Modern approach route to success in distressed retail sector

The plight of stricken electrical retailer, Comet, has put a high-profile face on the fortunes of the retail sector as the country drags itself out of recession.

Comet's national presence ensured it hit headlines with its financial misfortune, but smaller retail business are facing similar financial dilemmas every day as they struggle to adapt to the new operating environment. Retail owners have turned to selling up their stores to more financially stable – or savvy – operators, in a bid to secure a future for their company and staff.

PricewaterhouseCoopers’ (PwC) insolvency statistics showed that 426 retail businesses were declared insolvent in the second quarter of 2012. PwC’s Mike Jervis, who specialises in retail business recovery, said that the number of retail businesses becoming insolvent has been a continual problem for the last year.

“Quarter-on-quarter retail insolvencies have increased for every one of the last four quarters,” he said. “Other sectors which were showing this trend, such as construction and hospitality and leisure, have had fewer insolvencies during the second quarter of 2012 than the same period last year.”

It's easy to let all this paint a bleak picture of the sector but smart retailers are still flourishing and there are hidden opportunities to be had in taking on struggling competitors.

Take John Lewis, for example. The department store's buying and brand director has recently revealed that the firm has grand plans for future expansion, signalling a firm belief in the potential for growth. In fact, John Lewis is aiming to be operating 60 stores across the UK by 2018 as part of its strategy to drive growth. If it achieves this target, it will mean that 97 per cent of the country is just a 15 minute drive from one of its stores, giving the company a massive customer base.

Companies are in charge of their individual destinies, as John Lewis' plans demonstrate. But set events can offer exponential boosts to fortunes, providing some potentially lucrative turnaround periods for some companies. Many retailers experienced a surge in profits from the Queen’s Diamond Jubilee Celebrations, with high spirits offering some temporary relief for consumer confidence. And of course the same is being expected over the Christmas period.

While outside events will have an impact on trade, successful retail businesses are those that have a grip on things themselves and know what their customers want. Demand is most definitely still there - people are still shopping - they're just being choosier about where they spend their money.

Lee Manning, the head of insolvency trade body R3, observed that the retail sector is being forced to adapt to advancing technology and modernised shopping habits. Strategic moves - such as moving a retail operation entirely online - could provide enough of a cut in overheads that a struggling business could be turned into a thriving one, with a fresh business mind behind it.

“Much of the retail sector needs to change its methods of meeting customer expectations or face extinction,” Manning warned. “Store portfolios are simply too large at present, so shedding some unprofitable stores is part of this evolution.”

He estimated that some high street retail companies could see branch downsizing over the next three to five years of as much as 30 to 40 per cent.

With this in mind, savvy retail operators could well find that the spate of administrations in the retail sector work in their favour. Approaching a company with a new vision and an awareness of the target customer's needs could transform the fortunes of a distressed retail business.

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