, the difference between getting a bridge loan from the bank, funds from investors or closing up shop may mean setting the correct expectations. So having an action plan for change in place will be helpful for you to know what is required. It also gives the various stakeholders peace of mind.
Embrace technology as a “first consideration” rather than an afterthought.
In 2020, companies that do not have the tools to monitor and assess their business are essentially flying blind. Where are your customers coming from? How are they finding out about your business? What activities are the best ROI on your marketing dollar? How do you shorten the selling cycle to increase quarterly sales? What factors are impeding the purchase of your product or service? How do you communicate and collaborate within your company or business?
Without this granularity, making changes are more of a coarse adjustment rather than fine tuning – and that costs money. Why not take that monetary cost and invest into tools that can maximize the capabilities of your business and reduce risk? It is critical now, more than anytime in history, that small and medium sized businesses invest in technology. Similarly, enterprise-level companies, staying nimble in technology investments can create a strategic competitive advantage.
Consider right-sizing the employee base.
As ugly as this sounds, moving to a “hybrid” model for workers (employees and consultants/contractors mix) can reduce fixed costs and enable flexibility in down times. But bringing in consultants and contractors does create other issues. Technically, the time and scope of work has to be clearly defined and may create costs elsewhere if they are on a retainer, for example, or the work demand changes. In some instances, the contractor cannot do the same work as a “core business” employee without receiving employee benefits. That being said, is important to define work expectations clearly and unambiguously, or you may end up changing your worker model to a more expensive one!
Reconfigure retail space to reflect the new realities and do research.
For places such as restaurants, limitations in seating for social distancing means, by nature, a drop in potential per-day revenue. You simply can’t get as many people ordering food in-house, all else being equal. So the response may mean expanding, raising prices or offering delivery or curb-side options to increase volume.
The important item to consider, of course, is the price elasticity for their particular audience. While a mid-scale restaurant may be able to get away with an increase in price, that may not be the case for price-sensitive customers. The right strategy could be found through first-hand research such as surveys or testing temporary prices to see changes in demand. It is paramount to drive down fixed costs and develop a better hybrid on-line model. This might be the answer to offset restaurant seating rearrangements.
For product-based retailers, providing access to basic items requires inventory and availability. But low-volume purchases can still be “present” through kiosks where customers can order for delivery. Since the customer is there and wanting to purchase, one cannot afford to lose the sale, so the buying process should be made easy. For example, companies like Celerant, Microsoft, KioskPro and Shopify are just a few that offer software to use as kiosks for in-store purchases.
The time is now to take action
Clearly, there are many different ways to survive the pandemic whirlwind, and there are many different businesses with their specific problems. So this is a good time to reassess the way you do business, and there is no time like the present to make changes that can persist after we get past this incredible time in which we live.