Surviving These Recessionary Times

 

It seems like every day we wake up to the news of another retail store closure. A Nigerian store closure. The “Nigerian” qualifier is quite important. Nigerians do not close down their business, neither do they sell their business. To them that is like giving away a child, especially since most want to give the business to a child of theirs.

Anyway, like was predicted by our CEO in his article a few months ago, retailers are facing hard times and the multi location retailers are shutting down locations in a desperate bid to save their business.

A major fast food chain just shut all its non mall outlets in Lagos while a well-known furniture retailing chain is closing down all it’s mall outlets. No retailer appears to be opening new outlets, so good luck to landlords opening new malls. Landlords are starting to realise that “Shoprite alone does not a Mall make”

So as a Nigerian multi store retailer how do you survive this period? How do you navigate the minefield of exploding rental rates, increasing cost of purchasing goods, leading to sky rocketing prices leading to lower purchases by resistant customers culminating in lower margins, higher expenses and much lower or negative profits.

What to do?

Number 1 item on the to do list is ….review the salaries of your staff.

Do not misread, We are not asking you to cut salaries, We are saying …review your  staff salaries.

To survive the next few quarters you need to come up with strategies that have to be ruthlessly executed, you really do not want to leave the task of execution in the hands of staff who are thinking of how to pay for the day’s lunch or pay the new BRT transport rates.

You need focused staff and nothing distracts an employee more than inability to settle basic bills. You need to be sure and ensure that the take home pay actually takes your staff home and back the next day.

Number 2 – Review downwards your HQ costs

A lot of Nigerian retailers in the growth years up to 2015 have created quite impressive Head offices. Some did this to have a perfect base for planned expansion, others as an ode to the owners ego, whichever the excuse, its time to review and drastically reduce these costs.

Review every staff role to ensure every HQ staff is necessary, look at every item of expenditure and eliminate the “eliminatables” or look for cheaper alternatives. Keep your HQ lean and mean

Number 3 – Analyse your supply chain cost wise

Truth is, there is usually some way to trim the fat when it comes to the supply chain, without hurting the product. This is even more true for Nigerian retailers who in our opinion grew fat and comfy during the go go years of 2011 to 2015.

If you have foreign suppliers you should definitely lean on them for better pricing, tell the sob story of the Nigerian crashing economy. If you are importing from Asia you should definitely have asked for cheaper pricing last year. The internationally stronger dollar means your Chinese supplier gets more yuan for each dollar you pay. He should be open to reducing your dollar costs.

These are just one of many ways to squeeze more margins from the supply chain. The supply chain for each business may be unique, so this step requires actions that will be very specific to each business.

Number 4 – Review critically your selling price points

If you sell imported goods, your cost of sales would have increased by over 100% compared to 2015 levels. To retain the same level of margins you would expect your selling price to increase by over 100% too.

Please hold on. If you take this approach you may soon be out of business. We doubt if your consumers can afford to absorb this increase, especially since general wage rates are still basically sticky. If you are able to successfully execute Number 3 above you should end up with lower cost of goods. We recommend that you also consider the possibility of reducing your margin rates. We have come up with the rule of one-third for these 2016/2017 period. The increase in cost of goods should be shared and absorbed amongst three units, one-third going to each unit

  • One third of the “increase” should be eliminated by adopting strategies Number 2 and 3 above
  • One third should be eliminated by reducing your margins
  • Pass on the remaining one-third to the customer

This is possibly the most difficult decision to make, but if you don’t adopt this formula or a variant, you run the risk of losing a significant chunk of your customer base, and it may be difficult to get them back when the good times come back, especially if a competitor successfully executes same.

Number 5 – Sweat your inventory

A client came to us with an interesting quandary, he had executed well as stated above but still found himself unable to pay rent and pay off loans even though he made a healthy profit during the period under review.

Turns out he started the year with =N=180M in inventory (cost wise) and ended the year with =N=250M, an increase of 70M. Profit for the year was =N=60M. So all the profit for the year (plus an extra 10M from lenders) was tied up in inventory. Now don’t get us wrong, this is not by itself a bad thing, there is a million and one reasons why this could have opened, number 1 being that costs have increased. But you need to be strategically aware of this possibility and plan for it.

Nigerian retailers should be actively looking for ways to increase their inventory turn. If you usually need =N=200M worth of inventory to make annual sales of =N=500M, can you reduce this to =N=150M?or increase sales from the =N=200M inventory investment to =N=600M?

To do this you need precision data. Do you know on a daily/weekly basis the valuation of inventory in each of your locations? Do you know what value ought to be in each location? Are you in a position to increase or decrease such value immediately they get out of line?

In a recession cash is king and inventory can be the number one killer of cash. Too much money invested in inventory means less cash available to pay rent and salaries, too little means lost sales leading to less cash available to pay rent and salaries.

You have to get it right, not just company wide but also on a store by store basis.

Number 6 – Sweat your customer database

And if you do not yet have a customer database …skip this section and I hope you can skip 2017.

We kid, but seriously you need to have a vibrant customer database powered by a CRM solution, if you do not know how to go about this get in touch with XlevelRetail (shameless plug).

You can and should sweat incremental sales from your customer database, especially when you know what they have bought in the past which gives you an incline into what they would want to buy in future. When you combine this with the fact that you know what you have in stock, you have a powerful tool to push the right products to the right customer at the right time.

In 2017, your existing customer base will be one of the pillars on which survival will be built.

Number 7 – Talk to your landlord

This is especially true if you are situated in one of those malls whose rents are dollarised and with utility bills alone running to millions of Naira annually.

We will recommend that you be as open with your landlord as possible, show him your books, let him know why you need rental concessions to survive, even consider turnover based rentals. Most retailers have total cost of occupancy above 25% of sales, a 20% reduction in rent for such retailers is an automatic 5% increase in net margins, that may mean the difference between survival and death.

Conclusion

This has been a pretty long blog, now that we are  done the team realises we probably need to do a comprehensive write-up on each of the six solutions above. This will probably lead to six articles over the next few weeks.

…edit by CEO..It took you lazy bums four weeks to write this one article, and you are committing to writing 6 articles? smh…

Leave a Reply