The cost-of-living crisis and decreased discretionary consumer spending continue to wreak havoc on established retail businesses, as evidenced by the collapse of several Australian retailers in recent months, including Booktopia, Tigerlily, Nique, Dion Lee and Godfreys.
Despite a 20-year history since its founding in 2004, Booktopia has faced financial turmoil in recent years. Though it announced a positive cash flow of $781,000 in the 2024 March quarter, citing cost-saving and efficiency efforts, group revenue plummeted 22 per cent to $86.3 million year-on-year in the first half of FY24, ending December 31, 2023. Units shipped were also down 21 per cent to 3.1 million. The Group attributed this to issues related to the transition to its new fulfilment centre and increased competition.
In addition, it reported an NPAT loss of $16.7 million, down $12.8 million on the prior corresponding period, and a statutory EBITDA loss of $4.6 million, down $5.9 million.
In response to a similar wave of retail closures taking place in the US, Maksym Prokhorov, a Europe-based retail expert and co-founder of Platma, a natural language code platform, shared five lessons retailers can learn from these business collapses to avoid a similar fate.
1. Adaptability is essential for long-term survival
With the growth of e-commerce, the retail landscape has undergone significant change, and businesses that do not adapt frequently find it difficult to continue. To reach a wider audience, retailers need to build user-friendly websites, incorporate online sales channels, and allocate resources to digital marketing campaigns.
Sales can be increased and customer satisfaction can be improved by implementing multi-channel tactics, which effectively connect online and offline channels.
Retailers can respond to changes in the market more quickly and remain relevant and competitive by staying ahead of technological advances and consumer behaviour patterns.
2. Stability and financial health come first
Comprehensive planning, which involves forecasting, budgeting, and frequent reviews, is necessary to establish and preserve dependable financial stability. Businesses can proactively detect possible risks and undertake needed changes by developing extensive financial strategies.
The importance of diversifying funding sources is pivotal because being too reliant on one can be dangerous. A more solid financial foundation can be achieved by exploring multiple options including venture capital, loan financing, and equity financing.
Building connections with several banks ensures that you will have access to the money you need when the economy is struggling. Building strong cash reserves is also necessary as a safety net against unexpected financial difficulties.
3. Strategic vision and effective leadership
Through difficult circumstances, a clear, consistent strategic vision and effective leadership are crucial. Frequent ownership and leadership changes can result in operational shortcomings and strategy divergence.
Trust and coherence are fostered within an organisation by defining a clear, long-term vision and ensuring all stakeholders are in support of it. Strategic consistency cultivates stability, which is necessary for consumer loyalty as well as employee morale. In times of transition or uncertainty, leadership transparency is also essential to preserving unity and trust.
4. Community involvement and customer loyalty
A major competitive advantage can be gained by establishing and maintaining solid relationships with communities and customers. An established reputation and customer community can result in the retention of a devoted clientele through financial hardship.
Personalised service, loyalty schemes, and community involvement can build customer loyalty and support even in difficult times. Developing a sense of community around the company can help consumers feel important and connected, which promotes customer loyalty and goodwill.
5. Risk management and diversification
Businesses should explore new markets, products and alliances to diversify their sources of income and reduce risk. One way to lessen reliance on a specific market sector is to diversify your business by launching additional product lines or expanding geographically.
Furthermore, a diverse portfolio offers greater stability and resilience by acting as a buffer against downturns peculiar to a given industry. Implementing risk management techniques, including regular risk assessments and backup plans, is also critical.
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