Talk of restructuring Poundworld is a good example of the growing gap between the past and the future in retail. The word restructure has always applied to the cost line and the need to make it smaller. This has usually involved exiting leases but sometimes cutting overheads too. For many years, the trading background was characterised by market growth within an economy with some inflation. A lower cost line reset the business and as if by magic, a profitable company emerged. That formula needs to be redefined to work now.
Today\s market is not growing and there is little prospect of that changing for some time. Moreover, massive (and growing) oversupply makes raising prices very difficult. There is very little genuine inflation in UK retail, especially when compared with a depreciated pound. So no help from the wider economy.
By far the major weakness in most retailers today is weak sales. Chronic oversupply is a massive double whammy. Aside from its direct impact, generations of easy retail growth through physical expansion has made most leadership teams focus on costs. The “build it and they will come” of physical immaturity took care of the sales line. Now that this benign market has gone, so many retailers have been found to have sub-prime propositions.
Restructuring the cost line alone will last for X time – months, maybe a year or two. Restructuring must include the sales line. Indeed, it must start with the sales line and go on to define the optimum costs required to deliver and sustain that revenue. An arbitrary restructure of costs is like random surgery.
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