Reasons Retail Brands Go Into Administration….And Strategies For Pulling A Retailer Out Of Administration
British Home Stores (BHS) will finally be laid to rest soon.
While funeral arrangements are being made for BHS, news has just been received of the death of another British retail institution Austin Reed.
According to the Centre for Retail Research, 14 big retail brands have already gone bust or into administration for the first half of 2016, affecting 989 stores and 20,245 employees.
This figures does not include small to medium size retailers that have also gone belly up.
The questions this article aims to answer is:
- Why are so many retail brands going bust?
How can retailers avoid going bust in the future?
The Tragic Story Of BHS
When BHS called in the undertaker pardon my French, administrator, I wrote a series of three articles explaining the reasons I believed BHS was beyond salvation.
In article two of the BHS post-mortem report, I introduced a medical phraseology called ‘Metabolic Syndrome’.
Metabolic syndrome is a cluster of medical conditions: diabetes, high blood pressure or obesity that left untreated can metamorphose into more serious conditions such as heart disease, stroke and other chronic disease.
Yet, no one is ever diagnosed with metabolic syndrome. Think about these questions.
- When have you ever been diagnosed with metabolic syndrome?
- Or do you know any friend or family member who has been diagnosed with metabolic syndrome?
No, never. But metabolic syndrome is the root cause of most chronic diseases.
Metabolic syndrome leads to inflammation which results in the stroke, heart disease, diabetes etc.
However, doctors diagnose patients with stroke, heart disease, diabetes, which are only the symptoms of the actual disease that is metabolic syndrome.
As a result of treating the symptoms, patients conditions eventually degenerates and they die.
The pathologist report reads the person died from heart disease.
But in reality, the person died from metabolic syndrome that came from inflammation that resulted from negative lifestyle.
Angelina Jolie’s Breast And Retail Administration?
Sometime ago, actress Angelina Jolie underwent a medical procedure called mastectomy.
Her two breast where removed in a bid to prevent her getting cancer.
Genealogy test revealed she was highly likely to get cancer because other relatives of hers have had it.
After her procedure, the demand for genetic testing and mastectomy skyrocketed.
The fact that an A-list star underwent the procedure confirms the link between genetics and cancer right?
Well no. While it is true your gene increases your risk factor of contacting certain diseases, your gene is a tiny contributory factor.
Your gene represents only 20% of your risk factor for any disease.
80% of your risk of catching any diseased has to do with your lifestyle and environment:
- Stress level
But the majority of people do not like hearing that because it will mean they will have to take responsibility for their health.
It’s easier to say I have heart disease because my grandfather and father had it than to say the shit I ate gave me heart disease.
This is the reason people have double, triple and quadruple bypass surgery.
The cardiologist treats the disease without demanding the patient institute lifestyle changes that are necessary to sustain the treatment.
We all have cancer and other bad genes in our bodies.
However, everything we do determines the gene we trigger, bad or good gene.
Every time you choose to eat burger instead of broccoli, French fries instead of vegetables, you are choosing to trigger the bad gene.
Eat more burgers and French fries, instead of vegetables, it does not matter if you have double or triple mastectomy, you will end up with cancer.
As long as you return to the same lifestyle you were engaged in before your heart surgery, you will end up doing double, triple and quadruple bypass surgery.
Getting Retail Brands out of Admin
What Does Bypass Surgery and Angelina Mastectomy Have to Do with Pulling a Retail Brand Out Of Administration?
In part three of my BHS article series, I predicted that BHS was eventually going to go bust.
It was a bold prediction at the time, but it turned to be true.
Based upon extensive experience of helping retailers, I have developed the aptitude for knowing viable retail businesses from those that are on the death line.
Once a retailer calls in the undertakers, otherwise known as administrators, the chances of them surviving is very, very low.
Yes, there are retailers that called in the undertakers and eventually got out of administration.
- But how many of them are still surviving?
- Or how many of them went on to become profitable businesses?
The administrators come in, conducts the bypass surgery and remove the retailer patient from immediate danger.
However, the patient leaves hospital and immediately goes to the corner shop and buys a pack of cigarette, walks to the chippy and buys his fish and chips.
- What do you think will happen to that patient in a years’ time?
- What are the chances of that patient fully recovering?
I leave that to your imagination.
Most of the times, undertakes go into retail stores, address their financial problems but fail to deal with the retailers’ metabolic syndrome (the root cause of the problem).
The simple reason for this is administrators are bean counters.
They know figures.
They do not know how to run a business, let alone a retail business.
As a result of the lack of business expertise, they lack the ability to conduct root cause analysis.
What Causes a Retailer to Get Into Trouble?
The two things that cause retailers to get into trouble are:
- Low sales
- Low profit
What causes low sales and low profit?
This is the key question administrators lack the ability to answer.
Remember the example I gave about Angelina Jolie’s breast surgery?
Doctors remove her breasts because she carries a cancerous gene when in reality, we all carry cancerous gene.
They identify the wrong cause therefore, gave her the wrong treatment.
Like in the case of Angelina, retail undertakers identified the wrong problems, which is the reason they were unable to save BHS and Austin Reed.
Many retailer blame difficult trading conditions or circumstances beyond their control for their woes.
Because they fix the blame, they do not fix the problem.
When undertakers are appointed, they too follow the ‘difficult trading conditions’ narrative therefore, do not get to the root of the retailers’ problems.
The key questions struggling retailers or undertakers seeking to resuscitate dying retail businesses need to ask are:
- Why is there low sales?
- Why is there low profit?
Low sales always has to do with:
- Bad store design
- Bad visual merchandising display
Why do they have bad store design and bad visual merchandising display?
They do because they have not answered the three fundamental questions of retail success:
- Who are we trying to attract?
- What are we selling to them?
- How are we going to sell it to them?
Low profit is the result of ineffective loss prevention system that results in missed opportunity, bad customer experience and high shrinkage.
If struggling retailers can only reduce their shrinkage level, even if they do not address other aspects of their business, they could increase their profit margin tenfold.
May I add that shrinkage reduction is within the control of the retailer.
How to Pull a Retailer Out of Administration?
The first step in pulling a retailer out of administration is to acknowledge the fact that the only reason they are in trouble is low sales and low profit.
Every remedial measure has to be focused on increasing sales and profit.
Step two, identify the reason for their low sales and low profitability.
Step three address the metabolic syndrome (the root cause of the problem) instead of the symptoms.
Step four hire a retail consultant along with the undertakers (administrators).
Remember, undertakers are bean counters.
It is only retail consultants that have the expertise to identify the root cause of the retailer’s problems and prescribe the best possible recover method.
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About the author
Romeo Richards is an experienced retail trainer and consultant with knowledge of retail marketing, store performance and retail loss prevention.
He has the ability to choreograph the customer journey, boost store conversion and enhance in-store experience using store design and visual merchandising.
Specialises in increasing retail profit through shrinkage reduction.
He is the author of 23 retail and marketing books including:
• How to Increase Retail Sales
• How to Make Profit In Retail
• Store Design Blueprint
• Visual Merchandising Display
He is the creator of five retail home study courses.
Frequently presents webinars on shoplifting prevention and boosting retail sales.
Featured in Professional Security Magazine, Retail Week & Retail Technology Magazine