As a private equity firm, you likely have struggling businesses in your portfolio, and this may be negatively affecting your stability and your bottom line. 

Are some of these struggling businesses retail businesses? If so, here are a few strategies to use as you step in and restore the retail company to a stable, profitable state. 

How to Save a Failing Retail Business: 8 Steps to Take

You might not be able to save a retail business overnight, but with the right steps, you can help it pivot in the right direction. Let’s review some of the key aspects of a retail business turnaround:

1. Understand the Reasons for the Crisis

There are many reasons why a retail business might fail. A few of the most common issues that can lead a retail company off-track include:

  • Choosing the wrong partners
  • Expanding too soon
  • Setting up shop in the wrong location
  • A lack of personnel management
  • A lack of adequate capital
  • Business owner negligence

Take the time to talk to the business leaders to determine the reasons that the crisis occurred in the first place. Then, you’ll know where to focus your efforts. 

2. Cut Operational Costs and Manage Cash Flow

Financial restructuring requires taking a close look at every dollar that is going in and out of the struggling business to make sure it’s optimized. 

In retail, especially brick-and-mortar, operational costs can often be exorbitant. From payroll and rent to shop supplies and marketing, there are countless costs incurred on a regular basis.

While some will be mandatory, others are more flexible. For instance, you may be able to help the company shop around for better utility rates. Or, you can adjust the operating hours to reduce the number of employees clocking in each day. 

Achieving Operational Efficiencies

Our operational restructuring team can help you enable rapid change to achieve improvements in cash flow, working capital and profitability.

3. Communicate with Creditors and Investors

It might be tempting to solve the issue on your own, but it’s critical to involve the company’s creditors and other investors in the effort. After all, they also have money at stake and could stand to lose if the restructuring process isn’t a success. 

As such, it’s important to communicate clearly and frequently with all stakeholders and make sure they’re aware of your plans. You should also listen to their feedback and incorporate their suggestions, while providing updates as changes occur. 

4. Improve Business Processes

If the retail company has been in business for a long time, employees are likely holding fast to legacy systems and operational best practices. However, these may no longer be in the best interest of the company. In fact, they could be draining it of valuable resources.

We recommend hiring a business process reengineering expert to meet with different functional areas and get a clear picture of how their business processes work. This allows you to identify any inefficiencies and determine ways to improve them.

For inspiration, take a look at Best Buy’s impressive turnaround. Facing economic pressure from Amazon and Walmart, the consumer electronics brand was failing in 2012. When CEO Hubert Joly took over, he went to work implementing major changes, including:

  • Turning stores into showrooms
  • Overhauling the shipping infrastructure
  • Updating the company’s software
  • Redesigning warehouse systems and processes
  • Expanding same-day delivery

It was an enormous effort, but a successful one. Since 2012, Best Buy has slashed its debt load in half, its share prices have jumped nearly 300% and online sales have more than doubled.

Revamping business processes can help even the most desperate company find new life.

5. Automate Repetitive Tasks

Repetitive, manual tasks do more than slow production capacity. They also amplify payroll costs. It’s not surprising that most of the retail companies we’ve worked with have been avid about automation.

While the initial investment might be substantial, implementing technology, such as ERP software, can yield a high ROI and, with guidance from the right software consultant, will pay for itself in the years to come. 

reasons why retail business may fail

6. Set KPIs

How can you measure the success of your financial and operational restructuring efforts if you aren’t measuring them? This is why it’s important to set key performance indicators (KPIs) to track your progress.

A few of the best retail KPIs to track include: 

  • Gross profit and net profit
  • Conversion rates
  • Average transaction value
  • Online sales vs. brick-and-mortar sales
  • Stock turn
  • Customer retention rates

Measure these periodically to ensure your work is paying off and moving the company in the right direction. 

7. Develop a Customer-centric Enterprise Strategy

Sometimes, a retail company can become so focused on delivering the best products that it loses sight of what’s most important: its customers. If this is the case, you need to shift the company’s enterprise strategy to be more customer centric.

When a company fails to keep its core buyers top of mind, its sales numbers dip, satisfaction rates decrease and traffic dwindles.

Consider the case of J.C. Penny. When Ron Johnson, the mastermind behind Apple’s retail business, took over in 2011, he made widespread changes, including ditching coupons and store promotions. The next year, same-store sales fell by 25% and net losses soared to $1.3 billion in 2013. One of the major reasons behind this failure? The changes were rolled out without customer testing.

This example reveals the importance of listening to customers and designing the company’s business model around them.

These days, buyers are spending a significant amount of time and money online, so you may want to build an e-commerce strategy for the company if it doesn’t already have one.

8. Invest in the Team

Retail businesses often fail because of a lack of unity or cohesion in the management suite. This can leave employees confused and unmotivated.

We recommend developing a change management plan to guide managers’ communication with employees. When management’s communication is clear and consistent, this ensures employees understand company goals.

It’s also important to build a change management team to communicate not just goals but the benefit that organizational changes will bring to the company and individual employee jobs.

Restructuring Retail, One Step at a Time

Companies that operate in the retail industry require special attention during a crisis. If you’re wondering how to save a failing retail business, the key is to stay in close contact with stakeholders and discover ways to improve processes, while keeping the customer top of mind. 

Our business turnaround consultants can provide financial and operational restructuring services to struggling retail companies in your portfolio. Request a free consultation below.

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