As they wrestle with the current economic turbulence, retailers in the U.S. and Europe can be certain of one thing: Now is a bad time to wait and see what type of slowdown lies ahead, new research from Bain & Co. has found. The consulting firm came up with that conclusion by studying what happened to 100 retailers in the aftermath of the 2007-08 financial crisis, illustrating how some companies manage to gain a competitive advantage by taking decisive action during downturns.
“The retailers that came out ahead after the Great Recession had one thing in common: they spent where it mattered most and cut where it mattered least,” said Marc-André Kamel, global head of Bain’s Retail Practice. “Winners will act now to free up the funding required for continued investment in their points of differentiation and the drivers of long-term growth. The next 18 months could very well determine which retailers succeed over the rest of this decade.”
While the right response to today’s heightened recession risk will vary by individual company, Bain’s research points to six broad actions that can enable retailers to both weather the storm and emerge stronger on the other side.
- Double down on differentiation. Winners will pinpoint the differentiating factors in their businesses that improve customer lifetime value, loyalty, and share of wallet, focusing investment and ad spending in those areas.
- Merchandise for the current environment. With consumers under pressure, retailers should simplify assortment, emphasize value-for-money pricing tiers, and extend private brands across both lower-end and premium products.
- Create flexibility through targeted tightening of spending and cash management. Now is a great time for a back-to-basics reset of goods-not-for-resale spending and a full return to lean cost structures for selling, general, and administrative expenses.
- Prioritize long-term resilience. Even after all the short-term actions taken in the wake of Covid-19, there’s still more to be done by retailers to deepen their resilience.
- Don’t lose sight of the drivers of future growth. Retailers should look to the future and be ready for attractive M&A opportunities to emerge.
- Build 360-degree stakeholder confidence. Purposeful leadership and timely, empathetic communication can keep customers and employees onside in a downturn.
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