Recessions have no respect for longevity or brand name. Only organisations with flexible and resilient business models survive intact.
This week in the UK, a very long-lived retailer (almost 100 years), with an instantly recognisable brand name (Woolworths), went into administration. The company has struggled for several years and has not been able to combine its massive high street presence with a profitable business model. The demise of this giant will result in the death of many of its rivals due to the timing of the failure. Woolworths is very much a Christmas shop and the administrators will cut prices drastically to attempt to salvage something for the creditors.
Businesses trying to make a profit against this scale of “closing down sale” will be swamped. A secondary but no less important aspect of Woolworth’s failure is the damage that will be done by the fall of their wholesale company (Entertainment UK). This company acts as a key distributor to other retailers, big and small, throughout the UK. They will now struggle to get hold of the books, CDs and DVDs they need for the Christmas trade. Organisations at either end of the supply chain will suffer from the loss of a key intermediary.
What are the lessons of this story for IPAs?
Aftercare and retention of investors will be the key tasks in the next year. Agencies need to examine their portfolio of investors and classify them in respect to how engaged they are with their location and how robust their business models are in the current situation.
A “systems thinking” approach is useful in both these tasks. Consider the knock on effects of potential changes carefully and don’t limit your thinking to single sectors. Treat the economy as a living system.
- How involved is the organisation, under review, in the location’s economy?
- Do they rely on local suppliers or do they supply local companies?
- What would be the effect to the location’s economy if they leave?
- Would it lead to opportunities for rivals or encourage other companies to do likewise?
- Would the local supply chain be fatally flawed?
- How much impact would their departure have on the location’s merits as a business location?
Agencies will be approached by investors looking for assistance in the upcoming period. The threat of disinvestment will be ever-present. Agencies need to do their research now in order to be ready to make the correct decisions on whom to help. Resources will be limited and there will be more companies looking for assistance than cash available to help them.
