Retail industry

Situation

The global market downturn has led to an economic downturn in Russia. Retail and consumer market players, like others, have already experienced great difficulties in trying to finance their capital expenditures and working capital, and refinance local and foreign debts. But the challenges do not end there. Like never before, retailers are balancing multiple, rapidly evolving changes all at once. How they respond to this complex set of factors will determine whether they succeed — or fail.

Problems that market players were facing before have been amplified by the uncertain economic situation. Competition for consumers has been on the rise as a result of increasingly refined consumer preferences, and the drop in consumer spending has only heightened the importance of understanding these preferences. Retailers need to be acutely aware of changes in demand and concentrate on producing goods that are attractive both in terms of quality and price. Private labels are one solution. Multiformat chains may also be shielded somewhat from the effects of shifting consumer tastes.

Regional retail growth rates have also slowed. Simple expansion strategies no longer provide a pervasive competitive advantage. Nevertheless, consolidation, which has developed rapidly over the last few years, will continue to dominate the sector. Mergers and acquisitions will continue despite more complicated market conditions, and smaller and weaker players’ market share will be redistributed.

But every dark cloud has a silver lining, and challenges create opportunities. Companies can benefit from expected reductions in rent and construction costs, as well as a potential rationalisation of salary costs related more to experience and capabilities than lack of supply. Improved business efficiency and revised strategies will ensure growth once the markets recover.

If retailers respond wisely to the issues, they can create advantages from the current volatile environment — but they must act fast. Companies must rationalise product lines and improve operational efficiency to cut costs. The ability to maintain cash flows in these uncertain times will be the deal breaker for many. The landscape of the retail market is set to change dramatically, and not all players will survive. Those that do, however, can expect to emerge from the crisis stronger and better prepared for future growth.

Measures of success

The most pressing issues for retail & consumer companies are:

• Strategy development for this competitive market that will ensure stable growth in the future
• Maximise value of M&A deals, whether buy-side or sell-side
• Enhance efficiency via performance improvement to develop competitive advantages across the value chain
• Minimise expenses using strategic cost reduction
• Tax function effectiveness to manage risk
• Human resource management to retain the talent that will make it all happen