Business Issue:

A retail chain in Ireland was losing money and had run into cashflow problems. Their suppliers were no longer prepared to supply goods on credit and all purchases had to be paid for in cash before delivery. The company’s staff retention had also become a major problem.

Background:

The retail firm owned and operated six outlets across Ireland with 40 staff between the trading locations and head office. The group had grown quickly from one store by opening new sites and purchasing existing businesses. This expansion was funded mainly by bank borrowing. Management was remote and did not take an active role in the day-to-day operations of the stores, and seldom visited the locations. The sector in which the company was operating is extremely competitive and has experienced significant reductions in margins in recent years. These factors resulted in the company going into a loss-making position which in turn caused chronic cashflow difficulties.

The company had fallen into arrears with bankers and suppliers. Purchases were only available on a cash-in-advance basis and the company was getting no discount on its purchases, which further reduced margins and put them at a competitive disadvantage. Individual shops were running out of key inventory items causing customers to move their business elsewhere. Turnover was falling. Staff were leaving and it was proving difficult to find reliable replacements.

Challenge:

To restore the businesses to normal levels of profitability and prepare them for sale. Funding was available in the short term for this purpose, subject to change in management. We also needed to re-engage with the company’s suppliers and rebuild their trust. The proposed plan needed to be agreed by the company’s main funders, as time was required for the changes to be implemented and take effect. A major challenge was to then win back trust from the local customers.

Solutions:

I assessed each business to determine if it could be returned to profitability. This review considered current revenues and possible growth along with its cost base. Where it was concluded that profitability could not be restored within a reasonable time frame and that the business would close. The company’s stock inventory was reviewed and allowed for seasonal & slow-moving items to be disposed of in a “fire sale” event to reduce stock inventory and generate cash. An EPOS (Electronic Point of Sale) system was installed to provide better control over the stock inventory and monitor the performance of each stock item.

I examined supplier options, negotiated deals for bulk stock, and restored credit terms. For non–core items, centralised purchasing was eliminated and local management now had significant input into the items being stocked & shelved. The logic was that local management knew what would sell best in their outlet. Stock inventory was managed rigorously through weekly reviews and set actions. Slow-moving items were de-listed and the remaining stock would either be sold off or transferred to another branch where it would more likely sell.

Reviewed staffing levels at each location to ensure appropriate cover and qualifications/experience. We also engaged in frequent unannounced visits to ensure operations were as desired.

Local advertising campaigns were initiated advising customers of the change in management. The stores ran specific events, at least once a month, with special & seasonal offers & discounts.

I compiled daily and weekly turnover reports along with monthly management accounts. Store managers were given a list of KPIs to manage and report on. Incentives were put in place to drive these KPIs.

Turnover was brought back to pre-crisis levels of €6m and each of the stores was returned to profitability. Gross margins were improved from 30% to an average of 42% with industry levels now being generated. The businesses were subsequently sold individually as multiples of between 4 and 5. As a result, the staff members successfully kept their jobs throughout the retail businesses.

Case Study: Patrick Lavelle