What do all these big and well-known brands have in common?; Marcs, Pumpkin Patch, Payless Shoes, Roger David, Toys’R’Us, Gap, Avon, Esprit, Metalicus, Max Brenner, Laura Ashley, Diana Ferrari, Maggie T. Crabtree and Evelyn, and Ed harry.
They went into liquidation in Australia in the last year.
Haley Peterson from Business inside Australia states that more than 3800 stores will close in 2019, a record high for the industry.
It looks quite obvious that the retail industry in Australia is dire at the moment and there is no shortage of experts giving their reasoning as to why.
KPMG, Ed Harry’s Administrator, recently stated:
Like many other Australian retailers, after a strong period of growth, it has faced a challenging environment over the past 12 months — and a particularly tough Christmas sales period,”KPMG’s Brendan Richards
Others state that it is a combination of poor multi-channel execution, having a weak web strategy in the face of the increase in online shopping or not investing enough in the brick and mortar stores.
If these big brand businesses are struggling to make it in today’s retail environment, what does this mean for the up and coming entrepreneur? Are they too doomed to find themselves in the throes of liquidation?
I am a big believer that with challenge comes opportunity and I will explain this with a quick analogy:
You are sitting on the shore and watching two boats battle and race. One is a very big boat and the other is a small boat. The current and winds are the constantly changing retail environment.
The big brand is like a big boat. Its advantage is its size. It’s capital. It can open stores aggressively, can negotiate lower costs and better trading terms with its suppliers. It can afford to make losses on some stores while other stores can cover this cost. If the wind and tides (The retail environment) are moving in the right direction, it gains massive momentum. Once it has momentum, it can move at great speeds. From someone sitting on the coast looking at this ship, its advantage is that obviously, it can be quite intimidating.
On the other hand, we have the smaller businesses. The entrepreneurs. This boat is significantly smaller.
The smaller boat doesn’t have the capital or size of the bigger boat, and as a result is slower than the big boat in a head to head race. Sitting on the shore and looking at both boats go head to head, you would think that the bigger boat would crush the smaller. The smaller boat, when the tides and current are going in the right direction will still be part of the race but won’t gain the momentum of the bigger boat. However, there is one advantage of the smaller boat that the bigger boat does not have.
The smaller boat can change directions very fast and easily adapt to the sea while with the bigger boat, it has to pull many levers and is very slow to make changes to the way the current, or the retail environment, is heading.
The tide and winds have now changed in the opposite direction. What was once a tailwind is now a headwind and both boats have to turn around to catch it.
The inability to move quickly when the tide changes might simply be the reason for the 3800 stores that have closed in the past year. The wind has changed from a tailwind to a headwind (retail like the economy is a cyclical industry) and now the boats have to turn around and race in the other direction. How easy is it for the smaller boat to turn around and gain the tailwind again compared to the big boat? When turning around, will the big boat’s size work against it and it will tip over mid-turn?
Let me give you a hypothetical example.
You have your big brand store selling particular pens. They have a long-term lease and many stores throughout the country, having a big trusted brand. You open up a store on a lease that is relatively small giving you the chance to leave after only 1 or 2 years, giving you the ability to adapt and go to where the market would move to if need be, whether geographically or online. In buying smaller, you have the ability to look for stock that the big brands can’t get because of the volume they need. It might be clearance stock from a wholesaler for example that you can get at an even better discount. You open up selling the pens cheaper than the big brand whilst still having the margin in the product. You can now profitably give more value to the customer through a lower price.
The big brand now has two choices. Because of its size and laws about pricing the same in all areas, it has to drop the prices on the pens in all of its stores and affect profit on a much larger scale to protect that one store, or simply do nothing and allow you to take market share from that single store while protecting the profit in its other stores.
If they do nothing, you are now the price leader in that area and have managed to steal market share from the big brand. As more customers come to you, can now use other strategies to build loyalty to your business and gain more momentum for your store.
Even though there is a dire outlook for retail in the country, to any entrepreneurs wanting to start up in retail, don’t let these facts stop you. Rather, your biggest question should be:
“What is my opportunity and how can I use my size advantage to exploit it?”