Managing cash flow remains a huge challenge for many retailers and focusing on the refinement of product lines and integrated stock management systems is essential if profitability and stability are to be achieved. In order to successfully implement these changes, businesses must take a systematic and analytical approach which could involve considerable time investment. However, taking action now could pay dividends; unlocking the funds and potential required to grow.
Managing cash flow
As industry commentators predict a tightening of lending criteria post-Brexit vote, reduced access to finance is likely to exacerbate cash flow difficulties. Preservation of working capital has traditionally proved difficult, with many larger retailers subjecting their suppliers to extended payment terms, while chasing late payment from debtors often proves costly and time consuming.
To ensure effective cash flow management, retailers must create clear financial forecasts which allow them to make informed decisions regarding spending and investment activity. This should involve the identification of any events or time periods when cash flow may be stretched, for example, the festive season and the time immediately following the business’ quarterly VAT payments. This foresight allows businesses to react accordingly, so that they can delay non-essential expenditure and if required, seek additional finance early.
In the protection of cash flow, some retailers are now learning lessons from e-commerce specialists by seeking consignment stock arrangements. Whereas traditionally, all stock was purchased in bulk at the beginning of each season, this arrangement means that goods are only bought from suppliers once they are sold, freeing up funds and increasing liquidity.
Refining product offering
Too many smaller retailers have fallen into the trap of trying to sell everything to everyone – in essence adopting the “Amazon model” of commerce; stocking a variety of product lines in an attempt to optimise sales. However, this strategy carries significant risks and smaller, independent retailers are often undercut on price by lean online specialists.
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To compete, retailers must find a differentiator and refine their product offering. The utilisation of data analytics is essential in discovering which lines are the most popular and which deliver the most value to the firm’s bottom line. Carving the right niche for the business and focusing on quality can be achieved by honing in on a specific selection of products that are available at different price points. This approach, when accompanied by a tailored marketing strategy is instrumental in driving genuine customer loyalty.
Investing in stock management systems
The ability to accurately forecast demand is essential for retailers looking to navigate today’s fast-moving marketplace. Holding too little stock is likely to drive customers elsewhere, while purchasing too much can lead to firms being left with outdated and effectively worthless products that drain cash flow and are difficult to shift.
Retailers should aim to improve stock visibility by investing in an electronic point of sale (EPOS) or an integrated tilling system. These systems facilitate the effective reordering of products, reducing the requirement for stockpiled inventory, while also informing better strategic decision making. Information on the speed at which different product lines are selling allows for popular products to be reordered in-season to maximise sales opportunities.
The UK retail industry is undergoing a period of protracted change, and smaller firms must evolve in order to stabilise and strengthen their market position. By improving their access to real-time data and financial forecasts, businesses can enhance their ability to make informed strategic decisions, while refining product lines should remain a focus in maximising margins and driving customer loyalty.
Roberto Lobue is head of retail at accountancy firm Menzies.
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