Thursday, 16 October 2008

High Street difficulties - observations

It has been a very hectic month which is why there has been a noticeable absence of blogging going on on this site. In going around the country I have noticed something that had not occurred to me previously; perhaps another illustration of the differences between SME retailers and somewhat larger concerns.

Almost everyone who has ventured into their local shopping mall, retail park or high street will have seen well known names in difficulties. It is impossible, of course, to make real comparisons between these large businesses with SMEs but reflecting upon the issues I have begun to wonder how much direct impact the recent financial catastrophes have had upon retailers - since it seems that people happily talk about the credit crunch as if it were answer to and reason for all of the current woes. SME businesses that are successful, and there are plenty of them, appear to have one characteristic in common they are prudent; they develop their businesses by organic growth and avoid indebtedness. By contrast a significant number of major brands rode the recent period of boom with an apparent disregard for the fact that throughout the history of modern economics the cycle has revolved and downturns will occur. Perhaps the boom time rationale of buying oneself out of problems can work in a limited number of cases, but in most situations the result is overstretched resources that will ultimately cause the business to shudder to a halt.

In good times the overstretching is not a problem; in mediochre times the overstretching can be managed; in circumstances where nations appear to be facing bankruptcy with all the attendant problems that that will have on their internal economies, businesses who do not have firm fiscal controls and who are highly geared are extremely vulnerable to any unplanned external pressure or interruption to their trading. In the current financial environment the external pressures are coming from institutional lenders and the insurance market whilst the public perception of a downturn fostered by 'collapsing house prices' and rising unemployment provide a significant interruption to their trading - particularly if their business model is not cost conscious and offering good value for money.

The options that are open to those in difficulties must be constrained by significant pressures from all sides and will be accompanied by some really difficult decisions. The consequences will mean that some businesses will go, some will re-emerge as leaner entities and many of the leading personalities will disappear from view while some will survive to prosper. Successful SME retailers, however, will have traded through; will have refocussed their offer and will have ensured that their costs were controlled and will live on to benefit from the upturn which will eventually follow in the cycle.