The Bigger They Are The Harder They Fall

13/01/2009 by info.

It is a tough environment for retailers however perhaps there are now opportunities for the smaller retailer to take back market share. Here is the reason:

Why have larger chains of retailers such as Adams the children’s clothes failed?

Firstly a number of these chains that have gone into administration, had recently being bought by the current owners and already had large debts, which they could not cover. They were also trading from prime positions in town centres where the rents and rates are huge.

The main reason however is that a small percentage drop in turnover means a large difference in their profitability in pounds.

Using Adams as an example their turnover was approximately £150 million. So a 5% drop in turnover means a £7.5 million fall in turnover, perhaps £4 million drop in profits.

Compare this with your independent corner shop childrenswear retailer, where rents are lower, perhaps they do not have debts and were a 5% drop in turnover from £200,000 may mean a £5,000 fall in profitability.

The owner of the independent store can quite easily adjust their personal or business expenditure to meet this falling short-term profits but the larger chain cannot.

Lets now assume that the administrator closes the local Adams shop to this independent retailer; perhaps there is £1 million worth of customers looking for an outlet. This independent retailer may easily pick up more than £10,000 of this business.

So the good independent retailer might actually welcome this retailing downturn because the longer the recession continues the possibility is that they might be able to pick up business from these fallen retail giants and actually become MORE profitable.

So if a business closes down don’t necessarily look at it with doom and gloom, look at it as a good thing for your business.

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